How Severe Are Car Insurance Fraud Penalties in Canada?

Contrary to popular belief, car insurance fraud impacts everyone by driving up the cost of insurance. According to the Insurance Bureau of Canada, general Canadians, policyholders, and insurers end up losing more than $1 billion every year due to various types of insurance fraud. Car insurance frauds happen in many ways and in most cases, it is difficult to identify the right suspect.

Even though organized criminals form a significant percentage of the fraudsters, ordinary law-abiding citizens may also be tempted from time to time to commit car insurance fraud – from illegitimate claims to inflated claims – all for insurance benefits.

Here, we shall discuss car insurance fraud, its penalties, and more.

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What is car insurance fraud?


In simplest terms, car insurance fraud is an act of deceit. It’s where a car policy owner attempts to deceive the insurance company for financial gains, whether intentionally or unintentionally.

The following situations can be tantamount to car insurance fraud:

  • Lying or providing any form of misinformation on the loan application
  • Attempting to include any previous damage to a vehicle, along with current damage during a claim
  • Submitting claims for non-existent injuries
  • Submitting claims for healthcare after a person has made a complete recovery
  • Falsifying claims of an injury or damage from an accident that did not happen

Automobile repair fraud can include:

  • Invoicing insurance companies for work that was not done by the repair shop
  • Shops installed used parts even after invoicing for new parts
  • General regular overcharging for parts/ services
  • Causing purposeful additional damages to vehicles
  • Towing service scam

Car insurance fraud penalties: an overview


If someone is identified as committing car insurance fraud, they are liable to be charged under Canadian law. Some of the most severe consequences of car insurance fraud include:

Claim denial

If a claim was deemed unpayable after receipt and thorough processing by the payer, it is considered a denied claim. Claim denials occur if the car insurance claim violates the terms of the claimant–insurer contract or if a vital error was discovered only after the processing was complete. This process includes car insurance fraud.

Policy cancellation

Car insurance policies are cancelled based on the cancellation provision clause. This means that an insurer has the right to cancel a policy before its expiration date. In most cases, the insurer will provide the claimant with a notice stating the cancellation and its reason — in this case, being car insurance fraud.

Here are some of the noteworthy insurance penalties fraudsters have to deal with:

  • Future Denial: If your car insurance policy gets cancelled due to fraud, you may be prevented from getting further car insurance coverage in Canada.
  • Criminal Charges: Most importantly, car insurance fraud is a serious crime and may well end up with you spending prison time depending on the coverage value. For example, if the coverage value is less than $5,000, you can spend up to two years in jail. For policy coverage values over $5,000, you may be looking at up to fourteen years in jail.

Most common types of car insurance fraud

There are many kinds of car insurance fraud. They are one of the main reasons why car insurance premiums are higher in some regions. Here is a less than an exhaustive list:

Faking car damage


Car insurance scammers try to con their way into pocketing the payout by various means. They may claim that their car got damaged more than it did. In another instance, they also use a car that was already damaged even before the accident occurred.

Tow truck scam

After an accident, a tow truck driver suddenly arrives at the site to offer their services. They recommend towing your car to a specific repair shop of their choice. In reality, this is a pre-fixed deal.

The tow truck driver earns a commission by towing your car to the repair shop and then overcharges you and your insurer by making up the required repairs. They may even claim to do more work than needed to inflate the bill further. Insurance companies may reject the claim and deem this as an act of fraud.

Playing the victim


Some fraudsters even downright lie about being in the accident even if they were nowhere around. They will show made-up or false injuries just to file a personal injury claim to seek hefty compensation from your insurance company.

Faking the Accident

In many cases, the other party involved in an accident claims injuries that are difficult to diagnose, like backache. They even submit proof of seeking medical attention to ultimately file a claim from the insurer. In reality, the doctor or clinic they submit the claim form to is in cohort with the fraudster. Sadly, faking an accident is quite common after minor incidents like fender benders.

Scamming bystanders


Insurance companies are not the only ones who can be victims of car insurance fraud. Even the person who is actually in a genuine accident or has a genuine injury can fall victim to these fraudsters.

In this kind of fraud, a scammer will act as a bystander good Samaritan and approach you with the intention of helping.

They will suggest specific services like legal services, body shops, tow trucks, and more, all of which are fake and scams within themselves. You will end up getting overcharged or worse. In many cases, they may even pose as authoritative figures like an off-duty police officer, a firefighter, or a doctor. Basically, to buy your trust.

Final thoughts on insurance fraud and insurance fraud penalties Canada

Even though a quick and simple car insurance fraud may seem like an excellent option to earn an extra bit of money, it is never a good idea.

Not only is it objectionable on moral grounds as it raises the cost of car insurance premiums all across Canada, but it is a legally punishable act as well.

From fake damage claims to fake injury claims to faking an entire accident altogether, there are many types of car insurance fraud, but all of them carry heavy penalties, as mentioned above.

Radulovic Jovica
Radulovic Jovica

I started my career at following the completion of my studies in Agricultural Economics at the University of Belgrade. My fascination with this field arose from recognizing the pivotal role marketing plays in companies' business strategies.