Fraud Forum: Championing Victims

Insurers have long warned the public about the mounting cost of fraud and theft in Canada, and speakers at the Annual Toronto Fraud Forum say beyond the economic cost, there needs to be greater focus on the “human cost” of these crimes. Speakers at the conference, which was co-sponsored by the Canadian Association of Special Investigation Units (CASIU) Trillium Chapter and Association of Certified Fraud Examiners (ACFE) Toronto Chapter, stressed the need for legislators to stand up and take notice of the impact of these crimes and invest in making fraudsters pay the price.

“RING” FOCUS

The Insurance Bureau of Canada (IBC) recently made the decision to focus investigative efforts on organized crime rings. And, explains Richard Dubin, IBC’s vice president of investigations, there is need to highlight that these crimes are far from “victimless”. Between 20 and 30 people die every year as a result of auto theft incidents, he notes. “This isn’t a victimless crime, we’re trying to get this across to prosecutors and the judiciary.”

Auto theft in Canada costs insurers about $600 million annually, although the overall cost is over a billion dollars when other factors are added in, such as police services, ambulances and more. And, the nature of auto theft has changed, Dubin says, becoming more often an international crime carried out by organized rings. He notes that 25%-30% of vehicles stolen in the Toronto area are never recovered, and that these cars often end up in other countries, including the U.S., as well as West Africa, Central America and the Middle East. For this reason, the IBC is working on close ties with overseas authorities to effect the repatriation of Canadian stolen vehicles.

The IBC is also working on recovering stolen vehicles which remain in the country, with the “Autofind” program – which scans and references vehicle license plates – proving a success in Toronto, where 1,400 vehicles with an estimated value of $10 million have been recovered. This program will be extended to other urban centers such as Montreal, where the stolen vehicle recovery rate is even worse than in Toronto.

STAGED ACCIDENTS

Similar issues prevail when it comes to organized “staged accident” rings. According to 2001 statistics, this activity costs as much as $2 billion each year, says Police Constable Wes Hamilton of the North Collision Reporting Center in Toronto.

Hamilton led a 2002 investigation into staged accidents which saved one insurer at least $5 million. He looked into 19 collisions occurring over the span of six months in 2000, where average accident benefits claims where $400-$1,000 per week each. In the end, although just one charge was laid, 14 of the claims were dropped by claimants. He says there are two important lessons taken from that investigation. The first is the need to “send a strong message” that fraud will not be tolerated. The second is the need to train the front-desk staff of collision reporting centers and give them the tools to initiate such investigations.

HOT TOPIC

When it comes to proving fraudulent claims, the courts can be a “shark’s tank” for insurers and prosecutors. Arson investigator Vince Rochon, president of Rochon Engineering Inc. says deliberately set fires , for example are extremely difficult to prosecute. And, he adds, “the more damage to a building, the more difficult it is to prosecute”.

Increasingly courts are looking for hard scientific evidence in such cases. “In the last couple of years, subjective indicators [of arson] have taken a backseat.” The negative outcome of bad faith court cases around fire claims which were denied because the insurer suspected arson but could not prove it have been behind this change in expectations. The new standard, he says, is one of “negative corpus”, meaning that in order to prove arson, all other possible explanations of cause must be ruled out.

WEED PROBLEM

One of the emerging fire threats facing insurers comes from the proliferation of marijuana grow operations. But, the issues the industry needs to address relative to this criminal activity also extend beyond fires, explains Staff Sergeant Marc Pineault of the Ottawa Police Services. Another significant issue, he says, is mold growth in grow houses.

Pineault says the “grow op” issue in Ontario has escalated significantly over the last four years. In Ottawa, for example, two grow house were uncovered in 2000, with this number having escalated to about 58 operations this year. In many cases, children are residing in these homes, making mold and other air quality issues all the more problematic.

Grow houses are increasingly being found in residential neighborhoods, and Pineault notes that the issue is not isolated to large urban centers or to any province in particular.

Illegal growers take over these homes, stealing hydro, sometimes cutting holes into the structure for wiring or other devices, and often degrading the structural integrity of buildings. In fact, Pineault says, nine times out of ten cases, building inspectors brought in after a grow house raid find the home not fit for people to live in.

As such, Pineault says he supports moves by insurers to make it clear they will not cover claims for illegal grow ops – this, he says, sends a message to landlords that they are responsible to make sure properties are not being used to house such activities. On the other end of the spectrum, he reports, is the unfortunate expectation that Ontario courts may remove any responsibility from building owners whose tenants steal hydro for grow ops. The key now, Pineault says, is for law enforcement to work with private industry – insurers, hydro providers, realtors and others – to advance the understanding that these operations are hazardous and often tied to other criminal activity, and to put resources toward shutting them down.