Auto Insurance Fraud - You Pay For It!

Winter 2010 CSANews Issue 77  |  Posted date : Dec 16, 2010.Back to list

A.C. Thomas of Calgary, Alberta wrote a recent note to us regarding insurance fraud and I think that it is high time that people knew why they are paying such exorbitant automobile insurance premiums. Mr. Thomas writes...

"As new owners of a condo in Phoenix, we plan to take our car and leave it there until May. Our insurance agent has informed us that we will have to pay a 60% premium on our policy for this, as there have been numerous incidents of insurance fraud by individuals cruising the roads looking for Alberta licence plates because they know that we carry at least $1 million in liability coverage as opposed to the minuscule amount that Arizona vehicles are required to carry. They then get in front of your car and make a sudden stop with the intent of causing you to hit them from behind, and then claim whiplash injury. Often, there are several people in the fraud artist's car, so the total claim can be quite high. Is anyone else aware of this problem? Thank you!"

Mr. Thomas, you have hit a raw nerve! First, that's the dumbest reason for charging you 60% more premium that I have ever heard. It is common for some insurers to charge more if your car is going to be in the United States for more than 30 days, but 60% sounds a little steep. Their reason is ridiculous.

The "raw nerve" part relates to these fraud artists who are everywhere, and our governments and insurance companies just don't seem to care. The insurance companies simply treat this fraud as a cost of doing business and pass the fraud expenses on to you, their valued customer. The governments, with their myriad ridiculous laws and regulations, make it almost impossible for the auto insurers to do otherwise. It is not my intention to comment on these laws because they have been studied, commented on, and analyzed to death, and revised on more occasions than I can count. I don't think that anyone has ever really tried to educate the public about the two real issues driving high auto insurance premiums - the massive fraud which these regulations encourage and the convenience of the provincial government being able to pass Medicare expenses, especially fraudulent medical expenses, onto private automobile insurance companies. That, in reality, means YOU!

There are hundreds of these fraudulent claims in Alberta and I would think that you would be much less likely to meet these fraudsters in Phoenix, as their laws are not as friendly to crooks. Ontario is perhaps the worst offender in that there are dozens, if not hundreds, of gangs committing auto insurance fraud every day - you know, the phoney whiplashes and the back pains and the mental stress and the horrible headaches. What garbage! Round up all these slime bags and ship them to the high Arctic to look for earthworms.

So... How do we know that it's fraud? Well, first, my personal experience with the claims-paying division of the Insurance Company of North America many years ago, resulted in a lawyer being censured by the law society and a doctor's licence being withdrawn. Hundreds of fraudulent claims were properly denied, but we all endured intimidation and threats on our lives in the process. We had private investigators and independent medical specialists and tough-nosed claims investigators and what we turned up was disgusting. The claimants had literally dozens of disability policies each, that paid them disability payments if they were injured or sick. Some added up to thousands of dollars per week and that was a lot of money in those days. On checking their past histories, every claimant had dozens of prior automobile and disability claims that did not appear on their normal records. When one policy's payments ran out, they would simply go have another car accident. And they always drove rental cars as that way, their driving record remained "clean" due to the poor reporting procedures of the rental companies. Generally, there were 12 claimants per accident, six in the front car and six in the back car and when we personally inspected the damage, there was almost none. The auto repair shops were in on the scam, too, and no one wanted to get real whiplash, of course.

The real eye-opener came when Ontario first introduced the Accident Benefits section of the government-mandated (read, forced) automobile policy. This called for disability payments to be made to a person injured in a car accident, among other things. All of the insurance companies got together and combed through their claims files to see how many people had disability claims, how long they stayed off work and what the average cost was going to be. They had extensive records on this issue and, because the government was forcing them to do this, they probably built in a little profit for themselves. These accident benefits were introduced at, what I believe to be, the very accurate cost of $15 per year, per car.

There is not much more to say, really. The current cost of these benefits is $800-$1,200 per year, per car, and sometimes much more. The benefits have changed in a minor way – there has been some inflation over the years – but we all now know what the difference between $15 and $800 really is. It is fraud! Government-mandated and insurance company-ignored FRAUD!

My radical solution in the old days was to insert a simple clause into our client's disability policies. It said, "No benefits will be payable for soft tissue injuries unless they are visible on an X-ray or unless you are hospitalized." Can you believe it - we had no complaints, none, and we had thousands of clients! The crooks just moved on and went looking for the next sucker insurance company. The claims costs in this specific case were reduced by more than 80%. 

To insert this clause into any provincial automobile policy would take great courage on the part of any government and, in this case, there would be many complaints from the fraudsters. This is their income, after all, and they earn tens of millions and perhaps hundreds of millions of dollars every year. It has become their way of life! BUT, if any government ever did, I believe that your auto insurance premiums would reduce by half. We could create an economic boom by changing a few words in the automobile policy. What would you do with all that extra money, every year?

I will close with a simple observation. There are extensive laws and regulations regarding your automobile insurance, but almost none regarding your home insurance. The average automobile costs around $30,000, but the average home is worth well over $100,000 and, often, many hundreds of thousands of dollars. Accidents in the home and elsewhere are much more numerous than road accidents. If the government is protecting us by forcing us to buy auto insurance, would you not think that it would be more important to protect our homes instead? I wonder how much the massive bureaucracy of government oversight of auto insurance costs? How many doctors and lawyers and physiotherapists and chiropractors must be in on these scams? Why don't the regulating bodies for these professionals kick out these bad apples? Well, perhaps not so simple, after all.

P.S. Thanks for your note, Mr. Thomas. I have wanted to get that raw nerve healed for a long time. And our congratulations on your new condo and your new lifestyle. I also recommend that you request a quote from the CSA's Auto Insurance Program. It was designed for snowbirds and has NO surcharges for U.S. travel.

P.P.S. One of our staff was involved in a parking lot accident at the mall the other day. Two cars backed out of parking spots and touched each other. There was no damage to either car, but the four people in the other car have severe whiplash and other unspecified injuries. They also have gang tattoos. We should send them north in the wintertime.