MAIN HEADING: Auto Insurance Anti-Fraud Task Force - Jurisdictional scan of prevention, detection, investigation and enforcement strategies to combat autoinsurance fraud

The following is the Executive Summary of Deloitte’s “Jurisdictional scan of prevention, detection, investigation and enforcement strategies to combat auto insurance fraud.”

2 Executive summary

2.1 Background

  1. The Task Force was appointed by the Ministry in July 2011, with two key objectives:
    1. Determine the nature and scope of auto insurance fraud in Ontario
    2. Make recommendations on three focus areas:
      1. Prevention, detection, investigation and enforcement
      2. Regulatory practices in the auto insurance system
      3. Consumer engagement and education
  2. For the Task Force to meet all of its objectives, including making recommendations regarding prevention, detection, investigation and enforcement, the Ministry, in consultation with the Task Force, has developed a research agenda. The research agenda includes the need to identify effective prevention, detection, investigation and enforcement strategies in other jurisdictions.
  3. This report presents the research results of a jurisdictional scan of prevention, detection, investigation and enforcement strategies to combat auto insurance fraud. The research results of jurisdictional scans that pertain to the second and third focus areas are presented in separate reports.

2.2 Scope of Review

  1. The Task Force, in conjunction with the PDIE Working Group and the Ministry, defined the scope of the research (see Section 3 – "Scope of the research" for details). This entailed determining the jurisdictions to research as well as the questions to be answered.

2.2.1 Jurisdictions approved by the Task Force

  1. This report summarizes the results of a search of publicly available information on specific features of prevention, detection, investigation and enforcement strategies to combat auto insurance fraud across six jurisdictions: Alberta, British Columbia, Florida, Massachusetts, New York and the United Kingdom. These jurisdictions were selected for their potential to generate insights that may be applicable to Ontario based on the expected relevance, comparability and availability of information.

2.2.2 Five questions asked by the Task Force

  1. Mandatory reporting
    1. How effective is the use of mandatory reporting of suspicions for auto insurance fraud and how is this best accomplished to translate to successful detection of auto insurance fraud?
  2. Civil immunity
    1. What civil immunity legislation is effective in producing the intended reporting of suspicious transactions?
    2. What protects insurers and others who report suspicions of auto insurance fraud against civil actions?
  3. Information sharing/alternate models
    1. What are the features of effective models for information sharing amongst auto insurance system participants to enable fraud prevention, detection and enforcement?
    2. Where do the practical challenges lie with design and implementation of such models?
  4. Legislative provisions and challenges
    1. How are legislative provisions addressed to effectively enable regulator and auto insurance system participants to combat auto insurance fraud, versus those that pose threats by permitting auto insurance fraud to go unchecked or otherwise provide barriers to effective enforcement?
  5. Other successful approaches
    1. What are successful approaches to auto insurance fraud prevention, detection investigation and enforcement, including dedicated investigations by other Canadian and international organizations e.g., police organizations, regulatory bodies, insurers?

2.3 Effectiveness of strategies and approaches

  1. On conducting the jurisdictional scan of prevention, detection, investigation and enforcement strategies to combat auto insurance fraud, various strategies and approaches were found. However, there is limited or minimal information and statistics that would allow a reader to correlate how a specific approach or strategy actual impacts the cost of auto insurance fraud and abuse. As such, further research would be needed to complete this analysis.
  2. Professional judgment has been exercised to identify the online sources to search. Electronic key word searches were based on the five questions in scope and the availability of public data and information authored by third parties.

2.4 Key findings – Alberta

  1. In Alberta, reporting of suspicious activity is not mandated by provincial statute. As Alberta does not require mandatory reporting, civil immunity provisions are therefore not applicable. There are, however, provisions regarding voluntary reporting. In particular, privacy legislation provides provision that an organization may disclose personal information without consent if the disclosure of the information is for the purposes of protecting against or for the prevention, detection or suppression of fraud and the disclosure is to certain specified organizations, which include the IBC.
  2. There are two data privacy acts that govern how information is shared:
    1. The Personal Information Protection and Electronic Documents Act (PIPEDA), which provides national legislation; and
    2. The Personal Information Protection Act in Alberta (PIPA), which provides provincial legislation.
  3. Alberta's legislative provisions focus on cost control measures, including:
    1. A Minor injury cap to control medical costs;
    2. Diagnostic and treatment protocols for personal injury;
    3. Regulations related to complaint or dispute resolution; and
    4. Premiums rate reviews through an Alberta Automobile Insurance Rate Board.
  4. A number of other successful approaches are employed, including
    1. Fraud prevention month, whereby organizations participate to raise awareness and prevent fraud;
    2. Seniors fraud prevention program, whereby seniors are provided information and trained on fraud awareness and prevention;
    3. Linkage of auto insurance, vehicle registration and license plates, thus aiming to prevent drivers from cancelling their insurance after they had obtained their license plates; and
    4. Linkage of auto insurance and driver's licenses, thus giving insurers and law enforcement real-time information on whether the driver has a valid driver's license and auto insurance.

2.5 Key findings – British Columbia

  1. The Insurance Corporation of British Columbia (ICBC) is the provincial insurance regulator and a monopoly provider of mandatory auto insurance coverage. Accordingly, all reporting would be in-house. Consequently, British Columbia's insurance structure eliminates the requirement for mandatory reporting.
  2. The ICBC's in-house information and investigation functions eliminate the need for reporting of suspicions of claims, and the need for related civil immunity provisions such as those required in other jurisdictions to protect insurers subject to mandatory reporting.
  3. Furthermore, the ICBC has an extensive database for previous fraudulent activities, vehicle histories and licenses and auto thefts. There are three data privacy acts that govern how information is shared:
    1. The PIPEDA, which provides national legislation;
    2. The Freedom of Information and Protection of Privacy Act (FIPPA) which provides provincial legislation; and
    3. The Business Practices and Consumer Protection Act (BPCPA) allows disclosure of credit information when underwriting insurance
  4. British Columbia has legislative provisions, including the use of punitive damages against fraudulent claims and breach of good faith.
  5. Other successful approaches employed by British Columbia include:
    1. Investing in loss management programs;
    2. Providing ICBC investigators with quasi-law enforcement powers and having a direct line to crown prosecutors to lay charges;
    3. Establishing a three-step civil recovery protocol to minimize the chance of bad faith claims or acting unreasonably in a civil recovery action; and
    4. Instituting an auto-theft prevention program.

2.6 Key Findings – Florida

  1. Reporting suspicious customers or claim activity is mandatory for all insurers.
  2. Additional practices undertaken by Florida include:
    1. Mandating more detailed police reports of auto accidents; and
    2. Enacting public incentives to voluntarily report fraud.
  3. Florida does not recognize any common law "bad faith" cause of action against a first-party insurer. However, this provision is greatly debated as some experts claim that the bad faith system creates incentives for insured's/injured third-parties to unfairly allege 'bad faith' claims against the insurer for financial gain.
  4. Florida requires that automobile accident reports that reveal personal identifiable information of involved parties are to remain confidential and exempt from public disclosure for 60 days after the date the report is filed. This waiting period attempts to prevent fraudsters from identifying and being able to solicit potential victims until a period that related claims are likely to have been filed.
  5. Legislative provisions include:
    1. The use of punitive damages for fraudulent behavior; and
    2. The use of sovereign immunity to reduce bad faith.
  6. Other successful approaches include:
    1. Launching municipal-level initiatives to raise awareness and work with local officials on ideas to fight fraud;
    2. Collaborating amongst associations to support a Senate bill that would impose a USD$5000 fine and jail time in fraud cases.

2.7 Key findings – Massachusetts

  1. Reporting suspicious activity is mandatory for all insurers. All insurers must report any suspected fraudulent transaction to the Massachusetts Insurance Fraud Bureau (IFB) within 30 days of determining any suspicion regarding a transaction.
  2. Furthermore, the Massachusetts Commissioner of Insurance requires all auto insurers writing business in Massachusetts to report specific closed claims data to a database maintained by the Automobile Insurers Bureau (AIB) in Massachusetts.
  3. Additional mandatory reporting approaches include:
    1. Requiring auto body repair shops to supply all relevant repair information to the consumer and insurer; and
    2. Offering rewards of up to USD$5000 for information leading to the arrest or conviction of fraudsters.
  4. Massachusetts provides civil immunity for reporting of suspected fraud to the Insurance Fraud Bureau, law enforcement agencies and insurer-to-insurer information sharing. Furthermore, qualified immunity is provided to insurers to report suspicious claims, thus increasing the risk that insurers are susceptible to lawsuits by claimants.
  5. Other successful approaches include:
    1. Increasing fraud awareness by holding seminars and conferences and inviting different stakeholders (i.e. insurers, public agencies, the banking community);
    2. Offering lower rates to cities that participate in a fraud-fighting initiative.

2.8 Key Findings – New York

  1. Reporting suspicious activity is mandatory for all insurers, as they are mandated by statute to report any suspected fraudulent transaction to the New York insurance fraud bureau within 30 days of determining that a transaction may be suspicious.
  2. Furthermore, all auto insurers writing at least 3000 policies annually are required to submit to the Department of Financial Services (DFS) a fraud prevention plan.
  3. Civil immunity is provided on reporting of suspected fraud to the Insurance Fraud Bureau, law enforcement, insurer-to-insurer information sharing, National Association of Insurance Commissioners and NICB.
  4. New York does not have a "bad faith" provision to allow an insured to bring a bad faith claim against an insurer.
  5. New York has a legislative provision related to social networking. The provision stipulates that anything posted on a social networking site, regardless of whether the privacy settings are in use or not, may not violate the privacy law given reasonable justification.
  6. New York has also allowed consequential damages exceeding policy limits when insurers have breached the terms of contracts.

2.9 Key Findings – The United Kingdom

  1. Reporting suspicious activity is not mandated by statute. However, there is a requirement to report 'significant frauds' to the Financial Services Authority for risk assessment.
  2. The U.K. does not appear to have any civil immunity provisions.
  3. The U.K. has a number of information sharing models, including:
    1. The Claims and Underwriting Exchange database, which contains motor, home and personal injury/industrial illness incidents reported to insurance companies.
    2. The National Fraud Database, whereby the 260 member organizations share information on identified frauds; and
    3. The Motor Insurance Anti-Fraud and Theft Register, which logs all claims for total loss and theft of vehicle claims.
  4. A provision for good faith by the insured exists; whereby the insured is not permitted to recover any part of the claim should a fraudulent claim be made. A burden of proof provision has also been established.
  5. Other successful approaches relate to law enforcement. For instance, the Metropolitan Police Authority (MPA) includes yearly systematic review of fraud risks in the MPA and Metropolitan Police Services (the Met).