How auto fraud reporting is changing in Ontario

A rule authorizing and enabling insurers to report data to Ontario’s Fraud Reporting Service (FRS), with the aim of improving data related to auto insurers’ fraud management work, was approved Jun. 17 by Ontario’s Finance Minister. The rule takes effect 15 days after the approval.

Along with the rule change, the Financial Services Regulatory Authority of Ontario (FSRA) issued guidance that “affects all insurers that are licensed to carry on automobile insurance business in Ontario.” The guidance says program objectives include quantifying the prevalence of auto insurance fraud, setting a fraud detection baseline and identifying fraud trends within the auto insurance industry.

Reporting requirements are keyed to three tiers of circumstances that would cause an insurer to believe fraud has taken place. The thresholds are designed to prevent premature, inaccurate or unnecessary reporting to the FRS.

The first threshold, suspicion that an auto fraud event has occurred, does not require insurers to report information to the FRS, because the facts aren’t yet verified.

Suspicion can stem from:

• A discrepancy from a written document that was filed on a claim;
• A claim being filed shortly after a new policy is bound;
• A conversation with the insured, claimant or other involved party;
• A tip from a broker, police officer or other party, external intelligence (such as a conference or meeting); or
• A flag raised by fraud detection software.

FSRA gives the example of a customer buying an auto policy for a truck and then reporting the vehicle stolen three days later. While suspicious, the insurer has no direct evidence of fraud, so it’s too early to report to the FRS.

The second threshold, ‘reasonable grounds to believe,’ requires insurers to report to the FRS if evidence suggests a fraud has more than likely taken place.

“Information that meets [this] threshold will allow an insurer to demonstrate and articulate their belief that a fraud event has occurred in such a way that another insurer reviewing the same material with similar knowledge, experience, or training would likely reach the same conclusion,” says FSRA’s guidance.

Building on their example, FSRA notes the insurer of the truck reported stolen would have to receive a credible tip that the client has been implicated in an auto theft ring. If the tip is verified, the insurer now has grounds to believe the customer is engaging in insurance fraud regarding this vehicle. The insurer doesn’t have direct evidence of fraud but has opened an investigation and must report “all relevant information that supports their reasonable grounds to believe a fraud event has occurred to the FRS.”

The final threshold, ‘conclusion of fraud,’ means the insurer has enough evidence to be certain a fraud occurred. This must be reported to FRS.

This may lead an insurer to:

• Pay or process a claim despite having that information;
• Deny a claim on the basis it is fraudulent;
• Refer the claim or policy to law enforcement to investigate further and pursue criminal or other action;
• Seek finding of civil or criminal fraud; or
• Secure an ‘in-fact determination’ that fraud has occurred.

Building on their example, FSRA notes the insurer may now have launched an investigation that obtained video evidence that placed the consumer in the vehicle at a location where the truck was later recovered. The insurer then denies the claim and refers it to law enforcement. “The insurer updates the information they previously reported to the FRS, including a description of the video evidence that led to their conclusion that a fraud event had occurred. Note that the insurer will not be required to provide a copy of the video recording as part of its report to the FRS,” the guidance notes.

FSRA adds the FRS Rule requires insurers to provide “all relevant information, including personal information, in the insurer’s possession, control or power…where the information provides reasonable grounds for the insurer to believe that a fraud event has occurred.”

At the same time, it also contains provisions for protecting disclosure of more personal information than necessary and “requires insurers to de-identify all names and identifying numbers, symbols or other particulars assigned to individuals unless disclosure of this information is necessary for the purposes set out in the Act.”

Insurers will have 45 days after the close of each calendar quarter to provide the information prescribed within the FRS Rule for fraud events identified during the preceding quarter. A duty to report can also be triggered by actions, including escalating a file to a special investigations unit, denying a claim or voiding or terminating an insurance policy.