The impact of fraud on the insurance industry

April 7, 2015 SSP Worldwide

Garry Simmons, head of property and liability claims for Sterling Insurance discusses his secrets of combating fraud and how he is looking forward to the Insurance Fraud Register (IFR) being released.

Fraud has become a major issue for the insurance industry. Each year, insurers are subject to 140,000 dishonest claims, with a total value of more than £1 billion. According to the Association of British Insurers (ABI), this adds £50 to the premium of each honest customer.

At Sterling Insurance Group, we have a wide high net worth and commercial book of business, so although our fraud volume is much lower than the market average, our claims cost for these is much higher.

There are various motives for committing fraud, such as greed, peer or emotional pressure, revenge or opportunity. In the high net worth arena, the most common motives are debt or financial pressure, arrogance and criminal activity – it’s hard to believe but some people are simply dishonest.

However, this does not apply to the vast majority of our customer base who are honest, law abiding members of society. While fraudsters can divert our resources from looking after customers and our ability to process claims quickly, our 99% of genuine customers shouldn’t suffer a negative experience because of this, so everything we do is focused on them.

Yet we also need robust controls in place for the other 1%. Computers and data mining play a valuable role in combating organised fraud. While organised crime has historically targeted motor insurance due to the value of claims, I believe there is now a general spreading of activity, with gangs branching out into other areas, such as property, using what they have previously learnt.

However, much property fraud still tends to be more opportunistic which makes it harder to spot. The identification of opportunistic fraud relies more on gut instinct and as we deal with claims from the cradle to the grave, our staff have a good nose for what rings true and what does not.

In addition, we utilise external experts for proactive intelligence checks which examine the moral compass of the customer. Most high net worth individuals have a large web footprint, which can be used in proactive intelligence checks to gain an understanding of their financial background. The increased use of such checks has resulted in far more claims being fast tracked through to settlement and enabled us to improve the focus of any further investigations.

One example is a £1m claim for a house fire which took place at a second home. There were concerns about how the fire started but, as our checks showed the individual had good, positive profiling, we were able to rule out the need to pursue further investigations – enabling the claim to be processed as soon as possible.

Given the huge reputational damage that can be suffered by individual firms, and the industry as a whole if adequate oversight is not in place, all our specialist investigators are vetted before they carry out any work for us. They are also subject to on-going monitoring to review how frequently they identify fraud and how long the investigation takes. If fraud is not being appropriately established, then we need to take a step back to see if we have the right strategies in place. 

We are determined to ensure that genuine claims are paid promptly and that fraudulent claims are robustly tackled. Where fraud is identified, we will always look to determine if cases are appropriate for referral to the Insurance Fraud Enforcement Department (IFED) and going forward, we plan to enter the details of such cases on the Insurance Fraud Register (IFR). 

When the IFR – which is sponsored by the ABI and administered by the Insurance Fraud Bureau (IFB) – is active and collating data, it will be quite a powerful tool. It will increase awareness and improve fraud detection, as well as creating a greater deterrent for potential fraudsters. Once they realise there are real consequences to their actions and see the effect on the ability of others to get reasonably priced insurance, perhaps these fraudsters will think twice. 

The benefits of the IFR will be even more acutely apparent in the future, as organised fraudsters become better skilled due to their understanding of insurers’ philosophies and approaches. The IFR will help insurers enhance their systems and controls to stay one step ahead. Additionally, insurers need to increase data sharing, both within the industry and with third parties like SSP and it would be beneficial if HM Revenue & Customs (HMRC) and the Department for Work and Pensions (DWP) became involved as well. 

In truth though, fraudsters will always be one step ahead, so it’s a case of how quickly the industry can keep up with and block emerging trends. Insurers need to stay alert and have a unified approach to tackling fraud through the sales, underwriting and claims teams to ensure there are no avenues for fraudsters, and those that do get through can be exposed quickly. 

About the author

SSP Worldwide

SSP is a global provider of technology systems and solutions across the entire insurance industry, using our expertise to enable our customers to transform their business and increase their profitability. SSP provides core technology solutions, distribution and trading capability, advanced analytics and solution delivery. We work with 8 of the top 10 UK insurers, 4 of the top 10 global insurers and over 40% of UK Brokers. Our unique position in the market, including the largest market share of UK e-trading, enables us to provide leading data insight and unrivalled distribution. Our knowledge, talent and technology capabilities deliver innovative results that make us the partner of choice for our customers.

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