When it comes to insurance fraud, Canadians claim to be trustworthy: a 2014 survey by InsuranceHotline.com found that only 12% of respondents would claim unrelated damage from an auto accident, 11% would exaggerate what was stolen from their vehicle, and 13% would exaggerate the value of items lost if their luggage was stolen while on vacation.
And yet, 15 cents out of every dollar paid in premiums goes toward covering fraudulent claims, according to Allstate Canada, costing the industry an estimated $1 billion a year.
Fraud spans across all sectors, including auto, life, injury, employment, and home insurance, the latter of which we’ll discuss here. Insurance companies are working harder than ever to crack down on fraud, so before you omit key details about your home or exaggerate a loss, consider the cost: If you’re caught, your claim will be denied, your policy will be voided, and you can even be prosecuted criminally for fraud.
Applying for coverage
Fraud doesn’t just apply to the claims process. Take a look at the “statutory conditions” section of your homeowners’ policy, which sets out the terms of your relationship with your insurance provider. It clearly states that any misrepresentations, omissions, or concealment of information related to the policy is grounds for voiding it—this includes all the information contained in your application.
Reasons for fibbing on an insurance application may include genuinely misunderstanding the question (see honest mistakes, below), hoping to increase your likelihood of getting approved, or hoping to pay a lower premium.
One example of an outright lie would be saying you don’t have a wood-burning stove when you do, in an attempt to save on your premium. Even if your application was approved, it’s likely your lies will catch up with you. Let’s say a lightning strike sparks an electrical fire and causes damage your home, including the room that houses the clandestine wood-burning stove. Even though the stove had nothing to do with the fire, you could be denied coverage once your insurance provider discovers it and finds out you lied about its existence.
In the insurance industry, fraud is classified into two categories. “Hard” fraud is the deliberate planning, execution, or invention or losses in order to receive payment. This can include intentionally damaging your home or personal property, staging a phony break-in, or lying about the extent or cause of the damage. Arson, for example, is one of the most common types of hard fraud.
Opportunistic or “soft” fraud is exaggerating the amount of loss from a legitimate claim, such as claiming the television set thieves stole during a robbery was a nicer, newer model than the one you actually owned.
Because of this, insurers recommend keeping receipts or credit card bills as proof of purchase. If your provider thinks there’s something fishy about your claim, they’ll ask you for documentation to back it up.
This is more of a lie of omission, but it’s a misrepresentation nonetheless. A material change is a substantial change to your home that increases the risk involved to insure your property. If you start a renovation or add an addition to your home, install a swimming pool, buy your kids a trampoline, start running a daycare out of your home, or upgrade your electrical wiring, you need to inform your insurer in a timely manner. Even if you think the work is minor, failing to do so leaves you vulnerable to having your coverage voided.
Mistakenly answering a question wrong or forgetting to include certain information doesn’t necessarily constitute fraud if it’s not malicious, premeditated, or intentional, but will cause problems if you try to claim a loss.
The best defence against making an honest mistake on your insurance application is to answer questions fully and truthfully and review your application carefully before submitting it. If you’re unsure about how to answer a question during the application process, clarify with your insurance agent or broker.
To estimate your insurance costs, get a home insurance quote.
You can report insurance fraud through your local police, and/or your provincial/territorial Crime Stoppers organization, or by filling out the Insurance Bureau of Canada’s online tip form or calling their anonymous hotline: 1-877-IBC-TIPS (422-8477).
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