The Cost of Insurance Fraud


What is Insurance Fraud?

Insurance fraud is any act or omission for the purpose of illegally obtaining an insurance benefit.

It is often believed that insurance fraud is a victimless crime. However, this couldn’t be further from the truth, as its effects are felt, both directly and indirectly, by countless people.

These crimes affect our society financially, and also impact public safety and health. The Insurance Bureau of Canada estimates that insurance fraud costs in Ontario range between $770 million and $1.6 billion a year.

Some examples of acts of insurance fraud include:

  • Staged automobile collisions
  • Submission of false invoices for rehabilitation services
  • Arson
  • False theft claims

Types of Insurance Fraud

There are three general categories:

Opportunistic Fraud

This occurs when a policyholder deliberately inflates a legitimate claim. Opportunistic fraud is an unplanned act, arising when an opportunity, such as a legitimate claim, presents itself.

For example, an insured, during the process of a theft claim, states on their proof of loss form that the thief took property which they never owned. Perhaps they had an older version of a tablet, but stated they owned the newest and most expensive model, or that their loss included a $5,000 diamond ring that they never had.

Premeditated or Planned Fraud

This is the deliberate fabricating of a claim for the purpose of defrauding the insurer. Arson and staged automobile accidents are both examples of premeditated or planned fraud.

Padded Claims

Padded claims arise when there is an opportunity to submit an inflated claim when a legitimate claim has occurred.  For example, an insured, in the process of a current automobile accident claim, may state that pre-existing damage on their vehicle was caused by the recent accident; when in fact, it was not.

An insurer has the right to deny coverage for a claim if the insured makes a deliberate false statement on their proof of loss form. An insurer can also take civil action to recover losses from those who commit fraud.

Who does Insurance Fraud Affect?

  • Direct physical damage as a result of fraud causes economic loss to individuals and their families.
  • Fraud causes communities to suffer direct economic loss when fire, police other public service resources are used.
  • Businesses suffer indirect economic loss as a result of fraud when they lose opportunities to do business because their clients have suffered damage.
  • Insurance fraud can result in death or physical injury, as well as emotional and psychological impairment to members of the public or public employees. The consequences for innocent victims and their families can be severe.
  • Insurance companies suffer unnecessary substantial financial loss as a result of insurance fraud, which effects their financial resources to pay legitimate claims.
  • Eventually, the effects are felt by insurance consumers who inevitably must pay higher premiums.

Restricting Insurance Fraud

The insurance industry has taken steps to restrict insurance fraud, such as rewarding claims-free policyholders with a discount on their insurance premium. As well as establishing initiatives and organizations to detect, investigate and prosecute fraudulent activity.

As an insurance consumer, you can help by reporting fraud anonymously to Crime Stoppers.

Learn more about the effects of insurance fraud from the Insurance Bureau of Canada.

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