Implementing Bill 59: Pre-inspection regulation for reducing insurance claim fraud - Financial Services Commission of Ontario
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for reducing insurance claim fraud
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Implementing Bill 59: Pre-inspection regulation for reducing insurance claim fraud
To the attention of all insurance companies in the Province of Ontario
licensed to transact automobile insurance
With this Bulletin, the Ontario Insurance Commission (OIC) wishes to draw your attention to a new regulation that is
designed to reduce fraudulent insurance claims in Ontario.
Ontario Regulation 530/96 was made under the Insurance Act, as amended by Bill 59 (the Automobile Insurance
Rate Stability Act, 1996), and was published in The Ontario Gazette on December 28, 1996. The regulation requires
insurance companies to inspect many private passenger vehicles within 10 days of insuring them.
Ontario Regulation 530/96 becomes effective January 1, 1997.
The regulation represents a significant initiative developed by an industry-government committee representing a
broad cross-section of the insurance industry, including the Canadian Coalition Against Insurance Fraud. The
recommendations of the committee formed the basis of the regulation.
Insurers should make a special effort to communicate features and
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Implementing Bill 59: Pre-inspection regulation for reducing insurance claim fraud - Financial Services Commission of Ontario
importance of pre-insurance inspection
To ensure the effectiveness of this regulation for insurers and consumers, insurers should make a special effort
to communicate to their staff, agents/brokers and adjusters, and finally to consumers, the importance
and timeliness of the pre-insurance inspection of their vehicles for insurance purposes.
The Canadian Coalition Against Insurance Fraud has produced an industry model to help the insurance industry set
up pre-insurance inspection programs and develop effective procedures. The model stresses that it is important for
insurance companies to clearly communicate with their insureds the need for an inspection and the consequences of
not having a vehicle inspected.
The model, entitled Pre-Insurance Vehicle Inspection Industry Model, was distributed to insurers under Ontario Auto
Coalition Update, Transition Notes, OAC #96-40 on December 17, 1996.
Highlights of the pre-insurance inspection regulation
This regulation focuses on the visual inspection and photographing of vehicles as part of the insurance application
process and is aimed at preventing insurance fraud. It does not deal with vehicle safety inspections which are
required by the Ministry of Transportation.
The main objective of pre-insurance inspection is to reduce fraudulent insurance claims that have been made for "
phantom " vehicles (where a person insures a vehicle that does not exist and subsequently claims that it was stolen);
non-existent equipment and accessories; and pre-existing damage.
Some key provisions of the regulation are:
●
Insurers are required to visually inspect and photograph many used private passenger automobiles before issuing
an automobile insurance policy in Ontario. The regulation exempts some vehicles (see below). The inspection must
be done within 10 days of insuring the vehicle. The time and place of an inspection must be reasonably convenient
to the customer. The inspection costs are to be paid by insurers.
●
Vehicles exempted from this regulation include: commercial vehicles, public vehicles, motorcycles or motorassisted bicycles, off-road vehicles, motor homes, camper units and private passenger automobiles that are more
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Implementing Bill 59: Pre-inspection regulation for reducing insurance claim fraud - Financial Services Commission of Ontario
than 10 years old. Insurers are expected to document the reasons why they have exempted any vehicle from an
inspection.
●
Companies will not be required to inspect automobiles acquired by their customers if the customer has been
continuously insured by them for the past three years. (It is important to note that on January 1, 1998, the
continuous insurance requirement will be increased to four years. On January 1, 1999, the continuous insurance
requirement will be increased to five years.)
●
The inspection, which includes photographing the front, rear, and sides of the vehicle as well as the identification
number (VIN) on the vehicle’s compliance label, will be carried out by a service provider or person that is
authorized by the insurer.
●
The person or organization carrying out the inspection must record the following information: the VIN from the
VIN plate affixed to the vehicle; the VIN on the compliance label on the vehicle; the vehicle’s make, model and
model year; a description of modifications made or equipment added to the vehicle; a description of unrepaired
damages, the name of the service provider or inspector that carried out the inspection.
Monitoring the effectiveness of pre-insurance inspection
Insurers should maintain records of their inspections, such as the total number of inspections conducted, reasons for
exempting vehicles, and the use of their inspection reports in resolving property damage claims.
The Government may ask insurers to provide information on their inspection programs in order to assess the
effectiveness of this regulation.
Practice suggestion
A practice that insurers should consider is to reinforce the message, in their marketing and post-sale
communications, that customers should notify their insurers of any added equipment or modifications made to their
vehicles.
Questions-and-answers sheet
To help facilitate your training and communication efforts to your staff, agents/brokers, adjusters and consumers on
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Implementing Bill 59: Pre-inspection regulation for reducing insurance claim fraud - Financial Services Commission of Ontario
this new regulation, we have prepared the attached questions-and-answers sheet for your use.
Also attached is a copy of the text of Ontario Regulation 530/96 which sets out the minimum requirements for each
insurer’s pre-insurance inspection program. A copy of this regulation is available in French upon request which should
sent by fax to the Attention of Administrative Officer, OIC, (416) 590-7070.
D. Blair Tully
Commissioner
December 30, 1996
Attachments :
●
Questions and Answers Pre-inspection of Private Passenger Vehicles for Automobile Insurance in Ontario
●
Regulation to Amend Regulation 664 of the Revised Regulations of Ontario, 1990 Made under the Insurance Act
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Financial Services Commission of Ontario
5160 Yonge Street
Toronto, ON M2N 6L9
1-800-668-0128
(416) 250-7250
QUESTIONS AND ANSWERS
____________________________
Pre-inspection of Private Passenger Vehicles
for Automobile Insurance in Ontario
Q1.
A1.
What is pre-insurance inspection?
As of January 1, 1997, insurance companies will be required by law to
visually inspect and photograph many private passenger automobiles
within 10 days of insuring them.
Q2.
Why is pre-insurance inspection necessary?
A2.
Pre-insurance inspection is one of several anti-fraud measures
introduced in the Automobile Insurance Rate Stability Act, 1996
which came into effect on November 1, 1996. Fraud has become a
major factor in the cost of automobile insurance, with insurers
estimating that 10 to 15 per cent of every premium dollar goes towards
paying for fraudulent claims.
Pre-insurance inspection addresses "phantom car" fraud, as well as
reduces opportunities for false claims for pre-existing damage and
claims for non-existent equipment or accessories. Insurance
companies are required to conduct pre-insurance inspections in several U.S.
states. The inspections have resulted in significant claims cost savings through
reduced fraudulent claims. Studies carried out by the Canadian Coalition Against
Insurance Fraud show that for every dollar to be spent by Ontario insurance
companies in carrying out inspections, insurers will save from $4 to $6. Some
insurance companies operating in Ontario already have inspection programs in
place and report virtually no negative consumer reaction.
Q3.
A3.
When will an inspection be required?
An inspection will normally be required when an insurance company
insures an individual for the first time. An insurance company will
also be required to inspect the automobile if a person either purchases
or seeks to insure a used private passenger automobile, that is less than 10
years old, and the insured is not a long-standing client of the insurance
company (at least three years), or the insured has not been a long-standing
client of the same insurance broker (at least five years).
An insurance company will not have to inspect a new private
passenger automobile (including demonstrator models with less than
12,000 kms) if the vehicle was purchased from a registered motor vehicle dealer
and the insured provides a copy of the bill of sale to the insurer.
Commercial and public vehicles, fleets, motorcycles, off-road vehicles,
and motor homes are not required to be inspected. Insurance companies may,
however, inspect any vehicle if they wish to do so.
Q4.
Does the law require an insurance company to inspect
automobiles that are currently insured by it?
A4.
No. An insurance company is only required to inspect an automobile if
a new application for insurance is made or if an automobile is added
to a policy and it is not exempt from inspection.
Q5.
When will insurance companies have to conduct these
inspections?
A5.
As noted above, some insurance companies already conduct visual
inspections of automobiles they insure. However, as of
January 1,1997, all insurance companies will be required by law to
inspect private passenger automobiles unless exempted by regulation.
Q6.
What does an inspection consist of?
A6.
A pre-insurance inspection is not a safety inspection. It is a visual
inspection of the automobile carried out by or on behalf of the
insurance company. The person carrying out the inspection will note
the make, model, model year and VIN plate number of the automobile.
The person will also note any existing damage and whether the
automobile has any after-market accessories such as stereo systems
or whether any modifications have been made to the automobile.
Three photographs of the automobile will be taken, two angular
photographs showing the front, rear and both sides of the automobile
as well as one photograph of the compliance label affixed to the
automobile by the manufacturer.
Q7.
Where will automobiles be inspected?
A7.
It will depend on the insurance company that an insured deals with and
where he/she lives. It is up to each insurance company to establish its
own pre-insurance inspection programme. For example, an insurance
company could employ its own agents or contract with its brokers or
may choose to contract the work out to a third party. The insurer will
inform the insured where to have the automobile inspected. It should
be noted that the time and place of an inspection must be reasonably
convenient to the customer.
Q8.
How much will an insured be required to pay for an inspection?
A8.
The law requires that inspections be carried out at no cost to the
insured. Insurance companies will arrange the inspections and bear
the cost.
Q9.
When must an automobile be inspected?
A9.
If the insurance company carries out its own inspections, the
automobile may be inspected at the time the application for insurance is
made. In other cases, the insurance company may direct the insured to
have the automobile inspected somewhere else. The law requires the
insurance company to inspect the automobile within 10 days of insuring it.
Q10.
What happens if the automobile is not inspected?
A10.
If an insured is unable to have the automobile inspected within the
10-day time frame, the insurance company should be contacted. If an
insured fails to make alternate arrangements, the insurance company
may deny claims under the optional property damage coverage. It is
likely that the insurance company will cancel optional property damage
coverage if an inspection is not carried out within the 10-day time
frame and the insured has not made alternate arrangements with their
insurer to have the vehicle inspected.
Q11.
How will insureds be informed of the need for an inspection?
A11.
At the time an application for insurance is made or when an insured
seeks to add a new vehicle to the policy and the vehicle is not exempt,
the agent or broker will inform the insured that the vehicle must be
inspected.
In addition, Insurers sent every policyholder in Ontario a pamphlet
about the new automobile insurance system prior to its introduction on
November 1, 1996. These pamphlets are still available to the public
from many sources. All insurers are currently training their staff to properly
inform insureds of the need and implications of the inspection.
A12.
How will the government know if requiring a pre-insurance
inspection is working?
Q12.
The government has committed to working with the industry to
monitor the effectiveness of the pre-insurance inspection regulation in
reducing insurance fraud.
Q13.
What other anti-fraud measures were introduced by the
government?
A13.
In addition to the pre-inspection of automobiles, it is now an offence for
a person to make false or misleading statements relating to an
insurance claim, or for a person to wilfully fail to disclose to an
insurance company material changes in circumstances relating to a
claim or make false or misleading statements or representation to an
insurance company to obtain payment. Auto insurers can also request
that claimants make statements under oath.
REGULATION TO AMEND
REGULATION 664
OF THE REVISED REGULATIONS OF ONTARIO, 1990
MADE UNDER THE INSURANCE ACT
Note: Since January 1, 1996, Regulation 664 has been
amended by Ontario Regulations 399/96 and 464/96. For prior
amendments, see the Table of Regulations in the Statutes of
Ontario, 1995.
1.
Regulation 664 of the Revised Regulations of Ontario,
1990 is amended by adding the following section:
INSPECTION REQUIREMENTS
(Section 232.1 of the Act)
2.
(1) This section applies only to an automobile that
is used primarily as a private passenger conveyance and to
which section 2 of the Compulsory Automobile Insurance Act
applies.
(2) Despite subsection (1), this section does not apply
to,
(a)
a commercial vehicle;
(b)
a public vehicle;
(c)
a motorcycle or motor assisted bicycle;
(d)
an off-road vehicle within the meaning of the
Off-Road Vehicles Act;
(e) a motor home, including any vehicle that is
built on or as an integral part of a motor vehicle chassis
and that is used for travel and recreational camping
purposes, for commercial purposes or as a dwelling; or
(f) a camper unit, including any vehicle constructed
to provide temporary accommodation that is mounted on and is
removable from an automobile
and that is used for
recreational purposes.
(3) Before issuing a policy in respect of an automobile,
the insurer shall conduct a visual inspection of the
automobile in accordance with this section.
(4) The inspection shall be conducted not later than 10
days after a contract of automobile insurance is entered
into in respect of the automobile or the automobile is added
to a contract of automobile insurance.
(5) Subsection (3) does not apply if another insurer
conducted a visual inspection of the automobile in
accordance with this section not earlier than 30 days before
the policy is issued and the information recorded under
subsection (8) and the photographs taken under subsection
(9) are obtained and retained by the insurer that issues the
policy.
(6) An inspection under this section shall be conducted
at no cost to the owner or lessee of the automobile.
(7) The inspection shall be conducted at a place and time
that is reasonably convenient to the owner or lessee of the
automobile.
(8) At the time of the inspection, the insurer shall
record the following information:
1.
The vehicle identification number on the
automobile’s VIN plate.
2.
The vehicle identification number on the
compliance label attached to the automobile under the Motor
Vehicle Safety Act (Canada).
3.
The make, model and model year of the
automobile.
4.
A description or list of any modifications made
to the automobile or equipment added to the automobile after
the first purchase of the automobile.
5.
A description or list of any unrepaired damageto
the automobile.
6.
The name of the individual or organization that
recorded the information required by this
subsection and took the photographs required by
subsection (9).
(9) At the time of the inspection, the insurer shall take
photographs of,
(a) the front, rear and both sides of the
automobile; and
(b) the vehicle identification number on the
compliance label attached to the automobile under the
Motor Vehicle Safety Act (Canada).
(10) The insurer shall retain the information recorded
under subsection (8) and the photographs taken under
subsection (9).
(11) On request, the insurer shall provide the owner or
lessee of the automobile with copies of the information
recorded under subsection (8).
(12) Subject to subsection (13), this section does not
apply if,
(a)
renewed;
the policy of automobile insurance is being
(b)
the insurer is issuing a policy that is being
transferred from an affiliate of that insurer;
(c)
more than 10 years have elapsed since the
model year of the automobile;
(d)
the automobile is being purchased or leased from
a motor vehicle dealer registered under the
Motor Vehicle Dealers Act and,
(i)
the automobile is a new automobile or
or less,
(ii)
the policy is being issued
inconjunction with the purchase or lease, and
(iii)
the owner or lessee has provided the
insurer with a copy of the bill of
sale or lease agreement that contains a complete description
of the automobile, including options and accessories
included in the purchase or lease;
(e)
the owner or lessee of the automobile has been
continuously insured under motor vehicle
liability policies issued by the insurer or an
affiliate of that insurer throughout,
(i)
the preceding three years, if the
policy is being issued before
January 1, 1998.
(ii)
the preceding four years, if the
policy is being issued after
December 31, 1997 and before
January 1, 1999, or
(iii)
the preceding five years, if the
policy is being issued on or after January 1, 1999;
(f) the owner or lessee of the automobile has been
continuously insured under motor vehicle liability
policies issued through the same broker throughout the
preceding five years and the insurer is satisfied, having
regard to all the circumstances, that an inspection of that
automobile would not be worthwhile;
(g)
the insurer is acquiring all the automobile
insurance business of another insurer; or
(h)
an agent or broker is transferring all of his,
her or its automobile insurance business with an
insurer to one or more other insurers and the
insurer issuing the policy is acquiring a
significant portion of that business.
(13) If, because of subsection (12), no inspection of the
automobile is required, the insurer shall make and retain a
record of the reason why the inspection is not required.
2.
1997.
This Regulation comes into force on January 1,
