What is car insurance fraud in Canada?

With files from Samatha Kohn and Will Koblensky.

This post was originally published on March 14, 2023, and was updated on March 5, 2024.

According to a poll commissioned by the Financial Services Regulatory Authority of Ontario (FSRA), almost 75% of participants with auto insurance believe auto insurance fraud is prevalent within the province. And while over 40% of respondents were worried about falling victim, 56% also claimed that they didn’t know enough about the topic to protect themselves. 

It’s officially March which means it’s also fraud prevention month across the country – so here’s everything you need to know about auto insurance fraud in Canada.

What is auto insurance fraud in Canada?

Auto insurance fraud refers to a wide range of deceptive practices aimed at manipulating the auto insurance system for financial gain or other advantages – this can include submitting false information or staging a collision. While sometimes, everyone involved in the fraud is aware and complicit in the crime, other times, the fraudsters pull in innocent, unaware drivers or pedestrians as victims. 

How does car insurance fraud impact me?

Oftentimes, the criminals responsible for these fraud cases justify their actions by claiming that insurance fraud is a victimless crime. This is not the case. Insurance fraud is extremely costly for providers, and that expense is eventually passed down to the consumer in the form of increased premiums – essentially, more insurance fraud equals higher insurance premiums for all. So every vehicle owner carrying a policy is negatively impacted by fraud.

What are some examples of car insurance fraud?

In truth, many Canadians may accidentally commit low-level auto insurance fraud without even knowing it.

Registering a vehicle at a family member’s residence for a cheaper insurance rate or listing someone as a primary driver when they’re not can still constitute fraud. And while there are many other types of fraud, here are some of the more serious examples you should be aware of.

1. Buying and selling illegitimate auto insurance

Someone impersonating an insurance broker advertises and offers to find you a lower rate than what you’re currently paying – for a fee. Know that auto insurance brokers don’t take fees from the consumer because the insurance company pays them a commission.

In this case, after they get all your driving history and information, the imposter calls a real insurance company and lies about your details in order to get you a lower rate. When you get into an accident, the real insurer denies your claim because the phoney insurance broker provided false information.

Also, beware that some fake auto insurance advertisements may emulate well-known companies – criminals may buy ads in local flyers next to authorized insurers. The fake company offers a very low premium but never actually sets up any coverage for you after paying. Even though you, the driver thought you were insured, you’re now breaking the law by driving without insurance.

As a side note, if you want to play it safe, you can find legitimate car insurance quotes from verified providers across Canada with us at Ratehub.ca. 

2. Staged car accidents

Insurance fraudsters are practiced professionals who have a handful of techniques they use to stage an accident, making it look very much real – this can include the following:

Intentional target – In this situation, a vehicle (and unsuspecting driver) is chosen by the fraudster, who intentionally crashes into the vehicle, causing damage that will require an insurance payout.

Stopping short – Similar to the intentional target, this is when a fraudster intentionally slams on their brakes when a vehicle is following close behind them, causing the unsuspecting driver behind them to rear-end the vehicle and cause damage.

Wave them in – In this case, a fraudster will sit in their vehicle, usually at the entrance or exit to a parking lot and appear to be kind enough to wave and invite another driver to cut in front of them. When the unsuspecting driver moves forward to pass the waver, the waver intentionally crashes into the vehicle, making the crash appear to be the innocent driver’s fault. 

Left turn – This is where an innocent driver is waved on to make a left turn across the lane of an oncoming car. The driver of that oncoming car waits until the innocent vehicle begins making the left turn and then drives into the car mid-turn. The oncoming vehicle’s driver later denies they waved the turning vehicle through.

3. False, exaggerated, or inflated claims

Another example of car insurance fraud is the act of overstating a damage or injury claim (or even claiming events that didn’t happen at all). This can be done not only by policyholders but also by the various industries involved with insurance payouts – tow companies, repair shops, medical clinics, and more.

As an example, a tow truck company that’s in on a fraud scam may come and tow a car after a fake accident. Later, they charge the insurance company an excessive amount. The tow may take the car to an auto body repair shop that is also in on the fraud. There, additional damage could be done to the car, which increases the size of the claim. That auto body shop will then charge the insurance company for additional repairs. While all this is going on, participants in the fake accident go to a private rehab clinic. The clinic coaches on how to show signs of injury. The co-conspiring clinic may then assist the injured to make an insurance claim under the accident benefits portion of their coverage.

Falsifying a stolen vehicle incident is another example of fraud. A fraudster may intentionally dispose of a vehicle by abandoning it, selling it to a third party, or concealing its whereabouts –  only to report it as stolen to collect insurance proceeds.

What is the punishment for car insurance fraud in Canada?

Auto insurance fraud is a crime that carries significant consequences. If a person is caught filing a fraudulent car insurance claim, the insurer will refuse to pay out the claim and likely cancel the policy. This could also flag the driver as a high-risk driver, meaning they’ll have to seek out high-risk car insurance. All drivers require insurance, and finding a new policy when you’ve been released from your old one due to fraud won’t be easy – or cheap.

The insurer can also sue the person committing the fraud for damages which could include expenses incurred in the form of funds paid (plus interest), legal fees incurred, or wages spent investigating the case. The fraudster could even face jail time or other significant financial penalties.

According to the Criminal Code of Canada, there are three types of fraud: fraud under $5,000, fraud over $5,000, and fraud over $1 million.

• Insurance fraud under $5,000 carries a maximum sentence of 2 years of imprisonment.
• Insurance fraud over $5,000 carries a maximum of 14 years of imprisonment.
• Insurance fraud over $1 million carries a minimum sentence of 2 years of imprisonment.

How to avoid car insurance fraud after a collision

It’s important to be diligent with your observations and documentation any time you are involved in a situation where your vehicle is damaged. If you are in a motor vehicle collision – no matter how small – and something doesn’t feel right, it’s important not to ignore your instincts and follow these steps: 

• Stay calm and don’t confront or argue about the conditions of the crash with the other driver. Save your story for the police and the insurance adjuster.
• Be sure to keep detailed records of the event. Take photos of the vehicle, the other driver’s license plate, driver’s license, and insurance documents, and do not sign any documents or agree to any terms at the scene of the accident. Take note of any passengers and get their names.
• Make a note of any witnesses and get their contact information. Additionally, scan the area for security cameras that may have recorded the scene of the accident.
• When your vehicle is repaired, carefully review the invoice from the body shop and flag anything that doesn’t look right. Take pictures of your vehicle immediately following the repairs. Contact your insurance provider with any questions or concerns.

Read: What to do after a car accident in Ontario

How to avoid purchasing fraudulent car insurance

Aside from facing fraudulent claims, it's also important to be aware of illegitimate insurance providers in Canada. To protect yourself as a customer, you can also take measures during the purchasing process, including the following:

• Selecting an insurance broker or brokerage that is appropriately licensed (check in the public registry for confirmation) 
• Asking questions to your insurance representative for clarity 
• Double-checking the validity of your policy by giving the listed insurer a call
• Avoiding the purchase of insurance involving cash, money transfers, strange emails, or inconsistent documents

How to report car insurance fraud

Remember, car insurance fraud can impact you indirectly through raised premiums – even if you aren’t the victim of a staged collision or a fake policy. Preventing fraud should be a shared responsibility, so if you suspect a case of it, here are a few ways to report it:

• Call your local police and your insurance company (if it impacts your provider directly)
• Contact Équité Association at 1-877-422-TIPS or Crime Stoppers at 1-800-222-TIPS (anonymous)
• Submit an online tip to FSRA (for cases of car insurance fraud in Ontario)

The bottom line

Insurance fraud is a major problem that can draw in unwilling participants who are completely unaware they’re involved in a crime. One of the best ways to avoid becoming an unwilling participant in car insurance fraud is to educate yourself about the common scams going on out there. Unfortunately, new schemes pop up all the time, so be sure to take all the steps we’ve suggested to avoid becoming involved in insurance fraud if you’re ever in a crash. 

Also read

• How to prevent car theft in Canada
• The top 10 most stolen vehicles in Canada
• How much is car insurance in Alberta by age?