Expertise-in-Action: Claims fraud - Contagion

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Despite the insurance industry's valiant efforts, fraud is spreading through the market place like a virus. What can be done to stop the rot?

Fraud is the scourge of the insurance industry costing firms hundreds of millions of pounds each year and adding to the price of cover for consumers. According to the National Fraud Authority, in 2011, £38bn worth of fraudulent activity was detected in the UK, with the insurance industry contributing £2.1bn.

Perhaps more troubling is that - despite the hard work of the insurance industry - fraud seems to be on the increase. Estimates published by services company Experian suggest that fraudulent activity increased by 600% between 2006 and 2012.

So what can be done to properly detect and combat fraud? The role of the broker in tackling the issue is especially pertinent. With intermediaries, the first point of contact is with the policyholder. Perhaps the sector should be playing a more central role in combatting fraud both at the application and claims stage.

AA director Simon Douglas thinks so. He says: "So far as the AA is concerned at any rate. We are members of the Insurance Fraud Bureau and have invested heavily on fraud prevention – indeed AA has a dedicated fraud team."

Ben Fletcher, director at the Insurance Fraud Bureau believes brokers should play a more active role in combatting fraud but says that application fraud should remain a primary aim for the intermediaries. He explains: "I certainly don't think there is too much focus on application fraud. A couple of years ago we didn't have any ghost broker application fraud investigations and they now make up a large percentage of what we are looking at. It is certainly a large scale issue. Some of the scams we see are significant and run into thousands of policies."

While brokers may be urged, by some commentators, to step up their claims fraud activity, their relationship with their insurance partners can often dictate how they work. Will Price, director, product and panel development, BGL Group, explains "Any decent broker will recognise that they have a mutual responsibility to see fraud prevented at claims stage and their role very much depends on the model the broker has in place with their insurers."

Working together
Collaboration could be crucial in helping brokers improve their performance on fraud – especially on claims. Sharing of information between the parties can ensure that brokers can strengthen their stance.

Price continues: "Data is vital in understanding more about customers and their motivations. It is important to share customer information to help address claims fraud. The more switched on insurers and brokers will no doubt apply appropriate ‘blocking' of suspicious customers as a result."

Douglas adds: "We work closely with insurers to reduce fraud and on a case by case basis - we are just as keen as insurers to tackle every aspect of claims fraud. However, we don't do the claims handling although we are a first contact for claimants; our systems can pick up potential fraudulent activity before it reaches the insurers."

A need for guidelines?
With a strong focus on application fraud, some market commentators have called on brokers to make a renewed effort to review the problem at the claims stage. However, is there a benefit in industry guidelines to help brokers at claims stage? Post canvassed the opinion of intermediaries to find out.

Simon Douglas, director, AA
"It depends on what role the broker plays in claims handling, but it could be a possibility. The British Insurance Brokers' Association would be expected to take the lead on this."

Will Price, director, Product & Panel Development, BGL Group
"We would be interested to see any guidelines and are open to better understanding the support that a broker can provide over and above what we do today. And, if benefits are seen by insurers by implementing these guidelines, they should be recognised in underlying price savings for our customers."

Ben Fletcher, director, IFB
There is always room to improve best practice. For me, it would probably be led best at industry level by Biba or the ABI, but the IFB would certainly be able to help and take a role in the development around the fraud development. One part of the IFB broker model is about ensuring best practice so, in addition to development reports, we also host trade events to engage with brokers.

Meanwhile, Matt Gilham, head of financial crime at Esure Broker, believes that data sharing has resonance beyond claims and is fundamental to help tackling organised fraudsters.

"As a broker, we have the ability to link policies and, therefore, associated claims seen across our insurer panel, when single incidents reviewed in isolation may not be of concern. We hold data about policyholders that our panel insurers would not ordinarily see, such as financial or contact information, and this can be critical in helping to identify a concern.

He adds: "While fraud typologies are always evolving, there will always be scope to identify potentially linked suspect claims through common traits in policyholder data or where application fraud trends, such as address fronting or ghost broking, are crossing from policy fraud into more organised claim fraud."

There is a danger, however, that collaboration between brokers and insurers could stretch too far, with the close links between the partners, meaning that the intermediary is not acting in the best interest of the customer – its most important duty.

Douglas disagrees: "Fraud is wrong, and it contributes to higher premiums, full stop. We have a duty of care to all our customers to ensure that they aren't ultimately affected by price increases because of fraud."

Price says: "Brokers don't want the majority of customers to have to pay increased premiums to compensate for the actions of a few – so we actively support claims fraud activities that insurers conduct on behalf of our brands. And we have no doubt that insurers on our panel do this in an appropriate and professional manner."

Pooled resources
Indeed, most brokers believe that more data could be shared with insurers to help catch fraudsters at the claims stage. "There is potential for closer collaboration, especially where panel underwriters have separate application and claim fraud resources," Gilham says. "We acknowledge that panel underwriters may not always wish to share intelligence about a suspect claim, however, by working with us we can help identify potentially larger issues such as organised claim fraud, work collectively to collate evidence and take steps to protect them in the future."

Douglas adds: "Some insurers are better than others at working on fraud but we encourage all our panel members to notify us at an early stage when fraud is detected. Most do, and we work closely with them."

While the largest brokers, such as the AA, are able to share information and invest in meaningful fraud techniques, such activities may be beyond the reach of the smaller insurers. With the industry keen to clamp down hard on fraud, some commentators believe bodies such as the IFB could be doing more to help SME brokers effectively tackle claims fraud.

"Brokers aren't generally able to refer to the IFB and the IFB should be more open to smaller brokers," Douglas continues. "After all, brokers with a panel tend to see the full picture and we think a fraud targeted at a particular broker doesn't get the same attention that an insurer would get – that should change and a way should be found for brokers used by fraudsters to have similar access to the IFB"

Gilham believes that the IFB is already beginning to up its interaction with brokers so they can gain a better handle on claims fraud. He adds: "We are an IFB member and active supporter, our interaction with the Bureau on broker cases is increasing.

"We know that we can, in particular, help spot fraud rings early where no single insurer would necessary see these linkages. By working with the IFB we can ensure that any issues that impact a wider cross section of the sector are more rapidly identified and action taken."

Fundamental practices
Looking ahead to the future, market commentators agree that claims fraud, as well as application fraud, remains fundamental to insuring the industry remains profitable and insurance rates are not being raised needlessly.

Indeed, the IFB will be working hard with brokers – especially on the smaller scale of the market where collaboration is crucial – to ensure that this is the case. Fletcher says: "One of our challenges is the problem of proportionality and scalability. We have issued, in the first quarter of this year, 588 intelligence reports to insurers which contain significant volumes of data on organised gangs.

"The issue is those insurers that have large exposures to those gangs and it is relevant and proportionate to them. For us, to be able to interact with brokers we would have to scale it down. The average high street broker, for instance, would not be able to cope with the level of data that the IFB currently issues."

He concludes: "The IFB has two broker customers at the moment, the AA and Swinton. We are talking to a lot of other brokers and we are looking at how we can develop our model. We need to understand how we can engage better with brokers.

 

Tales from the archive: 2012
While brokers are increasing their interaction with insurers to tackle fraud in all its forms today, in 2012, the Insurance Fraud Bureau welcomed its first broker member.

Insurance Fraud Bureau director Phil Bird is confident that the decision by brokers such as the AA to become IFB members will help play a "vital role" in clamping down on organised fraud.

The IFB has overseen 711 arrests and 162 successful convictions since its formation in 2006, resulting in a combined 167 years in prison for fraudsters, which is one of the reasons why the AA has decided to join the bureau's growing membership.

"The IFB's strength is built on the power of the collective. With access to more cross-industry data we can identify and stamp down on those criminal gangs targeting our industry," said Bird.

"As first point of contact with consumers, brokers have a vital role to play in counter-fraud. As such, working alongside brokers across the country is a strategic priority for the IFB, and we welcome the AA as our latest partner in the fight against organised insurance fraud."

With a primary focus on the ‘crash for cash' fraudsters, the IFB is currently managing 36 live police operations valued in excess of £60m in potential savings to the industry, while the bureau's projected growth could see that portfolio increase to £160m by 2014.

Anthony Hughes, president of the Forum of Insurance Lawyers, told Post: “One area he is keen on is to go down a no-cost shifting rule in personal injury cases. Insurers spend more on ATE premiums than they recover when they win cases. On this basis, he will conclude we can remove the cost of ATE in this process.”

"Honest motorists are paying for [the fraudsters'] criminal activities, and it is imperative that we work together across the industry to identify these fraudsters. The AA is pleased to be a partner with the IFB and to add our weight to the fight."

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