Insurance fraud occurs when any act is committed with the intent to fraudulently obtain some benefit or advantage to which they are not otherwise entitled or someone knowingly denies some benefit that is due and to which someone is entitled. False insurance claims are insurance claims filed with the intent to defraud an insurance provider.
Insurance fraud has existed ever since the beginning of insurance as a commercial enterprise. Fraudulent claims account for a significant portion of all claims received by insurers, and cost billions of dollars annually. Types of insurance fraud are very diverse, and occur in all areas of insurance. Insurance crimes also range in severity, from slightly exaggerating claims to deliberately causing accidents or damage. Fraudulent activities also affect the lives of innocent people, both directly through accidental or purposeful injury or damage, and indirectly as these crimes cause insurance premiums to be higher. Insurance fraud poses a very significant problem, and Canada and Ontario governments and other organizations are making efforts to deter such activities.
Insurance Fraud Causes
The chief motive in all insurance crimes is financial profit. The most common form of insurance fraud is inflating of loss. Insurance contracts provide both the insured and the insurer with opportunities for exploitation. The causes vary, but are usually centered on greed and holes in the fraud fight. Often, those who commit insurance fraud view it as a low-risk, lucrative enterprise. Insurance companies are also susceptible to fraud because false insurance claims can be made to appear like ordinary claims. This allows fraudsters to file claims for damages that never occurred, and so obtain payment with little or no initial cost.
Losses due to insurance fraud
It is hard to determine the exact value for the amount of money stolen through insurance fraud. Insurance fraud is designed by fraudsters to be undetectable, unlike visible crimes such as robbery or murder. As such, the number of cases of insurance fraud that are detected is much lower than the number of acts that are actually committed.The Insurance Bureau of Canada estimates that personal injury fraud in Canada costs about $500 million annually.
Life Insurance Fraud
Life insurance fraud may involve faking death to claim life insurance. Fraudsters may sometimes turn up a few years after disappearing, claiming a loss of memory. An example of life insurance fraud is the John Darwin disappearance case, which was an investigation into the act of pseudocide committed by the British former teacher and prison officer John Darwin, who turned up alive in December 2007, five years after he was thought to have died in a canoeing accident. Darwin was reported as “missing” after failing to report to work following a canoeing trip on March 21, 2002. He reappeared on December 1, 2007, claiming to have no memory of the past five years. Another example is former British Government minister John Stonehouse who went missing in 1974 from a beach in Miami. He was discovered living under an assumed name in Australia.
Health Care Insurance Fraud
Health insurance fraud is described as an intentional act of deceiving, concealing, or misrepresenting information that results in health care benefits being paid to an individual or group.
Fraud can be committed by both a member and a provider. Member fraud consists of ineligible members and/or dependents, alterations on enrollment forms, concealing pre-existing conditions, failure to report other coverage, prescription drug fraud, and failure to disclose claims that were a result of a work related injury. Provider fraud consists of claims submitted by bogus physicians, billing for services not rendered, billing for higher level of services, diagnosis or treatments that are outside the scope of practice, alterations on claims submissions, and providing services while under suspension or when license have been revoked. Independent medical examinations are used to debunk false insurance claims and allow the insurance company or claimant to seek a non-partial medical view for injury related cases. Some scams involve double-billing by doctors who charge insurers for treatments that never occurred, and surgeons who perform unnecessary surgery.
One of the main reasons that medical fraud is such a prevalent practice is that nearly all of the parties involved find it favorable in some way. Many physicians see it as necessary to provide quality care for their patients. Many patients, although disapproving of the idea of fraud, are sometimes more willing to accept it when it affects their own medical care. Program administrators are often lenient on the issue of insurance fraud, as they want to maximize the services of their providers.
The most common perpetrators of healthcare insurance fraud are health care providers. One reason for this is that the historically prevailing attitude in the medical profession is one of “fidelity to patients”. This incentive can lead to fraudulent practices such as billing insurers for treatments that are not covered by the patient’s insurance policy. To do this, physicians often bill for a different service, which is covered by the policy, than that which was rendered.
Another motivation for insurance fraud in the healthcare industry, just as in all other types of insurance fraud, is a desire for financial gain. Physicians use several fraudulent techniques to achieve this end. These can include “up-coding” or “upgrading,” which involve billing for more expensive treatments than those actually provided; providing and subsequently billing for treatments that are not medically necessary; scheduling extra visits for patients; referring patients to another physician when no further treatment is actually necessary; “phantom billing,” or billing for services not rendered; and “ganging,” or billing for services to family members or other individuals who are accompanying the patient but who did not personally receive any services.
Perhaps the greatest total dollar amount of fraud is committed by the health insurance companies themselves. There are numerous studies and articles detailing examples of insurance companies intentionally not paying claims and deleting them from their systems, denying and cancelling coverage, and the blatant underpayment to hospitals and physicians beneath what are normal fees for care they provide. Although difficult to obtain the information, this fraud by insurance companies can be estimated by comparing revenues from premium payments and expenditures on health claims.
Pension Scams Cost You More than Retirement Savings
Advertised “deals” allowing you to get money out of a locked-in RRSP, a locked-in retirement account (LIRA), a Life Income Fund (LIF) or a locked-in retirement income fund (LRIF) may cost you more in the long run than merely the loss of money for your retirement.
The Ontario Securities Commission and the Financial Services Commission of Ontario are warning people to beware of ads that promise early access to savings in locked-in retirement savings accounts. In a time when markets offer relatively low returns on investments, you may be tempted to access funds in your Registered Retirement Savings Plans (RRSP). However, if your RRSP is a Locked-In Retirement Account (LIRA), you might not be eligible to unlock your money. If you turn to the wrong person to help you access your retirement savings, you could lose it all and trigger serious tax consequences.
In most cases, you cannot withdraw money from a LIRA until you reach the designated early retirement age, which is usually 55. There are also limitations on how much retirement income you can be paid on a yearly basis using LIRA money. Con artists have found an opportunity to prey on individuals who are anxious to cash in their LIRA.
The financial impact of this scam on Canadian investors is in the millions of dollars. In some cases, collection agents who refer their desperate clients to companies that claim to help access locked-in funds have magnified the problem. Some reports show that these companies are charging people a fee to fill out forms when this service is actually provided free of charge by the Financial Services Commission of Ontario (FSCO). If you apply to FSCO for assistance and you meet its financial hardship criteria, FSCO can help you unlock your LIRA; there is no need to seek assistance from any other company to make this application.
There are many different forms of RRSP and LIRA scams. In one form, newspaper advertisements state that a tax loophole allows fund holders to withdraw their locked-in funds. They make claims such as, “Take advantage of your RRSP now – no tax to pay,” or “I will loan you $5,000 to $250,000 over five years if your RRSP is locked in.”
In another scenario, promoters first advise you to use the cash in your LIRA to purchase shares in a start-up company. They then promise to lend you half the value of the investment, while they keep the balance as their fee. You are told that you can receive cash, with no tax consequences, and still own an investment in your LIRA.
The ugly truth is that the promised shares are worthless, and you may not receive any money at all. You may be liable for a loan on the books of the lending company, which could be troublesome if they declare bankruptcy. The tax loophole often turns out to be a violation of federal income tax law, so you may have to pay tax on the money that was unlocked even though you didn’t receive any or all of it.
Taxpayers who get involved in these schemes may also face large, unexpected tax bills. Canada Customs and Revenue Agency has confirmed no tax loophole exists. If a locked-in account is used as security for a loan or to purchase shares in a company that is not a “qualified investment” under the Income Tax Act, the locked-in account ceases to be qualified and income tax becomes payable.
As well, depending on the fees charged by these companies, someone may receive only a small portion of their locked-in retirement savings and, in fact, a number of individuals have lost all of their locked-in retirement savings.
Non-Existent Insurance Companies
Sometimes you can see an ad in the paper with such an excellent insurance offer that you can’t resist. This type of scam appears to be linked to non-existent companies that FSCO and the Registered Insurance Brokers of Ontario are constantly publishing and warnings about: United Insurance Brokers, Discount Insurance Brokers, Citizen Group, Trust Insurance Company, Progress Insurance and United Brokers Insurance.
Fake Job Offers Referencing Standard Sunlife Insurance and Dominion Life Insurance
The Financial Services Commission of Ontario (FSCO) is warning consumers about a scam involving offers to work as a pick-up and delivery agent for Standard Sunlife Insurance and Dominion Life Insurance – two non-existent companies that are not licensed by FSCO. Along with an offer of employment, individuals are asked to deposit a cheque into their bank account. Consumers should be aware that a request to deposit a cheque prior to beginning employment is a common characteristic of a job scam. It should be noted that Sun Life Assurance Company of Canada, Sun Life Insurance (Canada) Limited, The Dominion of Canada General Insurance Company and Standard Life Assurance Company of Canada are all legitimate companies licensed by FSCO. These companies have confirmed they have no connection to Standard Sunlife Insurance, Dominion Life Insurance or these job offers.
Detecting Insurance Fraud
The detection of insurance fraud generally occurs in two steps. The first step is to identify suspicious claims that have a higher possibility of being fraudulent. Due to the sheer number of claims submitted each day, it would be far too expensive for insurance companies to have employees check each claim for symptoms of fraud. Instead, many companies use computers and statistical analysis to identify suspicious claims for further investigation. There are two main types of statistical analysis tools used: supervised and unsupervised. In both cases, suspicious claims are identified by comparing data about the claim to expected values. The main difference between the two methods is how the expected values are derived. Additionally, the public can provide tips to insurance companies, law enforcement and other organizations regarding suspected, observed, or admitted insurance fraud perpetrated by other individuals. Regardless of the source, the next step is to refer these claims to investigators for further analysis.
Fraudulent claims can be one of two types. They can be otherwise legitimate claims that are exaggerated or “built up,” or they can be false claims in which the damages claimed never actually occurred. Once a built up claim is identified, insurance companies usually try to negotiate the claim down to the appropriate amount. Suspicious claims can also be submitted to special investigative units for further investigation. These investigators look for certain symptoms associated with fraudulent claims, or otherwise look for evidence of falsification of some kind. This evidence can then be used to deny payment of the claims or to prosecute fraudsters if the violation is serious enough.
In Canada, in 1973 the Insurance Crime Prevention Bureau was founded to help fight insurance fraud. This organization collects information on insurance fraud, and also carries out investigations. Approximately one third of these investigations result in criminal conviction, one third result in denial of the claim, and one third result in payment of the claim.
The Canadian Anti-Fraud Centre
The Canadian Anti-Fraud Centre (formerly known as PhoneBusters National Call Centre) is Canada’s national anti-fraud call centre and central fraud data repository. It was established in January 1993 in North Bay, Ontario and is jointly operated by the Ontario Provincial Police, Royal Canadian Mounted Police and the Competition Bureau. The original mandate of PhoneBusters was to prosecute key individuals in Ontario and Quebec involved in telemarketing fraud under the Criminal Code of Canada. Its mandate now includes gathering intelligence and receiving complaints on Mass Marketing Fraud (i.e. Nigerian Letter scam), identity theft, deceptive marketing practices and telemarketing frauds. Once received, the center analyzes the data, disseminate victim evidence, statistics, documentation and prepare reports for other law enforcement agencies in Canada and United States to follow up. It also educates and provides awareness campaign on fraud prevention and telemarketing pitches, particularly in March (Fraud Awareness Month) to prevent future victimization.
Use the following tips to avoid your Retirement Savings retirement scam:
- Visit the FSCO website http://www.fsco.gov.on.ca/ for more information on how to apply to unlock your LIRA.
- Understand the tax consequences of using the funds in your LIRA; consult with a tax specialist for additional information.
- Any person offering you investment advice must be registered to do so; check the registration status of your investment adviser online at http://www.osc.gov.on.ca in the Registrants List, or call the OSC toll-free at 1-877-785-1555
- Investigate the offer; see bulletin IT320R3 titled “Qualified Investments – Trusts Governed by Registered Retirement Savings Plans, Registered Education Savings Plans and Registered Retirement Income Funds” located on the Canada Revenue Agency website http://www.cra-arc.gc.ca/ to check that they are RRSP eligible.
By simply filling out a ballot to win a vacation at a home, boat or auto show, you may be set up for “suckers lists”. Shortly after filling out this ballot, you may be contacted over the phone by someone claiming to offer you a “free” or “low cost” vacation. They will ask for your credit card number and personal information in order to hold the vacation for you, or they may request money in advance.
Don’t give out your credit card information over the phone. If you want to check out the value of these promises, seek out the advice of a legitimate travel agency in your area. If you have provided credit card information to the telemarketers, be aware that most companies have policies that allow you to cancel your reservation within 30 days. Do not let anyone pressure you into committing to any agreement over the phone.