A different type of auto fraud

Although preliminary reports suggest auto theft in Canada is decreasing in 2024, another issue of concern is emerging for auto insurers: a surge in fraudulent credit applications.

Automotive application fraud is up 54% year-over-year in Canada, largely driven by falsified credit applications and the continued prevalence of identity theft, consumer credit reporting agency Equifax Canada said in a press release Tuesday. Ontario has experienced the most significant increase in these fraud rates, doubling since 2023 Q2.

First-party fraud — in which the borrower knowingly uses their own personal information to commit fraud — continues to be the most prevalent type of misrepresentation in automotive, Equifax Canada reports.

“Automotive fraud is a significant pain point for both businesses and consumers,” says Carl Davies, head of fraud and identity at Equifax Canada. “Consumers choosing to falsify their income, employment, and financial information to secure credit are a growing concern for lenders.

“This deceit may provide short-term financial gains for the consumer, but certainly can lead to long-term consequences such as loan denials, damaged credit, and legal ramifications.”

The proportion of identity theft in credit applications continues to grow, with 48.3% of all fraud applications flagged as identity fraud in 2024 Q2, up from 42.9% in 2023 Q3, Equifax Canada data show.

Synthetic fraud increases

There has also been a rise in synthetic identity fraud, where criminals combine real and fake data to create new identities. The incidence of this type of fraud rose from 2.8% in 2023 Q2 to 8% in 2024 Q2.

Although there has been a surge in fraudulent credit applications and identity theft, auto theft appears to be going in the other direction, Équité Association reported in July. National auto theft trends decreased 17% in the first half of 2024 compared to the previous year.

Ontario and Quebec saw the most significant decreases, down 14% and 36% respectively, something Équité attributed to strong collaboration between law enforcement, Canada Border Services Agency and government stakeholders.

That said, Aviva Canada CEO Tracy Garrad told Canadian Underwriter recently, “Ontario, in particular, was very responsive to the issue [of auto theft] but…some of the other provinces are starting to see a little bit of an uptick.”

Indeed, Équité reported in the first half of 2024, “Atlantic Canada saw an increase in auto theft of 11%, which is likely tied to the strong measures in place to combat auto theft in Ontario and Quebec, forcing thieves to look to other provinces.”

Auto theft claims cost insurers a record-breaking $1.5 billion in 2023, up from $1.2 billion in 2022, which was also a record at the time.

At the National Insurance Conference of Canada (NICC) in September 2023, Susan Penwarden, Aviva Canada’s managing director of personal lines, said the average claims cost attributable to auto fraud sits at about $70,000 per vehicle stolen (CU also attended this year’s conference in Vancouver this Sunday to Tuesday).

For consumers who bear these additional costs in their policy premiums, “that’s an average of $125 per policy,” Penwarden said last year.

Feature image by iStock.com/DNY59