Auto insurance fraud is a serious issue – and it isn’t always easy to spot as a consumer.
Picture this: you’re scrolling through social media, and an insurance ad pops up that appears to be written just for you. The broker featured in the ad says they can secure you the lowest rates on auto insurance.
You contact the featured broker, but the person on the other end of the call or email isn’t who they claim to be. The “broker” is a fraud, and you, the unsuspecting customer, are about to experience a growing problem in the Canadian insurance landscape.
Andrew Powell, Manager, Special Investigations Unit at TD Insurance, knows firsthand about the various criminal tactics employed by unscrupulous bad actors, known as “false insurance brokers.”
A false broker is an unlicensed individual that doesn’t represent a legitimate insurance provider. They frequently prey on people looking for affordable residential, automobile or business insurance and newcomers to Canada who are learning to navigate the Canadian insurance system. They may also victimize people looking for bargain rates outside of normal channels.
“Scammers are getting sophisticated with the use of fake websites, social media, and ads,” Powell said. “These days, they can remain more anonymous making it easier for them to defraud both consumers and financial institutions.”
One of scammers’ primary goals is to collect a one-time "service" or "broker fee" from the unsuspecting customer as payment for providing them with low insurance rates.
Some red flags to watch for include brokers asking for money through unofficial channels, such as e-transfer or cash. They may also try to gain personal data from the consumer, oftentimes to be used as part of a larger future identity fraud situation that can have long-lasting, negative effects for the unsuspecting party, Powell said.
Here, Powell breaks down the main types of insurance fraud that are being perpetrated on unwitting consumers by fraudulent brokers and provides information on how Canadians can help protect themselves.
Common types of insurance fraud
Application fraud
With what is known as application fraud or premium shaving, the fraudulent broker provides false information about the client to the insurer in order to receive lower premiums.
For example, the false broker may take the information a client provides them and increase the number of years they’ve been driving, decrease their frequency of vehicle usage, or give a fake address or postal code (e.g. downtown driving vs. suburban or country driving) in an effort to get lower rates.
In many cases, after setting up the fraudulent policy and collecting payment, the false broker ceases communication altogether, leaving the clients without proper coverage and support.
Claims fraud
Claims fraud, which is directly tied to pre-staged auto accidents, involves sophisticated networks of repair shops, towing companies, and allegedly legal representatives who all inflate or fabricate claims on behalf of the allegedly aggrieved party. (Sometimes, consumers are in on the fraud if coached by false brokers, but it’s most common for the broker to misrepresent the facts.)
With this type of fraud, false representatives will go to bat for the alleged accident victim, with an aim to garner as much compensation from the insurance company as possible. Because of the large network of players involved in these complex schemes, the cost to the insurance industry — which is eventually passed on to consumers — is in the billions.
As an expansion and often key part of claims fraud, organized crime is intricately involved in these networks of criminal activities, from the alleged victims of automobile accidents, to the towing companies, to the “legal” representatives who go to bat for these false parties.
How to protect yourself from auto insurance fraud
While these types of insurance-related frauds are common, there are things that consumers can do in order to protect themselves.
- Remember that all insurers that provide insurance are regulated at the provincial level. Before embarking on any financial transactions with a broker, consumers can easily contact their provincial regulator to verify a broker’s license.
- Always contact your insurance provider directly for any information, to provide updates or to discuss policies. Be wary of brokers who discourage you from speaking to your insurer directly and who want to be the sole gatekeeper of any financial transactions related to your policy. A broker not wanting a customer to speak directly to the insurance provider is a sign of potential criminal activity.
- Legitimate insurers will never ask for payments through e-transfers or cash, and will never communicate only through WhatsApp, social media messaging apps, personal email accounts, or text messages.
- The Insurance Bureau of Canada (IBC) is the federal regulator that oversees all insurance-related activities, legislation and more in the country. TD often collaborates with the IBC and law enforcement to both identify and stop instances of organized fraud and false broker representations. If you’re uncertain about anything pertaining to transactions, conversations, or general information related to your policy, you can always reach out to your local provincial regulator or the IBC for more information.