The introduction of dedicated fraud teams by insurers is uncovering more cases, according to ABI research.
Insurers quoted returns on investments in fraud detection as a multiple of high single to low double-digit figures. The researchers suggest more fraud is happening as a result of the recession, although they say they cannot be conclusive: the point for instance to an increase in ‘walk-aways’ where the claimant drops the claim in response to enquiries from the insurer. Also mentioned are ‘an increase in very amateur attempts at claims fraud indicating that otherwise honest customers are attempting to make fraudulent claims for the first time’; and an increase in calls to the Insurance Fraud Bureau (IFB) Cheatline; ‘many callers cite the fact that they are motivated to call as they have to pay increased premiums as a result of fraudsters’.<br><br>The research report speaks of ‘desperation fraud’ (where insurance fraud is committed by those needing to make ends meet) as one area where the recession was likely to have an impact. ‘Lifestyle fraud’ (where fraud is committed to maintain aspects of lifestyle – upgrading to the latest laptop or smart phone, for example) was also expected to be affected by the recession. In terms of the latter, there had been significant increases – up to 30pc year-on-year according to some insurers (and this is consistent with the estimates of loss adjusters quoted above) – in the number of claims for high-end watches and laptops.<br><br>Apart from the focus the teams give to detecting fraud, and the boost to detection an increase in resources brings, a dedicated team can also avoid potential conflicts of interest that can arise where staff charged with detecting fraud also have other objectives (such as meeting claim processing volumes).<br><br>The introduction, and increases in sophistication, of IT-based automatic processes (e.g. rules-based scorecards and predictive analytics) for ‘flagging’ suspect claims. This was stressed as being significant as more effective processes for identifying potentially fraudulent claims had reduced false-positives, allowing fraud detection resources to be used more efficiently in investigating genuinely suspicious cases.<br><br>Introduction (or increased use) of Conversation Management and Cognitive Interviewing techniques<br><br>One example of Conversation Management was where it had been introduced for claims under £1,500 for a six month trial. During that period, 51pc of claims (previously it had been 100pc) were sent to supply chain management companies for payment. Of the remaining 49pc, 27pc were ‘walkaways’, 13pc were referred to fraud investigators and 9pc were reduced significantly in terms of quantum before referral to supply chain management companies. Complaints rose from zero, but remained under 1pc.<br><br>The report said: "Improving the detection rate is in part a balancing act as false-positives can interfere with dealing efficiently with the claims of honest policy-holders. To prevent that, and all that could entail from giving customers a negative experience during what are often very stressful times, significant effort has been put into ensuring that more effective detection is not at the cost of a less efficient claims process. This has been reflected in the improvement in conversion rates (the proportion of cases that are investigated and a fraud is subsequently proven) that all the insurers we spoke to reported had happened over the last four years." <br><br>Total undetected general insurance claims fraud is estimated at £1.9 billion per annum. This adds around 6 per cent (or £44 a year), on average, to the insurance premiums paid by all policy-holders. The ABI researchers estimate that in 2006, £2.1 billion of fraud was committed and the insurance industry detected £0.5 billion (23%) of this (so £1.6 billion was undetected). In 2008, we estimate that £2.7 billion of fraud was committed and the insurance industry detected £0.7 billion (27%) of this.<br><br>The most common and costly form of general insurance claims fraud is opportunistic retail fraud. That is where individuals exaggerate or inflate genuine claims to increase the value of a payout. In a minority of cases opportunistic fraudsters will fabricate an entire claim, including, for example, deliberately causing damage so as to be able to claim.<br><br>Opportunistic fraud in commercial general insurance is similar to opportunistic retail fraud but the policyholders are firms, rather than individuals. Organised fraud is where criminal gangs work to systematically defraud insurers. An example of organised fraud is where insurable events are staged (such as “cash for crash” traffic accidents) to claim against the insurance policy of an insured party.<br><br>The report quotes other recent research – that roughly one in five general insurance policy-holders say they would consider making an exaggerated or completely made-up insurance claim in the future. Suggested by the authors, Russell Goss and David O’Neill of the ABI research department – is to identify fraudulent claims before they are subject to insurers’ standard claims process and then assessing the proportion of these fraudulent claims that are detected during the normal claims process; by taking a random sample of unprocessed claims. Read the full 22-page report on this link –
