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In the second part of this series, we get back to basics and explore what exactly constitutes insurance fraud and how it's evolving.
Insurance fraud will continue to be little and often, with fraudsters repeatedly exploiting weak processes where risks are low and aggregated gains are high.
So, what is fraud?
What are we talking about exactly when we refer to 'fraud', and specifically in this case, insurance fraud? This is not a conversation about motor claims fraud or dishonest slips and trips, it's more nuanced than that. It's no longer about only the claimants or the solicitors seen to be profiting from them. It's not just a staged or fictitious event. Nor is it limited to gross exaggeration of losses relating to a genuine event.
Instead we find it more useful to talk about fraud being an attack on weak process.
And by this we mean any process. Risk management processes, the claim notification process, pre-litigation processes both within insurers and the pre-action protocol and the MoJ Portal, the litigation process and the trial process.
None of this is a cheap shot or criticism of these processes. They are not designed as fraud prevention measures. They are business enablers built around necessities and business priorities such as commercial expediency, access to justice, the customer journey and the user experience. Society has to be open for, and be able to do, business. It's just that these desirable outcomes also happen to be breeding grounds for fraud. So, fraud becomes a cost of business - but one that we can and should mitigate.
What does fraud really look like?
The headlines will always focus on big issues or events, but the reality is that claims fraud is more like shoplifting than bank robbery. By this it is meant that we are dealing with little and often events that are designed to go under the radar and constitute a flow of reward over time with reduced risk.
When you examine low-value/high-volume (and velocity) events like claims fraud you realise the true cost is enormous. Turning back to my shoplifting/bank robbery example, let’s look at the numbers:
- £800m shoplifting
- £800k bank robberies
- Shoplifting in the UK = £800m / year vs. Bank robbery total cost c. £800k / year
- Shoplifting events in Manchester alone = 18,000 per year vs. 66 bank robbery attempts across UK
As we said in the introduction to this series, the insurance sector reports that a fraud is detected every minute. In 2017 insurers detected and prevented fraud that would have cost £1.3bn. However, according to the Insurance Fraud Bureau (IFB) over £2bn goes undetected annually.
Plugging the gaps in the claims processes that are designed to deal with genuine claims, which are clearly the majority of all claims, is a key part of any fraud strategy. Central to achieving this is recognising that dealing with the totality of the problem is important; operating on a claim by claim financial basis may not always deliver broad and effective protection.
Next week: Insurance fraud in personal injury claims is here to stay and we consider what impact the next round of civil reform on claims fraud.
In this series...
Insurance and reinsurance
Transport and logistics
Travel and tourism
United Kingdom