Although insurance fraud is most often associated with the filing of fraudulent claims, fraud in all capacities as it relates to insurance is a major factor in determining premiums. Consider the following.
You regularly use your car in the major metropolitan area where you live but have insured and registered it at your cottage or relatives house because the rates are much less. Sound fair?
Or, without consulting your insurer, you let your 18 year-old son use the family car to deliver pizza in his spare time. No harm done?
How about the snowbirds who take their cars down south and end up leaving them with home jurisdiction plates and insurance?
Know any families who, faced with the need to buy their child a car for school but can't afford the "principal driver premium" and insure it with a 2nd insurance company stating only "occasional driver" for advantaged premiums? Or, just not letting the insurer know when there is another driver?
The list of creative (and dishonest), methods to avoid paying the appropriate premium is endless. I'm sure we have all heard many of them before when the subject of insurance comes up at social gatherings.
It is important to understand that all contracts (policies) of insurance rely on a legal principal called "utmost good faith" (Uberrima Fides in Latin). The insurance company relies on insureds to deal in good faith and disclose all facts material to the situation. This allows them to measure the risk and decide to accept it, and assign an appropriate premium, or decline the risk - full disclosure.
It is sometimes thought to be "open season" on insurance companies to cheat or say anything just to get "a policy" at the lowest cost (whether it would be valid in a crisis situation or not). Imagine if this practice was used when applying for a mortgage or credit card? The results would likely be discovered quicker but probably not result in consequences so disastrous as an uninsured claim. Unlike other financial institutions, with insurance, the results are often not uncovered until the policy is needed most...when there is a major loss.
Insurance companies manage pools of money contributed to by their policy holders and then distribute these funds to those that have claims - fair and square. They do a great job at this. However, if the insurer is not diligent and has undiscovered fraudulent policies, it results in higher claims costs, skewed statistics, ultimately higher premiums, and the resultant loss of business from policyholders who are honest and responsible and who may move to an insurer better able to manage these funds and keep premiums as low as possible.
While doing things of this nature may seem simple and harmless it is still fraud. And, when it is discovered it is often too late especially if the policy needs to be relied upon for a major claim which may be denied then followed by a cancellation for fraud. If that is not bad enough, with an uninsured loss, fraud and cancellation on an insurance record (virtually impossible to hide), future premiums (if even available) will be exhorbitant.
Along with the serious risk of having a claim denied, practices like this affects others on a larger scale. For example, when a driver is using a vehicle in a higher territory and paying a premium based on a lower rated territory it results in skewed statistics and increased premiums for those that are playing by the rules as insurers note increasing claims from what should be lower rated territories.
If we would just all remember that with insurance, like life, honesty is always the best "policy". Otherwise you can pay your fair share now, or risk financial disaster later.
A final note on fraud, in particular as it relates to claims: The Insurance Bureau of Canada's (IBC's) primary goal in providing investigative services is to protect the premiums of honest policyholders by ensuring that insurance companies pay only legitimate and honest claims.
Organized insurance crime continues to cost insurers, policyholders and Canadians over $1 billion a year. Have you witnessed a potential crime? Help bring offenders to justice. You can anonymously report it to IBC or, if you're in Ontario call Crime Stoppers at 1-800-222-TIPS