You’re paying too much for insurance: critics
Jun 06, 2013
York Regional Police fraud investigators noticed a disturbing trend in auto insurance claims around the region in 2010.
Probes into nine suspected fraudulent insurance and medical claims turned up $5 million worth of fraud.
In response, the force’s major fraud unit launched Project Sideswipe, a nine-month probe that concentrated on staged collisions and the rehabilitation, assessment centres and paralegal services used by drivers and others involved.
People were recruited by an orchestrater to be a driver or passenger in staged collisions using cars that were old and irreparable, police said.
They would report the crashes to police, saying they were the only occupant in the car to avoid investigation. Yet they would tell insurance companies there were five passengers or, in one case, seven, in their vehicle, Det.-Const. Kim Tanczos said.
The drivers and passengers would then falsely file injury claims related to soft tissue, police said.
The claims were made for services never rendered through rehabilitation facilities, where doctors’ signatures and information were fraudulently used, according to police.
In August, 51 suspects were charged with 201 offences, including fraud over $5,000 and obstructing police.
In December, nine suspects, including medical personnel and office managers, were charged with 41 offences, including money laundering.
Following the arrests, the organized crime ring was dismantled, significantly reducing the number of false claims, according to police.
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Ontario’s auto insurance industry is widely regarded as the most expensive in the country — with some customers paying almost twice the premiums as drivers in other regions.
For years, the industry’s well-funded association has blamed the high prices, in large part, on the excessive amount of fraud committed by customers.
But weeks after the province called for a 15-per-cent rate cut in its annual budget, the chorus of voices questioning this assertion is growing.
The Insurance Bureau of Canada often cites $1.6 billion as the dollar figure for phoney claims in Ontario, based on an estimate by auditor KPMG.
In reality, though, many say the picture is not so simplistic.
For 2010, KPMG pegged fraud at $768 million to $1.56 billion.
The Ontario Trial Lawyers Association dismisses the number outright, saying the discrepancy is so “enormous as to be meaningless”.
“I’m not saying it’s not a problem, but it’s not as big of a problem as they say it is,” association president Andrew Murray said.
Meanwhile, the Consumers’ Association of Canada questions why, if the bureau is so determined to curb insurance fraud, it has just 10 staff investigators and almost as many lobbyists at Queen’s Park, according to the registry.
“If they cared so much about fraud, they would hire more investigators,” consumer association president Bruce Cran said. “This fraud business is always exaggerated. It is one of their favourite smoke-and-mirror techniques.”
The figures also prompted Mr. Murray to question where the bureau’s priorities lie.
However, bureau communications vice-president James Geuzebroek rejected the insinuation the organization is not entirely committed to lowering costs for consumers, noting individual insurance companies also employ their own fraud investigators.
The bureau’s government relations outreach goal is to bring about change to keep auto insurance affordable and to remove some of the other costs in the system and red tape, he said.
“I think that says that our industry is keenly interested in keeping down costs.”
High auto insurance rates make consumers angry and that’s not good for any company, he said.
“No industry wants the public to be resentful of the product they are delivering.”
Ontario has a “Cadillac system, so we have Cadillac prices”, he added.
However, this is only one thread of a detailed argument about high insurance costs.
Questioned, too, is the amount of money being made — and lost — in the industry.
Since September 2010, when then-finance minister Dwight Duncan lowered minor injury benefits for victims from $100,000 to $3,500, the industry has made about $2 billion a year, Mr. Murray said.
This contributed to an overall industry profit of $1.5 billion in 2011, his association contends.
Yet despite these industry-wide cost savings, rates continued to rise in 2010.
They fell 2011 and 2012 by .26 and .03 per cent, respectively.
His was one of the first organizations to say with all the claim costs going down, there shouldn’t be a reduction in premiums, Mr. Murray said.
While his group has never suggested insurance companies can’t make a profit, “people have to be able to afford the product”, he added.
But Mr. Geuzebroek contends the industry makes 10 cents or less on every dollar consumers spend, with the rest going to claims, taxes and expenses.
Between 2008 and 2010, the industry lost an average of $1 billion a year. In 2010, it was $1.7 billion, he said.
However, Mr. Murray attributes those numbers to an industry allowed to set aside reserves from revenues before they are officially logged.
These reserves are squirrelled away for future insurance-related incidents companies may have to fund, he said.
“Not showing profit is not quite the same as losing money. It’s still there,” he added.
By his calculations, if people are no longer allowed to claim large amounts for minor injuries, the fraud problem is dealt with, Mr. Murray said.
However, rates are staying largely the same, year after year.
“I think they are being hoisted on their own petard here,” he added. “I think they are repeating an argument that’s already been addressed.”
So just how much more are Ontario driver spending than someone in other parts of
the country?
On average, 5.3 per cent ($1,527) of Ontarian’s disposable income is spent on auto insurance, according to IBC’s numbers, compared to 3.2 per cent ($846) in Atlantic Canada and 2.8 per cent ($1,069) in Alberta.
When asked if Ontario may benefit from a public system, such as the ones instituted in other provinces with lower costs, Mr. Geuzabroek said a government-run monopoly is no way to run an insurance system.
In response to Mr. Geuzabroek’s claim of a lack of impartiality and “strong vested interest” on the part of the lawyers association, Mr. Murray said he is perfectly positioned to speak on the issue because he meets with injured people every day.
“We’re the only ones able to speak for people who haven’t even yet been impaired,” he said. “I meet with people every day that I can’t do anything for … because of our system. Does that make me biased or informed?”
The politician who drafted the motion included in the government’s latest budget said although it may not result in a 15-per-cent cut, it will cause awareness about the issue.
The move is a strategic one to bring attention to the issue, said NDP Bramalea—Gore—Malton MPP Jagmeet Singh, the party’s justice and consumer services critic.
“The industry is benefiting from the most historic savings they have ever had. That needs to be passed on to the consumer.”
Rhona DesRoches from FAIR, an association of victims for accident insurance reform, said she agrees with fellow advocates, but her campaign focuses on the lack of oversight within the insurance industry rather than mere costs.
The concern is about how the victims have been treated, she said.
The recently published anti-fraud task force report on fraud in the industry is entirely focused on fraud by clients, rather than fraud committed on the other side, she said.
“What they didn’t look at was the insurers themselves. If an insurance adjuster defrauds you, there’s no one to call. Adjusters can say, ‘I don’t think you’re injured’ while having no medical qualifications and sometimes are holding up claims for years. That puts the consumer at risk.”
Mr. Murray is calling for the auditor general to get involved and conduct a full investigation of Ontario’s insurance industry.
“We wouldn’t usually do that to a private company,” he said. “But it’s a mandatory product.”