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APRIL/MAY 2015 THE JOURNAL
www.cii.co.uk
42
APRIL/MAY 2015 THE JOURNAL
www.cii.co.uk
I
nsurance fraud remains a significant
and costly problem for insurers and
consumers alike. In 2013, the Association
of British Insurers (ABI) estimated that
insurers spend £200m a year to identify
fraud. To combat this, the UK government
has commissioned an initiative called
the Insurance Fraud Taskforce, which will
investigate the causes of fraudulent behaviour
and recommend solutions to reduce the rising
levels of insurance fraud and ultimately lower
insurance premiums.
David Hertzell, former Law Commissioner
and consultant at BLM, is leading the
Taskforce, which comprises the ABI, British
Insurance Brokers’ Association (BIBA),
Insurance Fraud Bureau (IFB), Financial
Services Consumer Panel, Citizens Advice and
Financial Ombudsman Service.
The taskforce released an interim report
in March, detailing four broad categories for
focus – the encouragement of fraudulent
claims, drivers of policyholder behaviour, fraud
deterrents in the claims process and the role
of fraud data. All four categories place the
protection and interest of honest consumers at
the forefront.
Two types of fraud
In order to map the scale and impact of fraud,
the Taskforce will consider two major areas
– claims fraud and application fraud. Claims
fraud involves an individual or group making a
fictitious or inflated claim, whereas application
fraud involves an individual or organisation
manipulating or exaggerating facts on
their insurance application, both in order
to lower their premium and receive higher
compensation.
Though it is relatively simple to categorise
fraudulent claims into one camp or the
other, there is no straightforward profile
of a fraudster. There are different degrees
of criminality and pre-meditation in those
who commit insurance fraud. This ranges
from organised gangs to individuals who
may rationalise the behaviour as ‘morally
justified’ and otherwise law-abiding citizens
whose behaviour is opportunistic. The latter
category is difficult to target, particularly
as the individuals may not understand the
offence they are committing due to a lack of
knowledge about their insurance policy or the
law.
This opportunistic fraudster is a constant
threat within insurance. Scott Clayton, claims
fraud and investigations manager for UK claims
at Zurich, believes the fraudster landscape
has not really changed. These types of people
are aware of the ease of the process geared
towards the customer. Mr Clayton says:
“Insurers always try to settle claims as quickly
as possible to put individuals back in pre-
claim position. This plays into a perfect storm
if there are no controls for the fraudster.”
This is why the Taskforce intends to focus on
penalties, as the behaviour, in terms of profile,
has not drastically altered.
Debunking the myth
One of the top priorities the report identifies
is changing the perception that insurance
fraud is a ‘victimless crime’, a view reinforced
by negative public views of the insurance
industry. According to the report, under the
current legal process it is sometimes easier
and cheaper to settle a potentially fraudulent
claim. The Taskforce, in response to this
behaviour, will examine the adequacy of
Regulation Unit, including prohibition of cold-
calling, unsolicited text messages and data
exchange, nuisance calls from overseas remain
a problem. Martin Milliner, claims director at
LV=, explains the importance of refining the
current laws, given the overseas threat: “We
are particularly concerned by UK companies
working around the current law by having
internationally-based call centres bombarding
people with offers to induce them to make
claims. We would also like to see something
done about educating consumers so they
know how to protect themselves against this
sort of problem.”
It is thought that the data originates from
the UK in these instances, so the Taskforce
will specifically focus on how this is obtained.
Insurers too are wising up to the importance
of handling data efficiently to enhance fraud
detection. Mr Clayton says: “We must see
what areas we can develop to improve data
sharing and collection, with a view to increase
detection. It will be the toughest nut to crack
but will have the biggest benefit.”
deterrents for making counterfeit claims and if
the current legal structure encourages farming
of fraudulent low-value claims.
It will work in conjunction with existing
industry counter-fraud initiatives, including
the IFB and the Insurance Fraud Taskforce
Department (IFED) of the City of London
Police. The IFB’s five-year strategy (2015-2019)
will extend fraud investigations beyond motor
to other lines. As of February 2015, IFED has
made 645 arrests and secured 193 cautions
and 114 court convictions. The industry has
also established a range of data sources to
ensure personal information is shared through
strict safeguarding measures.
Mark Allen, manager of fraud and financial
crime at the ABI, welcomes the intervention,
recognising the need for a judicial approach
that recognises the harm caused by insurance
fraud, while reforming a claims framework
and processes that does not unintentionally
encourage spurious claims. He comments:
“There’s a real opportunity for the sector to
promote the value of insurance and reappraise
the way it communicates with its customers to
finally debunk the myth that insurance fraud is
a victimless crime.”
Encouraging fraud
The process of making third-party personal
injury claims has become increasingly complex
and opaque. As such, the claims management
industry has rapidly grown in recent years.
Though this is generally positive, there are
some concerns over regulating this area. In
particular, the practice of encouraging claims
where there is no evidence that an injury has
been caused.
Though all UK-based claims management
companies are subject to regulation by the
Ministry of Justice’s Claims Management
IMAGE:IKON
STUDY ROOM | INSURANCE FRAUD
S T U D Y Z O N E
▼
Warming
TOTHETASKThe Insurance Fraud Taskforce has released its
interim report,detailing where its focus will fall.
Jennifer Brough takes a closer look…
FRAUD BY NUMBERS
Fraud adds, on average, an extra £50 to
the annual insurance bill for every UK
policyholder.
In 2013, the size of undetected insurance
fraud was £1.3m – roughly 119,000 claims.
The value of undetected fraud was in the
region of £2.1bn.
The average fraud detected across all types
of insurance products was worth £10,813.
(Source: ABI)
FUTURE STEPS
The interim report outlines the Taskforce’s early thoughts and aims to combat the problem of insurance
fraud in the context of the numerous initiatives already in place, though there is still much work to be
done. The industry response to the government initiative is wholly affirmative, with the ABI and BIBA
agreeing to update their 2011 guidance for the prevention of application fraud so it remains fit for purpose.
Martin Milliner of the ABI says: “This clutch of regulators needs to work with all parties to come up with
a joint strategy to combat fraud and also look to see how this multitude of regulators could be reduced in
number and better resourced to tackle the problem.”
A final report of recommendations will be published at this year’s close. For further information and
updates on the meetings throughout the year, the Taskforce interim report and subsequent meeting
minutes are available online on www.gov.uk