Insurance News - Wednesday, August 29, 2012

Deloitte Report Estimates U.S. P & C Insurance Fraud At $30 Billion

A recent report, A Call to Action: Identifying Strategies to Win the War Against Insurance Claims Fraud, released by Deloitte says auto insurance and workers’ compensation are the two biggest sources of an estimated $30 million in insurance fraud.

With losses mounting from fraudulent claims, fraud management has moved higher on the agenda of senior management. Many companies have taken steps to improve their ability to identify and address fraudulent claims, but these efforts have typically been fragmented. Effectively addressing claims fraud rests on four pillars of an integrated fraud management program:

• Develop a fraud management strategy
• Align the operating model
• Improve information quality
• Leverage advanced technology tools and analytics

The Deloitte report can be downloaded here.

Deloitte has also reported on the cost of auto insurance fraud in Ontario. Information about that report can be found here.


Falling On Ice Outside A Vehicle Is Not An Accident Under The SABS

A woman who slipped on ice after exiting her car is not eligible for auto accident benefits in Ontario because the incident does not constitute an “accident” under insurance regulations, a director’s delegate of the Financial Services Commission of Ontario (FSCO) recently ruled.

In Wawanesa Mutual Insurance and Webb, Daphna Webb was injured when she parked in a residential neighbourhood. After parking at a pedestrian access point along a snowy street, she exited the driver side and walked around the front of her car. Webb slipped and fell on ice, breaking four bones in her foot.

The burden of proof rested with Ms. Webb to show on a balance of probabilities that she was injured as a result of an accident pursuant to subsection 2(1) of the SABS. The arbitrator found in her decision dated May 12, 2011, that Ms. Webb satisfied her burden.

Disembarking from a motor vehicle is a normal activity required by the use or operation of a motor vehicle. The key question to be answered was whether Ms. Webb's injury was "directly" caused by the use or operation of her motor vehicle.

Wawanesa submitted that the access point constituted a different geography and was an intervening event. Once Ms. Webb had exited her vehicle and walked to the front of her vehicle, the disembarkation had concluded as she stepped onto the access point and, accordingly, she was no longer engaged in the ordinary activities to which an automobile is put. The arbitrator disagreed on this point.

The director's delegate disagreed with the arbitrator. He indicated that Ms. Webb was not in the process of actually disembarking from the vehicle when the incident took place. She was not intending to momentarily return to her vehicle so no auto contributed physically to her injuries.

Arbitration Appeal Decision Regarding Failed Mediation

On February 10, 2012, in Leone and State Farm, a FSCO arbitrator ruled that mediation was deemed to have failed because it did not take place within 60 days of an application being filed and that the parties could not extend the time limit on consent once 60 days had expired.

In this particular case the claimant filed for mediation on September 28, 2010 and FSCO acknowledged receiving the application 2 days later. A mediation number was assigned to the file and the claimant was informed that there would be a delay in assigning a mediator because of high volumes.

The claimant filed for arbitration on March 14, 2011 indicating that although mediation had not taken place, it had failed because of the passage of time. FSCO received the arbitration application 169 days after receiving the mediation application. On August 18, 2011 a mediator was assigned to the file, 382 days after receiving the mediation application. The claimant maintained the position that mediation had failed. There had been an agreement to extend the timelines but the arbitrator ruled that it was invalid because 60-day timeline has already expired.

The insurer supported the position of FSCO that the 60-day timeline does not begin until a mediator has been assigned. The arbitrator disagreed with this interpretation of the statute. The arbitrator also disagreed with the position that a mediator's report is required stating that mediation has failed. The arbitrator indicated that the requirement in this case was unreasonable and should be waived.

The arbitration decision was appealed.

On July 31, 2012, a decision​ was released by the director’s delegate that upheld the 60-day deemed failure but stated that the parties had the ability to extend the time for mediation, as has been the practice for many years.

The director's delegate agreed with the arbitrator that the 60-days timeline begins when a completed application is filed not when a mediator is assigned. Therefore, the mediation was deemed to have failed by November 29, 2010.

The director's delegated disagreed with the arbitrator on the issue of extending the timeline. He indicated that the parties could extend the timelines after the 60-days timeline has passed and to prevent the parties from doing so would be contrary to the intent of the statute.

Finally, the director's delegate also agreed that the arbitrator had the ability to waive the requirement of a mediator's report before filing for arbitration.

Anti-Fraud Task Proposes Regulating the Towing Industry

The Task Force observed that oversight and enforcement activities around tow truck operations in Ontario are inconsistent across the province, creating opportunities for fraud organizers, and for tow-truck operators themselves, to exploit. Issues raised include the participation of some tow truck operators in the creation or manufacture of false claims, exorbitant towing fees, and inappropriate referral practices (such as paid referral fees for directing consumers to particular health care, automotive body shop, or legal service providers).

The Task Force asked the Regulatory Practices Working Group (RPWG) to examine options that would reduce the potential for practices that may fraudulently inflate insurance costs without impairing quick removal of damaged vehicles from roadways.

The RPWG established an ad-hoc inter-ministerial committee to help gather information and conduct analysis on the towing industry. Their focus has included:

• options to address practices that may fraudulently inflate insurance costs;
• broader regulatory options that also address road safety and consumer protection; and
• market-based options.

Here are the options that the Task Force would like feedback on from stakeholders and the public:

1. Give consumers better information, including information about personal rights and responsibilities, as well as existing protection from potentially unfair or deceptive acts or practices.

The objective would be to alert consumers — and provide a signal to members of the towing industry potentially involved in fraudulent or abusive activities — that these activities are prohibited.

2. Strengthen existing bans on paid referrals to other services.

Bans on accepting referral fees already exist in some municipal bylaws and UDAP regulations — however, these are not consistent. For example, they do not apply to every tow and are limited to municipalities where bans exist and/or where auto insurers pay. Creating a province-wide ban on referral fees for other services could provide greater clarity and consistency.

3. Harmonized municipal business licensing.

This option would require municipal business licensing based on provincially-set standards/requirements — potentially including fees, codes of conduct, and bans on paid referrals. This would have the objective of creating greater consistency in municipal licensing.

4. Provincial business licensing through a Designated Administrative Authority (DAA).

Under this option, the province could create a new regulatory regime through a third-party Designated Administrative Authority (DAA, a non-Crown and non-profit entity) that would oversee provincewide requirements. A DAA model establishes an accountability and governance framework between a Ministry and a not-for-profit corporation that administers legislation on behalf of the government.

5. Roster system similar to what has been established by Halton Regional Police Services.

Halton Regional Police Service maintains a list of pre-selected towing operators to recommend to consumers requiring towing services. Consumers are directed to the first available towing operator based on a rotating list of eligible businesses.

My thoughts...

The DAA model is appropriate where the government determines a well-regulated industry has the maturity and sophistication to take over regulatory responsibility. An example is the travel industry. The towing sector is not currently regulated by the province and certainly isn't sophisticated enough to develop a DAA. This is not a workable model.

It makes sense to build on the existing network of municipal licensing regimes and develop provincial-wide standards and rules. This will also prevent the confusion what currently exists when towed vehicles cross municipal borders. There is also a lot of merit to a roster system that is used in Halton. A similar system exists in a number of U.S. jurisdictions and eliminates chasers from the system. I understand that in these jurisdictions the police provide the first towing firm called a limited amount of time to make it to the scene and then contact the next company of the roster.

Bans of referral fees are well intentioned but difficult to enforce. These payments are "under the table" and difficult to uncover. I believe the best way to combat referral fees is to control fees charged by towing companies, body shops and rehabilitation facilities. Controlling fees reduces the ability to pay for referrals and then pad bills to cover the payments.

Anti-Fraud Task Force Considering SABS and UDAP Changes

Ontario auto insurance stakeholders may be tired of SABS reforms still the Auto Insurance Anti-Fraud Task Force in their status report is suggesting consideration of a number of SABS changes put forward by the insurance industry to assist in deterring and dealing with fraud. These related to relationships between insurers and claimants.

1. Require claimants to confirm attendance at treatment facilities

Insurers have reported being billed for treatments that never took place. In some circumstances the claimant or injured person was unaware this occurred. The Statutory Accident Benefit regulation could be amended to require health care providers and assessment facilities to ask claimants to sign a form each time they receive a treatment. Copies of the forms would have to be kept on file and made available for inspection by a representative of the insurer at the time of audit.

I'm not so sure this is really needed. On July 1, 2011 section 46.2 was added the SABS to provide insurers with the ability to request information from providers to verify that treatment had been provided. That could include clinical notes and other records. Verification of treatment provided already exists and, in fact the clinical record even specifies the type of treatment provided as well as the date.

2. Require claimants to confirm receipt of goods and services billed to insurers

Insurers have reported being billed for goods and services that were never provided. In some circumstances the claimant or injured person was unaware this occurred. The Statutory Accident Benefits regulation could be amended to require providers of goods and services to ask claimants to sign a form when they receive goods. Copies of the forms would have to be kept on file and made available for inspection by a representative of the insurer at the time of audit.

There is some merit to this proposed provision. However, this information should also be in the clinical records. An additional requirement would suggest that clinicians are falsifying clinical records which may be occurring though I don't recall anyone ever raising it as a problem.

3. Require claimants to attend up to two examinations under oath upon request of insurer

Insurers sometimes have difficulty substantiating a claim without additional information that only the claimant could provide. The current regulatory regime requires only one examination under oath and in many cases this examination takes place very early and is directed at establishing which insurer is the responsible insurer where there is more than one company involved and doubt about the facts. Insurers have suggested that once treatment has commenced it would be desirable to allow for a second examination under oath if an issue arises that could not have been anticipated at the time of the first examination, or where the first examination had to wholly be used to establish which insurer was responsible for a claim. As a matter of due process, it is important that additional criteria be established around this proposal to ensure that claimants are treated fairly during the administration of these examinations under oath.

I agree with this proposed provision.

4. Require a claimant to pay their insurer a $500 fee for missing a medical examination as requested

Insurers are billed when claimants fail to attend a medical examination arranged by the insurer at an agreed time and place. It has been reported that some legal representatives have told their clients not to attend, and to not give notice. The SABS could be amended to require the claimant to pay a fee of $500 toward the cost of the missed appointment when the person has missed an appointment, without giving reasonable notice or without offering a reasonable explanation for failing to give notice in time. It would be up to the insurer, not FSCO, to give the claimant timely and adequate warning of the potential charge, and to collect the money.

I agree with this proposed provision. However, I'm not so sure it will reduce non-attendance at medical examinations. I predict that many of those legal representatives that advise their clients not to attend will dispute indicating that reasonable notice was given. In some cases I could see a legal representative paying the $500 charge in order to avoid the exam.

5. Strengthen enforceability of the Cost of Goods Guideline by making direct reference to its application in the Statutory Accident Benefits Schedule (SABS)

The current SABS does not include a direct reference to the Cost of Goods Guideline. For enforceability and as a technical matter, the SABS should refer directly to the Cost of Goods Guideline.

I agree with this proposed provision.

6. Make it an unfair or deceptive act or practice to request a claimant or injured person to sign a claim form that has been left blank or incomplete

Insurers report that claimants are at times asked to sign claim forms before the items to be billed to the insurer have been entered. The claimants are often unaware that it is against the rules for them sign what amounts to a blank form. When they do sign, it is easier to exaggerate, misrepresent or fraudulently bill for treatments or for goods and other services without their knowledge. A change in rules would make it a violation under rules governing unfair or deceptive acts or practices to present a blank or incomplete form for signature.

I agree with this proposed provision though I can see it being very difficult to enforce. Let's face it there is no one looking over the shoulder of the facility at the time these forms are completed.

7. Require insurers to include an itemized list of expenses in the benefit statement sent to claimants every two months

The SABS requires insurers to send claimants a benefit statement every two months. Adding an itemized list of expenses to the benefit statement would allow claimants to review specific expenses incurred under their claim and identify any suspicious information. Insurers could also include information about how a claimant can report suspicious activity so that they stop the misuse of their benefits by fraudsters.

I strongly support this proposed provision. I was disappointed to see insurers not properly use section 50 of the SABS when it was introduced on September 1, 2010. The current benefit statements may comply with the SABS but insurers made no effort to use them as a fraud detection tool which was intent of the section 50.

You can also read about the proposed regulatory model for treatment and assessment facilities in Ontario and the amount of fraud in Ontario.