Communication breakdown

It is ironic that, in an industry that prides itself on being 'people driven', that communication between firms operating in insurance can often be so poor. This has been one of the main factors holding back the ongoing fight against fraud and, although some progress has been made to improve communications, there is a long way to go.

It is not only insurers, brokers and loss adjusters that must communicate better. The whole insurance industry must communicate with its credit industry counterparts, and with those who maintain the claims, underwriting and registration databases, if some of the major fraudulent abuses are to be beaten across the personal lines sector.

The Association of British Insurers estimates that fraud costs the general insurance industry in excess of £1bn annually. The figure has risen dramatically in recent years, although many believe this is due to better detection methods and not an increased incidence of fraudulent activity.

For brokers, the losses come in the form of wasted time, loss of reputation and - depending on the volumes of fraud coming across the book - deterioration in the terms offered by insurers. For insurers there is the monetary cost as well as the time and effort spent in chasing down erroneous claims.

This in turn leaves those taking out cover footing the bill.

Everyone is clear on the problems that are created by fraud, but the correct way to combat it has not been quite so forthcoming. In recent years there has been much talk of voice-stress analysis and cognitive interviewing techniques. These have both had their successes, but have not proved to be the panacea that many had hoped.

Mihir Pandya, fraud manager at Allianz Cornhill, says: "We are running a pilot on voice-stress analysis but it is not a core part of our fraud strategy. Our strategy focuses around the training of staff. We are looking at technology only in a small way and are still testing how beneficial it is. We find we get the key benefits from investing time, effort and resources on building skills within our claims teams."

He continues: "We have one person in each claims team that is a fraud representative, and so have about 40 or 50 across the organisation. These people have all undergone intensive fraud training programmes. They are able to interview, take statements, look at other external agents' reports and recognise irregularities. They are used as a focal point for each claims team. On top of that we also have another level where we have two investigation teams in two localities that deal with fraud day in and day out. A case will be detected by the claims handler, vetted by the fraud representatives and then passed on to an investigation team where it will be dealt with appropriately."

There is nothing particularly new in what Pandya says and it seems the focus is on doing the simple things well.

Not all fraud is organised or indeed complex, so such simple yet robust measures should help to weed a lot of it out. Graham Gibson, director of claims at Groupama, says fraud comes in two categories: "There is the opportunity fraud, where someone is embellishing an actual claim, but there are also some truly dedicated and professional fraud rings that perpetrate fraud on a large scale. I think if you are on the receiving end of the fraudulent actions of these people then it can create problems. I have been involved in a couple of significant fraud cases and it gets very complicated and is literally like a huge bowl of spaghetti in trying to get to the bottom of what is actually happening."

For the opportunists who are 'gilding the lily', Gibson believes there need to be harsher measures in place, and the industry and indeed society needs to be seen to punish those perpetrating the fraud.

This is a point with which John Baldock, director of investigations at GAB Robins, agrees. He says: "I think, as with many processes, if there is a benefit to be gained from being dishonest, the best way to prevent people from being dishonest is the assurance that they will be caught. If you can build in that assurance because you have a process that will show people up as 'trying it on', it will deter people. It is not simply about detailing a process, but also following it through."

He adds: "Publicity is needed, not only at national level but also at grass roots level. It is far more devastating if it goes into local newspapers, church bulletin boards, on the display boards of local clubs and shops so that all of the person's friends and neighbours see it."

Communication

Not only is communication important as a deterrent but also as a means of catching fraudsters. Pandya comments: "The broker market is important and they need to be brought on side. They see the clients they are bringing on and their involvement can only be beneficial. Brokers have a business relationship with their client and they have to look after them. As an industry, we are not suggesting they have to eye everyone with suspicion, but they should perhaps be more aware. What we are trying to do is facilitate more communication.

"One of the key problems at the moment is that, if the broker thinks something is suspicious or just not right, they might not feel there is someone they can talk to or refer it to without it being blown up out of all proportion. Maybe that prevents them taking things further. We need to make information accessible to everybody. We are linking people into our fraud strategy, both within the company and with those people that we deal with. We want everyone we deal with to be able to talk to us and that needs to be an industry thing."

This is an area in which the British Insurance Brokers' Association is getting involved. Peter Staddon, head of technical services at BIBA, says a lot of work is being done to make sure insurers and loss adjusters have as much information as possible available to them. He says: "We do not want to cut across the ABI (and the work it is doing) but we do want to be able to give them extra information from brokers. We will be posting the identity of fraud investigators working within the insurance companies on our website so that, if a broker gets a claim that he is not happy with, he can pick up the telephone in confidence and speak to the insurance company. He may not be able to prove things are fraudulent but he may be in possession of extra information that can help."

At the moment, Staddon does not believe the lines of communication between the broking industry and insurance industry are as good as they could be. He says: "If brokers have a problem, I want them to be able to speak to someone about it." At the moment he feels that, if an insurer bounces a claim, there can be the temptation for the insurer's lawyer to try and sue the broker to recoup any lost money. Instead, Staddon wants brokers and insurers to work with each other. He says: "I am trying to get the insurers to say to the broker that they are not happy with the claim and to sit down together and contest it."

Grant Ellis, chief executive of The Broker Network, is quick to pick up on the point that, in the past, the lines of communication have not been as open as they might have been. "I think we are getting better at recognising fraud, but it has been a frustration to brokers over the years. Very often they would know fairly quickly and would smell a rat fairly early in the process but, historically, insurers have been reluctant to accept the tip-off from a broker," he says.

There has also been a degree of misunderstanding between insurers and brokers in the past, as Ellis explains: "Insurers will say that they turn down more claims on their direct accounts and so believe the broker business is actually more expensive to them. The reality is that many of the fraudulent claims made from the broker book never reach the insurer because the broker has already dealt with them."

Not only can the broker help when a claim comes in but also at a much earlier stage. Gibson says: "The broker adds value and can really help at point of sale. If the broker knows his customer well and has a relationship with them, then it is a better indicator that this is a good policyholder than someone who you do not know or who comes directly off the street. Most broker relationships have a personal dimension and this type of relationship tends to lead to better business."

Telephone transactions

In terms of practical barriers that can be put in place to help prevent the massive amount of fraud being perpetrated, Baldock says he would like to see processes in the personal lines industry being slowed down. He explains: "There is a huge market in stolen credit cards. If a transaction is conducted over the telephone and details completed with a stolen credit card - because we are focused on selling the product - there is no time in that transaction to validate the credit card and determine whether it is stolen, as the calls take between eight or nine minutes."

He adds: "I would like to see the process slowed down to perhaps produce a 24-hour process, which would allow individuals to check the validity of the credit card, perform the searches on the Hunter databases, to confirm that the individual is on the electoral roll at the address they give and that there is no other adverse data on other databases."

In the past, people applying for insurance had to provide references, something that in the modern age is seen as impractical. However, ensuring that clients at least prove their identity before buying insurance will also help in the battle against fraud as Ian Crowder, spokesman at AA Insurance, explains: "It is also incumbent on the industry as a whole to try and find a way of getting people to prove who they are. There is a requirement for this in other areas of financial services such as investments and savings and one wonders if we need to go the same way for insurance, to protect the industry and the public from the ever-escalating premiums that are the result of fraudulent claims."

Databases like the Claims Underwriting Exchange, Hunter and the Motor Insurance Anti-Fraud Register have been in existence for a number of years and all have their part to play. However, communication between the various industry practitioners, a willingness to carry through prosecutions and a slowing down in sales will have as much effect as the increased use of technology.

As Baldock says: "Most people are fundamentally honest and, if it is underlined that they are not going to get away with it, then they will not try it on." It is up to insurers and brokers to make sure the industry is stopped being seen as an easy target.