Canadian Insurers Use Technology to Battle Cross-Border No-Fault Fraud

Insurance companies and fraud-fighting agencies in North America are noticing a trend: no-fault states like Florida and New York are known for their fraud challenges. But investigators believe that fraudsters are now exporting their ingenuity to our neighbors to the north. Canada has seen an enormous spike in Accident Benefit (AB) fraud caused by staged accidents and insurance investigators are seeing lots of similarities with auto accident fraud schemes popular in US no-fault states. A report by the Ontario Auto Insurance Anti-Fraud Task Force suggests, "The fastest-growing parts of auto insurance fraud are premeditated and organized fraud."

A growing problem

The province of Ontario has mixed no-fault/tort insurance system with benefits that not only cover medical costs but will also pay for attendant care, disability income and other services if an insured becomes incapacitated as the result of an accident. Fraudsters have seized on these comprehensive benefits as an opportunity to make huge sums of money.

James Ruotolo

"Ontario -- and Toronto in particular -- has increasingly attracted immigrant gangs who have been engaged in a variety of fraud schemes for years," says Dennis Jay, executive director of the Coalition Against Insurance Fraud.

The Insurance Bureau of Canada (IBC) reports that more than 26 percent of all personal injury claims contain elements of fraud. The investigative services group within IBC recognizes the problem and focuses its investigative efforts on organized insurance crime rings. Garry Robertson, national director of investigations for the IBC says, "Over the past decade we have seen many examples of residents of NYC and New Jersey with links to Florida arriving in Southern Ontario and becoming involved in suspicious claims."

It seems that the bad guys are taking the lessons they learned in U.S. and taking them to Canada, with staggering results. A report by the Office of the Auditor General of Ontario suggests that the problem is growing. From 2005 to 2010, the total cost of AB injury claims rose 150 percent while the number of injury claims increased only 30 percent. The average injury claim amount -- about $56,000 -- is five times more than the average claim in other provinces.

Technology offers a solution

As organized auto insurance fraud continues to flourish in Ontario, insurers are looking to technology to address the problem. In 2011 Ontario an electronic system for transmitting auto insurance claim forms between insurers and health care facilities became mandatory. The Health Claims for Auto Insurance (HCAI) system standardized the format and transmission of treatment plans and medical billing, giving insurers more control over the process. It remains to be seen how effective HCAI will be in addressing fraud. But it is already providing regulators with access to better information.

The Ontario Ministry of Finance has noted a dramatic increase in the number of medical clinics submitting claims through HCAI. They are now researching clinic licensing and regulation programs as a result. Their report states that, "Although it is not a direct fraud prevention tool, the information stored in HCAI has the potential to help detect fraudulent activity."

The industry is also pursuing fraud detection technology at an unprecedented rate. Several consortium projects are underway in Canada to compare insurance data across the industry in an attempt to identify risky claims behavior. Insurers are also seeking internal fraud detection technology solutions. Stu Bradley, director of the financial crimes practice at SAS indicates, "We've seen a substantial increase in interest among Canadian insurers in fraud detection technology." This appears to be part of a broader trend in North America. Bradley says, "Nearly all of the recent insurance fraud projects we've undertaken in the U.S. have been involving no-fault organized ring fraud in states like New York, Florida and Michigan."

Since the bad guys seem to be sharing their best practices on how to commit fraud, perhaps the U.S. and Canada should start sharing intelligence and technology in trying to combat it. IBC's Robertson confirms, "The ideas were orchestrated in the U.S. but really brought to Southern Ontario and the [Greater Toronto Area] in particular to perfect."

About the Author: James Ruotolo is an insurance fraud technologist, thought leader and the principal for Insurance Fraud Solutions at SAS. Connect with him on Twitter or LinkedIn.