C39 - Fraud Awareness

• Economic loss to individuals & their families through direct physical damage
• Economic loss to the community (resources of fire, police, ambulance, & other public services used)
• Opportunities to do business are lost
• Death or physical injury to the public (harm to innocent victims, firefighters, police, their families)
• Consumers must pay higher premiums
• Emotional & psychological effects

• 1. REALISTS: low tolerance for fraud but realize it occurs; do not want strong punishment
• 2. CONFORMISTS: tolerant b/c they think many ppl do it; want moderate punishment
• 3. MORALISTS: least tolerance, no excuses, want severe punishment
• 4. CRITICS: very high tolerance, blame the ins industry b/c they think they are unfair, want little or no punishment

• Divergent attitudes
• Age, gender and level of education also affect how ppl perceive things
• Rising culture trend in N. America - loss of core values - "me" generation preoccupied with material values
• Some consumers want tangible economic returns for their "investment"
• Psychological justification; some think it's ok to increase amt of the claim to make up for premiums paid

The cost of fraudulent claims are passed on to all insurance consumers as a component of premiums.

• Education by providing information
• Insurers must set up proper business practices to eliminate the opportunities

• 1. Opportunistic fraud: some form of dishonesty on a claim that has legitimately occurred (ie. exaggerate the amount claimed or claim for things that do not exist)
• 2. Planned fraud: fabricating a claim for the purpose of defrauding an insurer (ie. inventing a claim, arson, staged mva)

• TP claimants
• insureds
• agent or brokers
• insurance company staff
• service suppliers

Good Faith: state of mind, fairness, fair conduct, reasonableness, decent behaviour

Utmost Good Faith: legal principle that defines the standard of conduct involving insurance policy transactions. Carter v. Boehm (1766) acknowledged insurer's vulnerable position.

• to coordinate efforts, share resources, and make efforts more effective
• formed as a framework to reduce and control insurance fraud
• created by the Canadian Task Force on Insurance Fraud

• 1. Prevent *most desirable
• 2. Reduce

• - promoting fraud awareness in media
• - teamwork (insurers, brokers, adjusters, experts, lawyers, police, fire, courts, public, etc)
• - communication skills (be respectful & polite; delays may cause insd to seek "revenge" on insr)
• - consumer hotlines (Crime Stoppers)
• - detection strategies (red flags)
• - reward good customers (lower premiums)
• - train agents, adjusters, u/w's to investigate
• - verify info
• - data banks (created & shared)
• - evaluate service providers & experts
• - analyze scope & cost of repairs or treatments (only repairs or tx relevant to the claim to be paid)
• - security systems & practice
• - penalties for fraud (must be appropriate)

• indicators or signals
• items of info known about fraudulent situations
• are not proof

any act or omission with a view to illegally obtaining an insurance benefit

• The insurer may be entitled to void the contract; treated as if it never existed
• To void a policy the misrepresentation must be material - it must affect how an insurer would have judged the risk

• The insured must promptly report any material change in the risk while the policy is in force.
• It is a serious breach of a policy condition
• In common-law provinces the contract may be void as to the part of it affected by the change; in QC the entire policy may be voided

• Important distinction between a voided policy and a cancelled policy.
• Only part of the premium (a pro rata amount) is returned to the insd when policy is cancelled.
• The entire premium must be returned when policy is voided ab initio (from the beginning)

Insurer has right to ask for detailed info as outlined by legislation; to properly document a claim the insd may be asked to provide a stat dec with the following:

• - inventory of destroyed/damaged property w/ qty, cost, actual cash value
• - how loss occurred
• - that the loss did not occur through wilful act
• - details of other insurance on the property
• - location of the property at time of loss

Insd is required to promptly give notice to the policy of any loss caused by criminal act. Requiring insureds to report crimes to police may deter insurance crime.

Waiver: the voluntary or intentional relinquishment of a known right; can be inferred through conduct (ie. an insurer knows certain facts that would deny insurance but continues to treat policy as though it is in force, cannot later avoid liability)

Estoppel: principle where insr is not permitted to renege on its position when an innocent party has relied on it. (ie. if an adjuster leads an insd to believe that a claim will be paid, estoppel prevents denial of coverage at some later date)

position of special trust & confidence that one who holds funds or items of value for another; impliesa strong duty of responsibility on behalf of the holder

• Disclosure by an insured when applying for insurance
• Handling of claims

• - fail to properly investigate the event
• - intentionally offer an amount that is substantially & - drastically lower than would be considered reasonable
• - fail to settle in a reasonable period of time
• - unreasonably denying the claim
• - bringing unfounded allegations against an insured in a self-interested and callous manner
• - ignore plaintiff's evidence that adequately responds to issues in dispute

• Avoid bad faith lawsuits by:
• - treat insd's fairly & w/ dignity
• - conduct thorough investigation before taking action
• - consider any alternative methods to handle the claim
• - reassess positions as new evidence becomes available

• are meant to punish the defendant
• when conduct is high-handed, oppressive, outrageous, wanton, or evil w/ malice towards the plaintiff

• aim to compensate
• take full account of intangible injuries (such as distress, loss of dignity, and humiliation caused by the defendant's behaviour)

• 1) Direct evidence: proves the fact w/out the need to infer or make presumptions (ie. a witness saw an arsonist)
• 2) Circumstantial evidence: based on making inferences from connected facts (ie. insd in financial trouble, only he had shop key, moved pets to another location prior)

• 1. Sworn statements - most common
• 2. Expert evidence
• 3. Testimony given under oath - by witness
• 4. Documents - contracts, deeds, etc
• 5. Experiments - judge decides if allowable
• 6. Real evidence - photos, videos, physical objects

refers to its destruction

• 1. Communication between solicitor & insured
• 2. Settlement negotiations
• 3. Evidence collected for litigation
• 4. Reports from the ICPB (Insurance Crime Prevention Bureau)

New business

• has no prior carrier
• is new to the broker
• is new to the area
• is "walk-in" business
• is not known to anyone at the brokerage
• asks too many questions about claims process
• is very knowledgeable about insurance terms or procedures

• applicant is never available to meet - only deals by phone
• comes in at noon, at end of day, or on a Friday when staff may be rushed
• is in a hurry to complete the app and interview
• has never been insured before

• does not live or work nearby
• has an address that is not consistent w/ employment or income
• has a PO box as their address
• lived at present address less than 6 months
• only has a cell number
• does not have drivers license or any other id
• requires high limits of coverage inconsistent w/ income or lifestyle

• Moral hazards: insd's character
• Morale hazards: careless attitudes towards security & loss prevention
• Type of risk more susceptible - ie. large public company less risk of arson than small business w/owner as only employee
• Loss history - u/w should verify by calling previous insurer
• Numbered company

• applicant is deeply in debt
• significant decreasing sales
• significant decreasing profits
• prior bankruptcy

• housekeeping & cleanliness
• storage & disposal of waste
• storage of combustible material
• obstructions on staircases & corridors
• security systems
• business operating from a home

• area has newer more attractive retail space available (building is in danger of losing income potential & arson-for-profit)
• is isolated
• not located close to a fire station
• served by a volunteer or a part-time fire dept

• business is less than fully active
• has seasonal operations
• has areas that are open to traffic but should be closed to the public
• has a high staff turnover rate
• has employee disputes over working conditions

• fee was calculated based on the valuation amount (a fee based on a % of the valuation would tempt the appraiser to increase item's value)
• limiting conditions & basic assumptions are not stated
• appraiser did not physically view or inspect the piece
• valuation procedure is not described
• valuation method is not stated
• an effective date is not stated
• the purpose of the statement is not stated

a large deductible is an effective method of having insured maintain care for the property

do not exist or are already wrecked

• cash payment made but for only minimum amount required
• wants to buy insurance and cost not important
• premium payment is late

• applicant's income inconsistent w/ value of vehicle
• applicant has not owned a vehicle for a while
• age of applicant suggest that he likely owned a car before
• no previous insurance carrier
• full coverage requested for older car
• older vehicle reported to have no existing damage

Renewal is an excellent time for underwriters & brokers to consider if accounts have become susceptible to fraud. Good to review:

• - economic downturn in the neighbourhood or insured's class of business
• - major personal changes such as divorce or job loss
• - policy has been cancelled several times for non-payment of premium
• - number of claims is higher than average
• - an increase in limits is requested
• - insurance is taken out on items that in the past did not warrant insurance

• When policyholders are thriving economically, it is assumed that the risk of insurance fraud is low.
• Overall economic conditions in the country are significant
• The specific industry that the insd is in may be going through turbulence (ie. business needs new equipment but needs capital)

A very competitive insurance industry may adversely affect those writing insurance. It may encourage a more quantity over quality emphasis on writing business, which may increase potential for fraud.

Marital breakdowns, etc present a time of upheaval in insured's life. This may materialize in greater moral hazards where insd is more susceptible to fraud.

• Insured is obligated to report anything that is material to a risk. Ie. whether actual principal driver has been listed on policy.
• Potential for fraud increases when insd does not abide by policy conditions and a claim occurs.

• some ppl make a living through insurance fraud
• u/w should review if claims rate is higher than average or if there is a pattern of claiming on multiple policies

When an insd requests increases in coverage or lowered deductibles for no apparent reason question whether loss has already occurred or is being planned.

• investigate
• determine policy coverage
• negotiate
• adjust
• settle

• they are subject to provincial legislative requirements
• must be licensed to operate
• completion of a number of Insurance Institute of Canada courses
• oral examination

• 1. clmt presses too strongly for quick settlement
• 2. too familiar w/ insurance terms & claims process
• 3. going through financial problems
• 4. willing to accept low settlement to avoid providing documentation
• 5. called the broker just before the loss to confirm coverage
• 6. was separated or divorced shortly before the loss
• 7. claims for very expensive items inconsistent w/their lifestyle or cash flow

• just after policy inception
• after an increase in coverage
• just before policy expires

a non-waiver agreement permits adjuster to maintain contact w/ insd throughout the investigation without fear of creating an estoppel

"it is agreed that the insurer may investigate circumstances of the claim, carry on negotiations, make a settlement, defend any actions brought against insd or insr without prejudice"

• a unilateral notice by the insurer asserting that it is preserving its options and waiving none of its rights
• does not bind the insured or acknowledge coverage
• confirms that all rights will be retained under the policy while claim is investigated
• could also draw attention to insd's duties and obligations
• if insured refuses to sign the non-waiver agreement, this letter may be sent

• financial
• employment
• medial

• inexpensive way to combat fraud
• may show that no physical damage exists
• demonstrate the type and quality of contents

an investigative interview where the known facts are matched to a particular suspect for the purposes of obtaining a confession

*adjusters conduct investigative interviews - not interrogations*

• 1) Plan: know the file, prepare a checklist to be done
• 2) Listen: do not interrupt, let clmt ramble or vent
• 3) Do not use threatening language or gestures
• 4) Maintain composure: don't get upset, even if they are lying
• 5) Ask one question at a time: don't confuse them; wait for answer
• 6) Evaluate body language: a person in distress shows it
• 7) Ask for an explanation: if the answer is not clear; don't worry about looking foolish
• 8) Make notes: show them your notes after the interview, permit them to make initialed changes

• are a valuable and permanent record of an individual's recollection at a time when the incident is still fresh in the mind
• can be used to damage credibility of the stmt giver should any inconsistencies arise in the testimony
• a person may refuse to sign a stmt

• for fire, payment must be made w/in 60 days after submission of proof of loss
• insd has option after this period to launch a lawsuit against the insurer

• 1) pre-test interview
• 2) collection of data
• 3) analysis of data

• no agreement in scientific or legal circles as to the reliability
• possibility of "false positives" where someone being truthful can be deemed lying
• submitting to a polygraph is entirely voluntary

• 1) origin & cause specialists
• 2) appraisers
• 3) electrical, mechanical or chemical engineers
• 4) accident reconstruction specialists
• 5) investigative specialists
• 6) surveillance specialists
• 7) photographers
• 8) doctors
• 9) accountants
• 10) lawyers

• used with or connected to a court of law
• forensic experts must be prepared to appear in court as witnesses

• coverage arranged shortly before loss (1 or 2 months)
• increased or added shortly before loss
• property is heavily over-insured
• shortly before policy expiration or cancellation date
• many documents were destroyed in the fire except for the insurance policy
• duplicate or multiple policies with different brokers
• misrepresented or misleading facts in app
• extensive claims record
• called broker shortly before loss to check coverage

• recently separated or divorced & disputes over property have arisen
• alimony or child support obligations
• employment probs - strike, layoff, business closing
• gambling problem
• bank threatening to foreclose on property
• high debt load
• other criminal activities (ie. extortion or drugs)

policy stat conditions allow access to the property but do not allow the insurer to exercise any control over the property

• Ontario fire marshal needed a search warrant to enter the scene b/c it was believed that the owner was engaged in arson. A search warrant was not obtained and as a result, incriminating items discovered were not admitted into evidence.
• The law provides that process is important when evidence is gathered - the ends do not justify the means
• The rights of private citizens must be protected whether or not fraud is suspected

• the link intentionally established to distribute fire from one area to another
• elongated burn patterns may be visible afterwards between burn areas showing that a trailer was used
• any type of ignitible material may be used as a trailer

• may be listed with no offers or activity for an extended period
• need to sell for money
• may need of substantial maintenance

• economic recession
• new highway has significantly reduced traffic to insd's retail store
• ruthless competition
• insd's product no longer competitive
• insd wants to get out of business quickly b/c of disputes w/partners, labour probs, health probs, decision to emigrate
• insd cannot fulful contracts b/c of inadequate equip, materials
• seasonal business

• the shape of the charred areas
• depending on the shape \/ or /\ could be normal or chemical burn

• \/ = normal burn w/out accelerants
• /\ = usually chemicals used to accelerate fire
• Irregular burn patterns may also suggest that a chemical was used

• represent insureds for a fee (usually a % of the insureds settlement which may inflate claim)
• subject to same licensing requirements as independent adjusters except they are restricted to certain types of claims

• multiple points of origin
• trailers
• odor of flammable liquid, empty fuel containers
• an explosion or series of explosions
• timing devices near point of origin
• contents removed from building prior to fire
• signs of tampering w/ gas or sprinkler systems
• unusually fast spread of fire
• unusual coloured flames were observed
• things out of place (ie. propane tank in kitchen)

the Fire Marshal's Office (FMO)

• Arson is a crime against society
• Disregard for human life: up to life in prison
• Damage to property: up to 14 yrs
• Own property: up to 14 yrs
• For fraud purposes: up to 10 yrs
• Negligence: up to 5 yrs
• Possession of incendiary material: up to 5 yrs
• Prevention Non-compliance: inferred by court
• Insurance policy: inferred by court

may order the accused to make restitution (repay the insurance money to the insurer)

• 1. fire was set
• 2. insd had motive to set fire
• 3. insd had opportunity to set fire

• financial statements cannot be produced
• fictitious invoices
• sales made after fiscal year included in financial statements to show a stronger financial position
• the year-end cut off is manipulated
• expenses are understated
• many creditors have not been paid
• purchase invoices have been suppressed

• the inventory is obsolete
• the inventory is over-valued
• large stock purchases made in cash just before claim
• new & better products available at comparable cost
• low rate of turnover for inventory

• Financial problems (business & inventory indicators)
• Opportunity (insd has only key to premises
• Credibility of Witnesses

• appraisals can be done by either the insurer or insured
• the dispute is settled when the 2 appraisers agree with eachother, or when the umpire agrees w/ one of the appraisers

• insurer denied claim
• insurer showed evidence of insd's dire financial situation to support motive; insd was not credible as a witness; and evidence shown to prove opportunity
• insd deemed responsible for fire, ordered to repay insr

• insd has no receipts or credit card slips
• receipts are photocopied, handwritten, from the same store, consecutively numbered, in whole dollars, show no tax or incorrect tax
• receipts are presented immediately after loss, very neatly
• the store does not carry item on receipt
• items stolen were just purchased

3rd parties

Insured may be sympathetic and therefore tempted to enhance a TP's claim by accepting responsibility for the accident.

public places, such a mall, restaurant, store or supermarket

Psychological, ie. major depressive disorder, post-traumatic stress disorder

The # of ppl involved in a disaster provides a screen for the fraudster who hopes that individual claims will not be looked at too closely.

the insured & claimants, witnesses, statements, scene photographs, weather conditions

• Witness is very eager to provide info to help clmt
• Property does not appear to be recently damaged or is inconsistent w/ the accident
• injury is difficult to measure as only subjective complaints are raised
• medial tx appears inappropriate or excessive
• out-of-pocket expenses were not incurred even though the injury claimed is a serious one
• the recovery period is unusually long for the type of injury claimed

• named employer cannot be easily verified
• employers business phone is an answering machine
• employer is evasive
• employment record is handwritten
• claimant will not authorize access to employers records
• clmt is self-employed or related to the employer
• income is not consistent with occupation
• wage statement appears altered

• repeatedly associated with dubious or questionable claimants
• lawsuit launched same day that person was injured
• lawyer and doctor have paired up consistently
• extensive legal action undertaken

To develop, record, or to preserve evidence in 5 areas

• 1. Determine how accident occurred
• 2. Preserve objects related to the event
• 3. Perform testing on objects
• 4. Produce or analyze medical reports
• 5. Conduct surveillance & interpret results

to establish how active the claimant is and provide evidence that the claimant has full range of movement

• the study of human movement
• multi-disciplinary science involving: anatomy, biomechanics, physiology, and psychomotor behaviour

applicable colleges administer a public complaints process; legislated by province

• medical report seems to be a template; all reports are very similar
• tx for various claimants w/different injuries are the same

• no clear and objective way to measure it
• relies heavily on subjective reporting

• intentional feigning of mental or physical illness to gain insurance money or to avoid returning to work
• person is consciously aware that nothing is wrong
• generally considered to be fraud
• most common type of abuse in claims

• 1. Somatoform pain disorder: aka myofascial pain syndrome or fibromyositis; preoccupation w/ pain (at least 6 months); absence of mechanism that accounts for the pain; or pain grossly in excess of expected
• 2. Psychogeneic pain syndrome: caused by emotional problems but pt's express the pain they feel by complaining about physical symptoms. Illness behaviours becomes a "sick role" that blocks recovery and active lifestyle.
• 3. Factitious illness: self-induced injury (more psychopathology than malingering)
• 4. Symptom magnification syndrome: self-destructive behaviour pattern consisting of self reports & displays of inappropriate disability; produced consciously or unconsciously; reinforced by family, cultural, vocational & financial facilitators

leased luxury vehicles ares sometimes "stolen" and shipped overseas where they are resold for up to 3x the manufacturer's retail price

• the ownership is purchased for an unrepairable salvage vehicle
• the non-existent vehicle is re-registered
• the new owner then reports the phantom vehicle stolen and submits a claim

• creates sensationalism
• to divert attention from an attempt to defraud
• may also evoke sympathy from the public

a civil procedure used to freeze known assets when strong evidence suggests proceeds of a crime have been converted

• 1. irreparable - total loss; may be sold for parts or scrap only
• 2. salvage - total loss; can be repaired (rebuilt) or used for parts or scrap
• 3. rebuilt - declared to be salvage but now repaired, inspected and approved for registration & use
• 4. none - may have been branded outside ON

isolated locations where there are no witnesses

• 1. Financial
• 2. Expensive maintenance required

• 1. claim reported shortly after policy inception
• 2. insd has no other automobile, property or business with the company
• 3. comprehensive coverage recently added to policy
• 4. collision coverage not purchased

• insured cannot produce a duplicate set of keys
• vehicle was a gift
• vehicle was purchased shortly before theft
• insd works in an auto-related business
• insd has a record of prior claims, particularly thefts
• theft not reported to police
• police report different from insured's report
• theft did not occur at insd's home, business or usual venues

• a recruiter will gather AB claimants
• each claimant pays a fee for a seat or to be named as a passenger in the accident report
• the recruiter plans the accident & works out the details
• claimants info is sold to and intermediary who relays it to lawyers who will represent the claimants
• typically staged at night behind buildings
• often a rental vehicle; driven into a wall at low speed to keep damage under $500 so police don't come to scene
• clmts begin "treatment" at clinics
• insurers frequently agree to cash settlements to stop paper flow and payments

• welfare fraud
• workers comp fraud
• unemployment insurance fraud
• smuggling of illegal immigrants
• illegal firearms
• narcotics
• home invasions
• prostitution
• money laundering

• evening or after midnight
• Sunday afternoons
• non-rush hour

• 1. keep needs of honest policyholders foremost
• 2. cost effectiveness of all activities
• 3. meeting the needs of all stakeholders

• increase public awareness
• promote and develop anti-fraud tools
• work for legislative action to prevent and control fraud

The Great Canadian Scruples Challenge (national tv program)

• "Investigative Services Division (ISD)"
• provides insurance crime investigation and information services to detect and prevent insurance crime

• main focus is to strengthen the business environment for the property and casualty insurance industry
• involved in many loss-prevention issues including fraud prevention

• to contribute to the control of fraud through education and training of brokers, adjusters, lawyers, and all insurance personnel
• this course is a product of the institute and the Cnd Coalition Against Insurance Fraud

• an international organization that includes more than 10,000 members in 25 countries
• CFE's typically include forensic accountants, fraud investigation specialists, law enforcement, professors, sociologists, and lawyers specializing in fraud and white-collar crime

• a national organization
• includes police, fire and insurance personnel
• strives to eliminate all factors that interfere w/ justice
• arson control initiatives

• to improve communication among auto theft investigators
• training and resources, such as technical developments

• deal with claims where fraud is suspected or requires special investigation
• are staffed with investigators who have specialized training in statement-taking and preserving evidence for litigation

• timely & accurate investigations
• investigative expertise
• assist in the training of claims & underwriting personnel
• protect company assets
• protect employees & adjusters from clmt harrassment
• ensure proper reporting procedures in place
• establish & maintain working relationships with law enforcement, gov't, brokers, etc.
• provide fraud intelligence

ex-cops, fire investigators, private investigators, senior adjusters

• international non-profit program; hotline
• assists police in solving crimes through tips reported by ordinary citizens

• 1. insurers reimburse and indemnify policyholders under the terms of their policies
• 2. by providing this protection and indemnity in the community at large, insurers help to maintain economic stability and confidence

• 1. Advise adjusters of their limits of authority to settle claims
• 2. have adjusters carry suitable proof of identity
• 3. adjusters will provide reasons for denials
• 4. adjusters will advise TP claimants in the car of insured's insurance info
• 5. adjusters to observe federal and provincial laws and regulations relating to unfair and deceptive acts & practices

• produced by the IBC
• governs the conduct and procedures of staff/telephone adjusters

• 1. not seek secret profit
• 2. not offer public inducement to public officials
• 3. not exceed their authority
• 4. not advise clmt to refrain from seeking legal counsel
• 5. not deal directly w/any clmt known to be represented by legal counsel (except w/permission)
• 6. not offer legal counsel more $ in return for a lower settlement

the Canadian Independent Adjusters Association

• shall not give legal advice
• shall not discourage clmt's from seeking counsel
• shall not deal directly w/clmt who is represented w/out consent

• shall represent only one interest
• immediately inform his principals of any potential conflict of interest

to promote and represent common business interests of licensed independent insurance adjusters within the industry

• appropriate language
• do not consider race, sex, religion, ethnic group in deciding whether to pay a claim
• keep promises that you make
• do not deny a claim b/c of a minor technical objection
• make fair offers to settle claims
• don't ask insured to submit same info more than once
• don't harass the insd or conduct unwarranted surveillance

• 1. unfair discrimination in rates
• 2. literature that misrepresents the benefits of a policy
• 3. gifts or $ that induce someone to buy a policy
• 4. unreasonable delay or resistance to settlement
• 5. making selling a policy conditional on insd having to purchase another policy

shall be considered confidential and protected