Proposed Guidance: Automobile Insurance Fraud Reporting

Guidance 

☑ Interpretation     ☑ Approach     ☐ Information     ☐ Decision

No. AU0140INT

Download a copy in PDF format

Purpose

This Guidance outlines the Financial Services Regulatory Authority of Ontario’s (“FSRA”) interpretation of requirements under Authority Rule 2024-003 – Fraud Reporting Service (“FRS Rule”) and section 101.3 of the Insurance Act (the “Act”), and outlines FSRA’s approach to supervising against the reporting requirements outlined in the Act and the FRS Rule.

Specifically, this Guidance provides FSRA’s interpretation of several requirements under the FRS Rule regarding:

• the scope of prescribed information an insurer is required to provide when reporting information about fraud events to the Chief Executive Officer (“CEO”) or an agency designated by the CEO
• the threshold of what constitutes “reasonable grounds for the insurer to believe” that a fraud event has occurred or is likely to occur, and
• the “action” an insurer may take that triggers an insurer’s requirement to report prescribed information to the Fraud Reporting Service (“FRS”)

The purpose of the collection of information in the FRS is to support FSRA’s effective assessment and detection of automobile insurance fraud in Ontario.

Key outcomes associated with this purpose include:

• quantifying the prevalence of automobile insurance fraud in Ontario
• creating a baseline for fraud detection, and
• identifying fraud trends throughout the automobile insurance industry

Scope

This Guidance affects all insurers that are licensed to carry on automobile insurance business in Ontario.

Rationale and background

FSRA’s rule-making authority to enact a FRS is derived from paragraph 8.2 of subsection 121.0.1(1) of the Act in conjunction with subsection 101.3(1) of the Act.

The overall objective of the FRS is to improve the use of data in the auto insurance industry’s fraud management activities by statutorily authorizing and enabling insurers to report automobile insurance fraud information to the FRS.

The requirement to report information about automobile insurance fraud to the FRS builds on FSRA’s existing powers to supervise against unfair or deceptive acts and practices (“UDAP”) in the insurance sector. These powers are grounded in section 5 of FSRA’s UDAP Rule to address unfair claims practices, and section 6 of the UDAP Rule to address fraudulent or abusive conduct related to goods and services provided to a consumer. Conduct by policyholders, claimants, claims vendors, and other non-licensees is captured by many parts of the UDAP Rule, including sections 5 and 6.

FSRA’s collection and consolidation of the information about automobile insurance fraud that insurers are required to report under the Act will help create a baseline of data that can serve the purpose of assessing the amount of fraud in the automobile insurance system in Ontario.

In supervising and regulating the automobile insurance sector, FSRA is guided by its statutory objects under section 3 of the Financial Services Regulatory Authority of Ontario Act, 2016 (“FSRA Act”).

Specifically, this Guidance supports outcomes consistent with the following objects:

• to deter deceptive or fraudulent conduct, practices and activities by the regulated sectors
• to promote transparency and disclosure of information by the regulated sectors
• to contribute to public confidence in the automobile insurance sector
• to monitor and evaluate developments and trends in the automobile insurance sector
• to promote high standards of business conduct, and
• to protect the rights and interests of consumers

The FRS aims to reduce consumer harm, including unnecessary costs borne by consumers, as a result of auto mobile insurance fraud.

The FRS Rule and this accompanying Guidance represent the first phase of the development of the FRS. In the second phase of the FRS, FSRA anticipates that information collected in phase one will be available for insurers to access to enable the assessment and detection of fraud by insurers.

With regards to the first phase of the FRS, FSRA’s view is that “assessing and detecting automobile insurance fraud” includes:

• quantifying the prevalence of automobile insurance fraud in Ontario
• creating a baseline for fraud detection
• identifying trends throughout the industry

Interpretation 

1. What is a “fraud event”?

All insurers must report information about “automobile insurance fraud” to the FRS in accordance with subsection 101.3(1) of the Act and the FRS Rule.

A common understanding of what events, circumstances, or actions are considered to amount to a “fraud event” is important for insurers to understand how to comply with the requirement to provide information to the CEO about “automobile insurance fraud”.

Subsection 3(2) of the FRS Rule requires insurers to provide information in accordance with subsection 101.3(1) of the Act when an insurer has taken action or made a decision based on reasonable grounds for the insurer to believe that a “fraud event” has occurred or is likely to occur. Subsection 1(1) of the FRS Rule defines a “fraud event” as follows:

“fraud event” means a deceptive act or omission, or series of deceptive acts or omissions intentionally committed by a person(s) to obtain advantage, financial gain, or benefits from an insurer beyond that to which one is entitled to in with regard to any policy, claim, provision of goods or services or other occurrence related to automobile insurance […]

FSRA interprets this phrase broadly to cover a wide range of “deceptive acts or omissions intentionally committed by a person(s) to obtain advantage, financial gain, or benefits from an insurer beyond that to which one is entitled to”. This broad interpretation empowers insurers to identify activities that meet this definition.

Recognizing that the scope of what may constitute a fraud event under the FRS Rule is constantly evolving and that a prescriptive list could not capture all potential occurrences within scope of the definition, subsection 1(1)(e) of the FRS Rule provides a non-exhaustive list of categories of “fraud events”. Examples of specific instances of “fraud events” under these broad categories is included as Appendix A in this Guidance.

2. What is the extent of information about automobile insurance fraud that an insurer must provide?

Section 3(1) of the FRS Rule outlines the scope of “prescribed information” that an insurer must provide:

“Prescribed information includes all 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 or is likely to occur”.

FSRA interprets “all information” to mean all relevant information, without restriction or limitation, where the information provides reasonable grounds for the insurer to believe that a “fraud event” has occurred or is likely to occur.

The scope of information in section 3(1) is unqualified. As a result, if an insurer knowingly or unknowingly withholds prescribed information in their possession, control or power, including any and all relevant data points outlined in Appendix B of this Guidance, then the insurer would be in contravention of the Act and the FRS Rule, which may result in FSRA initiating measures to enforce compliance.

3. What type of information provides “reasonable grounds for an insurer to believe that a fraud event has occurred or is likely to occur”?

Insurers are required under the FRS Rule to report all information about automobile insurance fraud where the information provides reasonable grounds for the insurer to suspect that a fraud event has occurred or is likely to occur.

Understanding the difference between the prescribed “reasonable grounds to believe” (“RGB”) threshold for reportable information and other thresholds is important for an insurer to understand the standard and scope of information that must be reported to the FRS.

This RGB threshold is intentionally prescribed in the FRS Rule to prevent premature, unnecessary, or inaccurate information from being reported to the FRS, but also to encourage reporting before an adjudicated finding of automobile insurance fraud is secured. The RGB is intended to reflect a middle-ground between suspicion, and confirmation of fraud, resulting in information most beneficial to the automobile insurance sector in assessing and detecting these fraud events.

To illustrate the RGB threshold, this guidance distinguishes between three thresholds of information: suspicion of fraud, reasonable grounds to believe fraud has occurred, a conclusion that fraud has occurred. A suspicion of fraud is the lowest threshold, and a conclusion that fraud has occurred is the highest threshold.

The highest threshold will include all information captured by the lower thresholds, with the only difference being an increased level of evidence or facts that confirm the existence of automobile insurance fraud.

Lowest Threshold: Suspicion that a fraud event has occurred

Insurers are not required to report information if they only have suspicion that a fraud event has occurred or is likely to occur.

Suspicion means an insurer may have an indication that something is unusual or suspicious, but does not yet have verified facts that can confirm the suspicion of a fraud event or elevate the suspicion into a reasonable belief that a fraud event has occurred. Indications of a fraud event may be based on not-yet-verified evidence received from an external source, such as a law enforcement agency or another insurer.

The suspicion could come from a discrepancy from: a written document that was filed on a claim, a claim 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 information from a conference or meeting), and an indicator from a fraud software solution.

Reasonable grounds to suspect that a fraud event has occurred may exist where the insurer investigates into their suspicion of a fraud event having occurred, and discovers further indicators or facts that warrant verification and further investigation. The suspicion at this stage is based on limited unverified evidence and does not raise to a belief that a fraud event has occurred.

Suspicion of a fraud event is relevant to the extent that it may prompt an insurer to assess the factual circumstances of the situation to identify any additional information or evidence that would support or confirm this simple suspicion.

Example: A consumer purchases an automobile insurance policy on their truck. 3 days after purchasing the policy, the individual reports the vehicle as stolen. At this point, the insurer has no evidence that the consumer has fraudulently reported the vehicle as stolen, but the insurer nevertheless suspects that the consumer may be engaging in automobile insurance fraud based on previous investigations with similar facts. The insurer does not report any information to the FRS as the information only rises to the threshold of suspicion.

Prescribed Threshold: Reasonable grounds to believe (“RGB”) a fraud event has occurred or is likely to occur

Insurers are required to report prescribed information once it meets this threshold.

Section 3(1) of the FRS Rule clarifies that information is prescribed information is only where “the information provides reasonable grounds for the insurer to believe that a fraud event has occurred or is likely to occur”.

FSRA interprets “reasonable grounds […] to believe” to include evidence, verified facts, context, or indicators that support a high degree of certainty that a fraud event has occurred or is likely to occur, warranting further action by the insurer but not allowing the insurer to conclude that a fraud event has occurred.

Information that meets the RGB threshold will allow an insurer to demonstrate and articulate their belief that a fraud event has occurred or is likely to occur in such a way that another insurer reviewing the same material with similar knowledge, experience, or training would likely reach the same conclusion.

Many factors will support an insurer’s assessment and conclusion that there are reasonable grounds to believe a fraud event has occurred or is likely to occur, all of which are required to be reported to the FRS.

Example: A consumer purchases an automobile insurance policy on their truck. 3 days after purchasing the policy, the consumer reports the vehicle as stolen. One week following the consumer reporting the theft, the insurer receives a tip from a credible source that the consumer has been implicated in a vehicle theft ring. After verifying the information provided by the tip, the insurer has reasonable grounds to believe that the consumer is engaging in automobile insurance fraud with respect to their own car that they have reported as stolen. Even though the insurer does not have any direct evidence to conclude that the consumer has engaged in fraud, the insurer has opened an investigation and has started gathering evidence relating to the consumer’s claim. The insurer reports all information that supports their reasonable grounds to believe a fraud event has occurred to the FRS.

Highest Threshold: Conclusion of Fraud

Insurers should update the reported information once they have concluded that a fraud event has in fact occurred. If an insurer comes into possession of information that allows them to bypass the lower thresholds and immediately conclude that a fraud event has concurred, then the insurer will still need to report the information to the FRS.

At this threshold, an insurer has investigated, verified, and concluded that a fraud event has in fact occurred.

The threshold of information may cause the insurer to:

• pay or process a claim despite having information that allows the insurer to conclude that fraud has occurred
• deny a claim on the basis of it being fraudulent
• refer the claim or policy to a law enforcement or state agency to further the investigation and pursue criminal or other action
• seek an adjudicated finding of civil or criminal fraud, or
• secure an “in-fact determination” that fraud has occurred

Example: A consumer purchases an automobile insurance policy on their truck. 3 days after purchasing the policy, the consumer reports the vehicle as stolen. One week following the consumer reporting the theft, the insurer receives a tip from a credible source that the consumer has been implicated in a vehicle theft ring. The insurer launches an investigation during which the insurer obtains video evidence that places the consumer in the vehicle at the location where the truck was later recovered. Based on this evidence, the insurer denies the claim on the basis of it being fraudulent and refers the claim to law enforcement to pursue criminal charges. 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.

Insurers are required to update information in the FRS when the information meets the threshold of conclusion that a fraud event has occurred

Section 4 of the FRS Rule requires insurers to ensure all prescribed information provided to the CEO shall be complete, up to date, and factually correct.

If an insurer subsequently becomes aware that the information the insurer previously provided is or has become incomplete, out-of-date, or factually incorrect (e.g., the insurer has discovered information that has allowed them to conclude that fraud has occurred), then compliance with section 4 of the FRS Rule necessitates that the insurer take steps to update the information to ensure that the information provided to the FRS remains complete, up to date, and factually correct.

If an insurer reports information based on the RGB threshold, and subsequently collects further information that leads to a conclusion that a fraud event has occurred, the insurer shall update the originally-reported information based on the new information that resulted in a higher threshold.