Fraud in the insurance industry isn’t new, but it’s getting more complex, more organized, and, in many cases, more personal. For small businesses and individual policyholders, schemes such as staged accidents and false brokers are becoming harder to detect and more damaging when they hit.
According to Lindsay Hubbard, senior manager in fraud operations at TD Insurance, three types of fraudulent claims are on the rise.
“We do see a lot of (fake) hit-and-runs, as well as staged accidents,” Hubbard told Insurance Business. “False brokers are not new to the industry, but they are targeting all insurers.”
These aren’t your typical collisions. “We’re seeing cases where people are claiming that they have been involved in a hit and run, and we have been able to determine through our investigations that the vehicle actually hit a stationary object,” Hubbard explained.
Hit-and-runs are an old trick with a renewed appeal, according to Hubbard. As spring arrives, people are noticing new dings and dents while cleaning their cars and seeing an opportunity to pass off repairs as insurance claims.
Staged accidents, meanwhile, are increasingly linked to more coordinated efforts involving multiple players. “We're seeing an increase (of cases) where they're taking older model vehicles and getting into accidents,” said Hubbard. “We also see that there's an increase in accident benefits claims being presented and bodily injury claims.”
These setups often include external partners. Hubbard said they are seeing more cases involving collusion with tow truck companies, dealerships, body shops, as well as medical rehab clinics. “It really is organized crime,” she said.
False brokers are another fraud vector that’s surging, targeting both personal and small business insurance customers. These fraudsters pose as licensed brokers, promising deep discounts in exchange for upfront fees. They often exploit language barriers and target unsuspecting clients.
The problem is particularly dangerous for new Canadians who may not fully understand how the insurance system works. False brokers sometimes charge upwards of $2,000 for policies that are either misrepresented or completely fake. In some cases, they manipulate application data to reduce premiums. “Oftentimes, these false brokers are within the community, and they speak a language that they can communicate,” Hubbard said.
Although TD Insurance operates as a direct writer and doesn’t rely on external brokers, the company isn’t immune to the effects of this type of fraud. The organization has had to strengthen its fraud detection tools, especially around the time policies are created.
“We’re finding that as we detect any suspicious behavior at the time the policy is bound, there's a better chance that we're not going to get a claim if we're able to get off risk where we need to,” said Hubbard.
Technology plays a dual role in this arms race between fraudsters and insurers. While it has empowered insurance companies to detect and prevent fraud more effectively, artificial intelligence (AI) and generative AI tools have also given criminals new ways to hide.
“As our fraudsters become savvier, they are more attuned to what we're looking for, so they try to cover themselves up a little bit more,” Hubbard said. In the digital world, it’s easier than ever to fake an identity or impersonate a customer.
But those same digital fingerprints, such as IP addresses, device IDs, and timestamps, are becoming critical in identifying patterns and spotting repeat offenders. “Digital platforms have helped improve data collection,” Hubbard said. “For example, you can detect false brokers if they are continuously using those same IP addresses.”
The shift to online interactions, however, comes at a cost. “As we move to a more digital landscape, we're moving away from that face-to-face like phone interaction, which traditionally can help our colleagues detect suspicious behavior when they're talking to a client,” Hubbard said.
To stay ahead of these threats, TD Insurance is investing in both tools and people. It is focused on collaboration through non-profit organizations such as Equité Association and education for both colleagues and customers.
“Education is key, especially when fraud is evolving this fast,” Hubbard said.
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