How Your Neighbour’s Insurance Fraud Affects You
You know that guy who laughs about telling the insurance company his 60” flat screen burnt with his house when he never actually had one? Or the woman who “embellished” on the amount of jewelry stolen during a break in? Or the 25 year-old who lives downtown but tells the insurance company he lives in the country at his or her parent’s address? Or how about that car accident you saw that didn’t really look like an accident?
The reality is that these lies are insurance fraud. And this small scale insurance fraud is so prevalent in Canada that in Anne Marie Thomas from Insurance Hotline’s interview with CTV she mentioned that “approximately 15 per cent of people's insurance premiums go toward covering bogus claims.”
How do you feel about that? The reality is that when those people get away with lying to their insurance companies you are the one that pays. When insurance companies are lied to, like in the example with 25 year-old who actually lives downtown, that person’s risk does not match the insurance company’s risk. This lie may save them a little premium, but these lies are costing Canadians $3 billion dollars a year in extra insurance premiums.
People often forget that insurance functions as a community. Your premiums go into an annual pool and those few claims are paid out from that pool. They are spreading the risk amongst the many. Your house may never burn down, but if it does that pool will cover your costs.
Some people think that that money they pay in premiums should just be set aside for them in case they ever need it. If they’ve had their insurance for 20 years and never made a claim then that money is sitting there with their name on it. If they haven’t made any claims their premiums shouldn’t increase. In reality this couldn’t work. If your home insurance costs you about $1000/year for 20 years and then you experience a complete fire loss that would leave only $20,000 to pay for your home to be rebuilt. Where does the rest of the money come from? It has to come from this communal pool. Most people can’t cover the costs of a loss on their own and insurance rates have to match the inflating market and costs of building.
When people lie to insurance companies they are not just hurting the insurance companies, they are hurting the community and they are hurting you. A “little” lie, such as the 25 year-olds address, may save you slightly in premium this year, but those “little” lies could end up costing you, and everyone around you, more in the long run.
Insurance relies on upmost good faith. Lying on your insurance could cause the insurance company to cancel or void your contract leaving you with no coverage in the event of a loss. It’s not worth it.
The Insurance Bureau of Canada would like you to report any suspected insurance crimes, no matter how small, through their anonymous 24/7 service call 1-877-222-TIPS toll-free. All tips are taken seriously.
Josh Elliot, CTV News, "Cutting corners on insurance is costing Canadians billions"