The Insurance Bureau of Canada (IBC) is the national trade association representing private property and casualty (P&C) insurers. IBC member companies provide about 75% of the non-government P&C insurance sold in Canada. As well, there are more than 40 IBC associate member companies serving the Industry. IBC works with its members to improve communication with the public and government, the news media, and other industry associations. Before talking about fraud, let us review some basics and define the insurance principles.
Let us talk for a minute about the principle on which the product we offer is premised. Insurance is a bona fide agreement, a private agreement under which an insurer agrees to compensate its insured should certain of his or her assets be damaged or destroyed. As this is a bona fide agreement, both parties must abide by its terms and not take undue advantages. When cheating, the insured takes undue advantages and tries to obtain more than what he or she is entitled to, based on coverages purchased. This of course will be termed fraud.
Definition of fraud
For the purpose of our discussion, we define fraud as any act or omission designed to obtain an unlawful benefit from an insurance policy. We identified four types of fraud:
- Misrepresentation: when someone gives false information in order to pay a lower premium
- Claim padding: when someone increases the values of its claim to take financial advantage ~ of the opportunity.
Costs of fraud
The costs of these frauds regardless of all studies continue to be established at $1.3 billion in direct costs. Direct costs are the insurance payouts. Indirect costs are estimated at $1.0 billion and they consist of costs of investigation mostly. We can ascertain that fraud is costing the insurance consumers $2.3 billion annually.
These numbers alone should convince us that insurance fraud is “big business” in Canada – easily large enough to rank among the top 500 companies in sales if it were a business. But, even if it were, it’s a business none of us can afford and, in fact, want to afford. Canadians are becoming increasingly intolerant of seeing their hard-earned doltlars go to those who cheat the system and they want us, the Industry, to do something about it.
National task force
It’s an important reason why the industry formed a National Task Force to address the insurance fraud issues namely: insurance industry practices; Government regulatory practices and public attitudes and awareness. The Task Force presented a report recommending that these issues be addressed by a broad coalition consisting of representatives from the insurance industry, consumer groups, and government and law enforcement officials. In June 1994, The Canadian Coalition Against Insurance Fraud was formed and has since been working to come up with some practical solutions to the problem. From the outset, the industry’s objective was to widen the scope of anti-fraud efforts to include the participation and viewpoints of community-based organizations, of course, this organization is independent of IBM.
The question of public awareness is a major one. It relates to public attitudes regarding fraud or if you prefer their perception, their mindset. We need to raise public awareness about fraud. To achieve this we believe in highlighting the magnitude of the problem and mostly, we need to boost the public understanding of the consequences of fraud in terms of the impact on premiums and the burden on society’S resources. By doing so, the unreasonably high level of consumer tolerance for fraud can be lessened and ultimately eliminated.