Canadian insurance consumers pay an additional $3 billion in insurance premiums every year that does not reflect their risk profile.
The reason? Small-scale insurance fraud.
According to Anne Marie Thomas of Insurance Hotline, small lies consumers tell when applying for insurance falsely inflate the cost for everyone. In fact, roughly 15 per cent of people’s insurance premiums go toward covering false claims.
“There are smaller types of insurance fraud that people commit, and you don’t even think of it being fraud,” Thomas told
CTV. “For example, telling your insurer ‘I don’t drive to work,’ and the truth is, you drive 50 kilometres one way to work.”
While these small indiscretions save consumers a few dollars on their premiums, they end up costing the industry—and the general population—much more.
Part of the problem is the emphasis on low insurance rates as a right, says Professor Sharon Tennyson of Cornell University, who compared the Ontario insurance market to that in the U.S.
“Insurance systems designed with an emphasis on consumer rights, the payment of benefits, generally fail to control incentive problems,” said Tennyson. “Consumers feel they have a right to low-cost insurance, and insurers become ‘sitting ducks’ in the face of inadequate costs controls; it makes the system and insurers and easy target for fraud and abuse.”
Insurers must be proactive to stay one step ahead of the organized fraud occurring, she advised.
“If you are going to fight fraud, you need very good data bases,” she said. “In Massachusetts, they had great success with the Community Insurance Fraud Initiative. They found the fraud was localized and organized. Some areas were more problematic than others.”
By studying it and addressing the problem, said Tennyson, it has paid off in the reductions of claims and cost.
Insurance brokers, meanwhile, must prepare to meet morally dubious situations with clients, said Brent Kelly, a producer with Clemens Insurance.
“The reality is that clients—the ones who pay your salary—will often put you in the most difficult ethical positions,” said Kelly. “That doesn’t mean that clients ever have the right to put you in a difficult position. My philosophy has always been to simply follow the golden rule in all situations.”
Do you have clients telling white lies for a lower premium? Take our poll and let us know.
