Fraud - Watching out for the sting

Many statistics are published about the perceived level of fraudulent activity within the UK, but in reality nobody knows exactly how much fraud costs.

Research by the Association of British Insurers estimates that fraudulent insurance claims now cost insurers over £4m every day and that the annual cost of insurance fraud is approximately £1.6bn (Source: Association of British Insurers, 2007). This evaluation translates into an approximate 5% increase on premiums.

Though the exact cost of fraud remains unknown, what is certain is that detecting and preventing fraudulent claims is in the best interests of our customers as it helps keep their premiums from rising unnecessarily.

While the vast majority of claims are genuine, claims fraud is a regrettable feature of most insurance products. Zurich has an obligation to all of its customers ensuring that we have processes in place to identify and investigate suspicious claims.

There has been much discussion in recent years about how to define insurance fraud. The government has now resolved this debate following the introduction of The Fraud Act (2006) in England, Wales and Northern Ireland.

In Scotland there has always been the substantive common law crime of fraud and the elements required to prove a case of such are now identical in all across the UK. The Act sets out clear definitions of fraud in relation to making false representation, failing to disclose information or abuse of position. Zurich's own definition of fraud is 'the deliberate and dishonest withholding or misrepresentation of material information to gain financial advantage.'

The potential for fraud is present across all lines of business, from motor to public liability and employers' liability to property, while methods used to defraud include false or forged documents, fictitious events, fabricated or exaggerated circumstances or injury.

We believe strongly in embedding fraud detection within all areas of claims handling, providing staff with the knowledge and tools to ensure that all suspicious activity is properly and thoroughly investigated. Yet, the measures employed by fraudsters in their attempts to defraud commercial organisations are becoming ever more sophisticated, and large commercial organisations and their insurers are seen as lucrative targets in these elaborate conspiracies. In recent years, however, the industry has witnessed a measured increase in one particular activity pertaining to motor claims fraud.

An aspect of fraud that has increased in prevalence of late, both in terms of its novelty and cost, is the occurrence of staged or induced accidents whereby organised fraudsters have found a way of turning what appear to be genuine motor accidents into a means of securing significant payouts from insurers. By conning innocent motorists into crashing into the rear of their vehicles, these gangs have created a lucrative business that also poses a substantial threat to public safety.

Gangs target vehicles they believe to be insured. The classic scenario is a deliberate and unexpected 'slam on' at a roundabout or junction, resulting in the innocent motorist crashing into the rear of the gang member. In many cases the driver will not be who he claims to be, assuming the identity of the real owner of the vehicle. There will be a reluctance to involve the police at the scene and a desire to exchange details and vacate the accident scene quickly. Some 'accidents' even involve decoy vehicles driven by a fellow gang member.

The claim will be presented for exaggerated damage, hire costs, recovery charges (despite the vehicle often being driven from the scene) and personal injury. They may also try to claim for personal injury for 'phantom passengers' that were not even in the car.

CASE STUDY - THE FALLING SPEAKER

The claimant, a member of the public, visited a local supermarket and advised that a speaker from a stereo system caused an injury when it fell from a top shelf and onto his head. Subsequent examination of the CCTV evidence revealed that, while a speaker was seen to fall from the shelf, it actually landed alongside the claimant.

The claimant was seen to hold his head some 30 seconds into the footage in what appeared an attempt to feign injury.

Our evidence was furnished to the claimant's solicitor with a robust and straightforward denial resulting in a withdrawal of their representation and the case being closed

The cost of our investigation was negligible while our handler's vigilance resulted in savings of almost £6,000.

CASE STUDY - IDENTITY ISSUES

A third party submitted a claim that alleged the rear of his vehicle had been struck by our insured's commercial lorry while on a roundabout. The circumstances of this claim resembled a recent common trend of staged motor accidents and the matter was referred to a specialist fraud handler to investigate our concerns about the circumstances of the accident.

Early contact was made with our driver and arrangements made for both vehicles involved in the collision to be inspected. Upon speaking to our insured's driver it became increasingly apparent that he had been the victim of a 'set-up'. He confirmed that he was proceeding around a roundabout when the vehicle in front came to a sudden stop, which was after a third vehicle had veered in front of the third party.

It became apparent from our investigation that the driver of the vehicle that veered in front of the claimant and the claimant driver were involved in a conspiracy. We established that the third vehicle later pulled up in a layby close to the roundabout to watch the developments. Our insured's driver had the presence of mind to take photographs of the claimant's vehicle together with a photograph of the claimant.

Prompt action was taken to arrange an interview with the claimant and our investigator took further photographs of the claimant and his vehicle.

Our investigations established that at the time of examination the damage to the claimant's vehicle was far worse than directly after the accident. Furthermore, the driver photographed after the accident was not the claimant that was interviewed. The photographs identified two different people that had a substantial age difference between them.

The extent of saving on this claim is in the region of £15,000.

ANNUAL LOSS

The Association of Chief Police Officers has estimated it is likely that fraud represents a £20 billion annual loss to the UK, the equivalent of £330 for every person in the country.

Source: The Nature, Extent and Economic Impact of Fraud in the UK, Association of Chief Police Officers Fraud Report, 2007

At Zurich we are taking a firm stand against this activity and we are using many techniques to identify these bogus claims. Our customers and their drivers have to be vigilant and be made aware of the risk to their safety and how gangs are using them directly as a way of making money illegally.

According to research conducted by the Insurance Fraud Bureau, with which Zurich is very active, there have been over 22,000 induced or staged accidents in the last six years and the amount of gangs involved in these scams has risen from four in 2003 to over 40 now. The study also shows that around three new gangs surface every month with each gang capable of staging between 300 and 400 crashes a year.

This is of particular interest when set in the context that each crash can result in claims of over £30,000, netting gangs over £200m a year. Furthermore, there are estimates of 20,000 such incidents occurring before the end of 2008 and 'accident' hot spots have already been identified throughout the country - the sale of this nationwide problem is evident. The matter has even made it onto the political agenda, having been debated in Parliament at the beginning of the year.

Prevention

If any organisation believes its employees have been involved in an induced accident they need to highlight their concerns to their insurer as early as possible. This will provide the best opportunity to investigate the claim and prevent fraudulent payment. In any motor-related accident our advice to customers is to be calm, telephone the police, take a detailed note and photographs where possible of the scene, the vehicles, the damage and the people involved - but without risking their own safety - and to note specifically how many passengers were in the other party's vehicle and their approximate ages. Such actions will assist the subsequent claims process and mitigate significantly the risk of a fraudulent claim progressing further.

Although fraud committed in the workplace is a more widely recognised example of this issue than perhaps more recent manifestations, for instance where an employee may seize an opportunity to invent or embellish an accident for financial gain, it remains a key concern for many large commercial organisations and the broker community.

There are many documented instances where the claimant has proved to have a fictitious identity used either to infiltrate an organisation to steal or to conceal a chequered claims history. Obtaining false identity documents is a relatively simple matter thanks to the internet, and the cost is often nominal.

It has been known for employees to recruit fictitious staff and then take payment for work that they are alleged to have carried out. Unscrupulous employees have been known to form allegiances with suppliers to steal from their employers.

Even employees slip through the net when it comes to background checks. Make sure that you know who you are employing by carrying out thorough checks to verify candidates' backgrounds and employment histories. Some fraudsters will target an organisation, planting associates in the company because it has poor checks in place to prevent theft.

Similarly, ensure that members of your staff are fully conversant with what to do in the event of an accident at work. For instance, if a record has not been made in an accident register, the claim will be treated as requiring strict proof of loss.

Evidence

Securing evidence to the standard required for criminal prosecution is an essential part of any investigation process. Our in-house investigators are skilled in this, many being former police officers with vast and varied amounts of experience. Much of the key evidence to prove a fraud is available only at the onset of a claim, particularly when it is fresh in the mind of witnesses. Many claims undergo some form of investigation prior to referral to insurers and it is at this stage that key evidence must be secured.

When fraud is suspected, customers are advised to refer the matter direct to the relevant fraud coordinator at an early stage for advice.

While we continuously look to develop and advance how we identify fraudulent claims, such is the sophistication of some methods that detection of the claims presents insurers with several challenges. Many of the criminals behind the gangs involved in staged accident scams operate with several aliases from a variety of addresses and employ contract drivers that will often assume the identity of other individuals. Claims are often presented via accident management companies or solicitors, with this additional layer being used to help conceal the identities of those involved.

Dealing with the impact of fraud of whatever origin is time consuming for insurers, customers and brokers alike, so a coordinated approach to claims handling and prevention via risk management is key. Where appropriate, Zurich supports a more structured programme of contact between insurer, broker and customer and in such cases will assign a relationship manager to liaise with both. By keeping close contact with both customers and brokers, our relationship managers facilitate access to the experts you need, make sure your insurance and risk management requirements are being met to your satisfaction, and look at the issues facing the industry to help you plan ahead.

Confronting

We are continually on the look out for new tools and techniques to combat fraud, including data sharing and analysis. All our claims handlers have access to databases established by the industry to combat fraud and deter repeat claimants, including claims and underwriting exchange personal injury, motor industry anti-fraud and theft register - total loss vehicle claims, and motor insurance database. They also screen all claims across all lines of business and during the life cycle of a claim, which is done via a 'red flag' system comprising common profiles that suggest or indicate fraud as part of the process of assessing the risk of fraud being present.

Zurich also has an experienced in-house claims investigation unit of 30 professionals whose full-time roles focus on the investigation of suspicious claims and raising awareness among the staff. We work constantly behind the scenes using the proactive fraud detection expertise within our CIU to help prevent the costs incurred as a result of fraudulent claims and, in doing so, keep customers' premiums from rising as a result of such claims.

Not all claims that are referred to a fraud coordinator will actually be the subject of further investigation. It is not uncommon for claims that display fraud indicators initially to turn out subsequently to be entirely genuine.

Zurich is also a member of both the Insurance Fraud Bureau and the Insurance Fraud Investigations Group, a group of more than 100 investigative bodies that share intelligence in accordance with the data protection Acts and the national intelligence model, as used by the police.

Some insurers do not see addressing fraud losses as a priority, but Zurich is committed to protecting its customers' interests by using the best techniques and systems available to identify and investigate all fraudulent activity.

Customers have a key role to play, from recording data to promoting a proactive risk management culture in their organisations and enlisting the help of their brokers to help them meet their insurance and risk management needs.

Sharing intelligence is key, so in collaboration with the Insurance Fraud Bureau and other insurers and suppliers, Zurich is working hard to reduce further the risk exposure our customers face.

Through a proactive approach to risk management, data sharing and a structured programme of contact with our partner brokers and customers, our aim is to drive a shared commitment to combating fraud. The industry has a duty to ensure that its customers are alert to changing risk and that they are in the best possible shape to mitigate instances of fraud in all its guises as a result; from the opportune to the organised.

CASE STUDY - BOGUS PASSENGER AND INFLATED DAMAGE

A claim was submitted in early 2006 regarding personal injuries to a father and son. It was alleged that our driver collided with the back of their vehicle at speed, causing severe damage to the back of the car. The damaged vehicle was in storage.

Our driver, a young female that had previously worked for our client but did not any longer, confirmed that she had hit the vehicle in front, but stated that she had only 'touched' it. She advised that there was no damage to either vehicle.

In view of the alleged severe damage to the other vehicle as was reported by the claimants, we arranged for external motor engineers to inspect to it. It became apparent that the vehicle had not only pre-existing damage to it, but that damage was also consistent with damage caused by a vertical object, possibly a post. It became clear that the vehicle had been tampered with post-accident in order to increase the level of damage and maximise the potential claim.

Our driver had advised additionally that there were no passengers in the claimant's vehicle, though a claim for a young male passenger was also intimated. Our investigations also revealed that the third party had no insurance for the vehicle and had no insurance to drive a vehicle.

The claim was repudiated in its entirely on the basis of the concerns set out above, resulting in savings banked totalling £13,500.

This article is from a Zurich supplement entitled ‘Corporate Risk’ which was distributed with the November edition of Professional Broking.