INSURANCE FRAUD
A BROKER PERSPECTIVE
David Meur
Chartered Insurance Broker
Chairman, Property Committee
British Insurance Brokers Association
Managing Director
Genavco Insurance Limited
Dimensions of the Problem
• Statistics based on research relate to the wider UK
insurance industry
• Is there any correlation between frequency, cost and
nature of fraudulent insurance claims and different
distribution channels?
• We are probably a long way from knowing the answer
• But there are clear opportunities for the broker channel
to be influential in combating insurance fraud
Dimensions continued
1.
Estimated cost of bogus and inflated claims
- £1.6billion
2.
Adds around 5% to insurance premiums
3.
Fraudsters more sophisticated and organised
4.
Insurers seen as “fair game”
5.
Increase in number of opportunist fraudulent claims,
such as exaggerated claims
Dimensions continued
6.
Recent attitude survey for ABI found that 76% of
people agreed fraud is common in making insurance
claims
69% would themselves make a dishonest claim if they
thought they could get away with it.
7.
Another survey shows that only 15% would report
someone who they knew had made a fraudulent claim.
An increasing problem
• Estimating the cost of fraud not easy
• Over 2,000 arson attacks each week in the UK on homes,
businesses and cars
• Not known how many of these relate to insurance fraud
• Fraudulent arson notoriously difficult to prove
Fighting back
• Government strategy
• Insurer actions
• FSA
• IFB
• Insurance Brokers
Government strategy
• Fraud prevention initiative – creation of National Fraud
Strategic Authority
• National fraud reporting centre
• Review of how fraud is dealt with in the Courts
• Fraud Act 2006 introduced a statutory offence of fraud
giving greater clarity to investigators and prosecutors and
new impetus to enforcement authorities
Insurer actions
• In house anti fraud units
• Software alerts
• Databases facilitating sharing of claims information e.g.,
CUE, MIAFTR, MID, CIFAS
• Cognitive interviewing techniques
• Lie detectors/voice stress analysis
• Aerial photography and mapping
FSA
Focus on senior management responsibilities for managing
fraud risks and ensuring systems in place
Promoting “working together” – government, insurers,
consumers, police, law enforcement agencies, trade
associations, all other stakeholders
IFB
• Launched in July 2006
• Analysis of data produced from industry databases
• Commitment to bring gangs of fraudsters to Court
• Operates fraud “cheatline”
• Saved the industry around £15million in first year of
Operation
• Committed to reducing organised crime
INSURANCE BROKERS
“The main responsibility
lies with the insurer”
Not true!
A shared responsibility across the whole industry
We must all:
• work together
• be vigilant
• operate procedures, practices and systems
• collaborate
• communicate
• Brokers can be an important link in cracking fraud
• Brokers will know their customers
• Assist insurers with the validation process and speed up
settlement of genuine claims
• Provide vital information in relation to suspicious claims or
where insurer has concerns
• Broker has a direct and close relationship with the
customer
BIBA survey of 50 member firms in August 2007
National brokers, international brokers, multiple outlets and
smaller provincial brokers throughout UK
We asked seven questions and recorded the answers
Objective information to support future work
The questions we asked:
1.
What do you define as fraud?
2.
How are fraud risks managed and understood?
3.
What financial checks are undertaken on potential and
actual clients?
4.
What type of fraud do you see as the biggest problem
for insurers?
5.
What action/procedures do you have for dealing with
suspected fraud?
6. How could insurers and brokers work more closely
together to combat fraud?
7. What other challenges do brokers face in relation to
fraud?
What do you define as fraud?
• 80% of respondents identified “exaggerated claims”
• A common definition reveals “an attempt to gain
•
•
financial advantage by deception or making fraudulent
claims”
Other areas identified included non-disclosure, money
laundering, staged motor accidents, fictional policies,
deception and tax evasion
Interestingly, employee fraud was only identified by one
broker (0.5%)
How are fraud risks and exposures
managed and understood?
• Training was the key with 50% of brokers surveyed
•
•
•
stating that their staff were fully trained in fraud matters
The majority of brokers confirmed that their staff
undergo money laundering and data protection training
10% of respondents admitted to having no laid down
procedures in place
20% of brokers surveyed required any suspicions to be
referred to a Senior Manager or Director
What financial checks are undertaken on
potential and actual clients?
• 73% of brokers surveyed perform credit checks on
clients
• It was acknowledged that checks would also be made by
premium finance providers
• Some brokers only instigate checks once the premium
exceeds a certain level e.g. £1,000, £20,000 etc.
• Brokers’ main concern is driven by the ability to pay
premiums
What type of fraud do you see as the biggest
problem for insurers?
• Exaggerated/inflated claims – 61%
• Staged motor claims – 15%
• Money laundering – 7%
• Employee fraud from within – only one broker felt this
was a big problem (0.5%)
• General feeling was that the largest number by volume
were exaggerated claims whereas the largest number by
value were excessive personal injury claims
• Some brokers identified deliberate under declaring of
payroll, and also fronting policies where motor insurance
is effected by father or mother in the knowledge that the
young driver is the main user
• Acknowledgement that loss adjusters can assist in
combating exaggerated claims as can sourcing
replacement equipment via designated suppliers
What action/procedures do you have for
dealing with suspected fraud?
• 77% of respondents would inform the insurer at the
earliest stage, sometimes after referral to designated
senior management within the firm
• 7% would contact the client with their suspicions and
invite them to reconsider their claim
• 10% had no specific procedures but would now commit
to implementing some
• Most brokers tend to be aware and alert to possible
cases of money laundering
How could insurers and brokers work closely
together to combat fraud?
• 80% felt that better communication between brokers
and insurers was necessary with designated contacts
within the insurance companies being requested by
some brokers
• 13% of brokers surveyed requested more statistical and
database information to help in identifying the type of
fraud to look out for
• There was a general feeling that insurers often pay
suspicious claims too easily without investigation
• Some insurers are reluctant to involve the broker in
specific cases on the basis that the broker works for, and
is the agent of the client
• In the past there has sometimes been a lack of trust
between the broker and insurer
What other challenges do brokers face in
relation to fraud?
• Update procedures/systems regularly
• Staff training in fraud issues
• Education of the public generally
• IT fraud considered to be more of a problem in the future
• Vigilance is the key
• At individual broker level, instances of fraud are still quite
rare
Working together
How are brokers and insurers working more closely
together to ensure continued progress in the battle against
fraud?
Communication
• Co operation between brokers and insurers
• Insurers should keep brokers advised in cases of
suspicious claims and the claims processes generally
• Contact points within insurance companies
• Extend communication process to involve government,
police, law enforcement agencies, data sharing, and
other stakeholders
Training
• Most brokers have training modules in place for staff in
money laundering issues
• Reconsideration and update of procedures and systems
for recognising and managing potential fraud
• BIBA on line training “Broker Assess” has a module on
financial crime
Image and Publicity
• Further work required to understand and address the
consumer need to exaggerate claims
• Campaign to develop anti fraud culture
• Appetite to prosecute
• Industry should publish successes of fraud prevention
through dialogue with law enforcement agencies
Responsibilites
• Treating customers fairly. The vast majority of claimants
are genuine and honest
• Assist consumers so that they do not become a victim of
identify fraud by safeguarding customer data and
information security
• Investment by brokers and insurers in time, effort and
energy to keep up to date with fraudulent activity
• Develop the ABI/IFB/BIBA initiative to produce best
practice guidelines, sharing of data, and joint press
releases
ABI/IFB/BIBA Workstream
• Launched in August 2007
• Need for more joined-up thinking between insurers and
brokers
• Objectives agreed
• Raise profile of insurance fraud jointly by ABI and BIBA
with customers
• Training of staff and increasing awareness
• Improve broker understanding of fraud
• Improve communication between insurers and brokers
• Use of SPOC’s in insurers
• Develop anti-fraud good practice guide for brokers
TOGETHER WE CAN
CRACK INSURANCE
FRAUD