Ghost broking cases are lengthy and expensive to investigate
Hojjat Nickhoo told members of the public he could get them cheap deals on their car insurance.
In fact, he had never been authorised to act as an insurance broker and the policies he sold weren’t worth the paper they were printed on.
On top of that, Nickhoo – of Derby Road, Enfield – attempted to defraud 25 insurers of over £36,000 collectively staging accidents before fraudulent injury claims.
He was eventually sentenced in the Old Bailey after an investigation by the Insurance Fraud Enforcement Department.
However, Nickhoo is just the tip of the iceberg. A Freedom of Information request by Post found that, over the past two years, Ifed received 30 complaints of ghost brokers.
Out of those complaints, only one was rejected while the rest were investigated. Four of the complaints did not proceed to charge and only one has been successfully prosecuted with a jail sentence.
Ghost broking scams
A statement from City of London Police said: “We receive approximately 350 complaints per year of a variety of insurance frauds, therefore, the number of ghost broking cases amounts to 2.8%.
“Our annual budget is £3.8m, but ghostbroking cases are usually more complex and time consuming than other insurance frauds.”
Ghost broking scams can work one of two ways. Policies are bought from legitimate insurance companies using false information and then doctored before being sold on to customers. Or fake policy documents are designed to look like they have been issued by legitimate insurance companies, and sold on to customers.
Vulnerable communities are particularly at risk. Nickhoo targeted mainly non-English speaking people from Turkish and Iranian communities – charging £80 to £100 for each policy.
According to Matt Hussey, detective sergeant at Ifed, ghost brokers are often used to assist criminals with their activities.
“Ghost brokers usually set up fake policies for criminal gangs so that they can drive around and carry out various operations,” said Hussey.
“These criminals will be flagged up as having genuine insurance because the ghost broker has registered genuine addresses and other information under the policy. So even if a criminal driver gets pulled over by a police officer, they will be considered as being insured.”
Ghost brokers are continuing to plague the industry, ramp up financial losses and put genuine customers at risk. Data sharing could be the answer to this burgeoning problem.
In the past year Action Fraud has received 157 reports from victims of ghost broking with each victim on average losing over £1360. Total reported losses are in excess of £214,000.
Clare Lunn, head of claims crime prevention at LV, said increasingly stronger sentences had a deterrent effect.
“This is a significant issue for the insurance industry and consumers. In fact, ghost broking was listed as being a key threat in the Insurance Fraud Bureau’s Strategic Set Assessment,” said Lunn.
“Insurers are alive to how this impacts consumers as well as the industry as a whole. Over the past few years, it has been taken more seriously and there have been more custodial sentences being handed out. This sentencing will hopefully serve as a warning to other fraudsters of the repercussions of targeting innocent people with false policies.
“We have dedicated teams that look into cases of ghost broking and in each case we push for the highest conviction.”
Focus on data
As insurers become more focused on using data to enhance their business capabilities, more are beginning to use it to detect and manage fraud. Lunn thinks more should be done at the beginning of applications to detect fraud.
“We analyse trends in the data and look at the potential patterns and identify potential ghost brokers.
“It’s vital that insurers invest in front end controls in point of quote and point of sale to make sure that their validation and credit checks are really fit for purpose to reduce to risk of being targeted. As soon as ghost brokers see weaknesses, that’s when they target people.
“Once we have all the evidence needed, that’s when we would approach Ifed to pursue a criminal conviction on our behalf.”
The fraud carried out by ghost brokers relies heavily on public participation where ‘customers’ unwittingly hand over their details to criminals. For the most part, the public are lured into engaging with these fraudsters via attractively cheap premiums.
Bobby Gracey, CEO of Molmax, said: “Ghost brokers migrate to the insurers they see as vulnerable or relaxed on identity verification.
“There’s very little consistency when it comes to front end solutions. There is no minimum standard of compliance. The Association of British Insurers needs to step in and tackle this inconsistency.”
Statistics from the ABI show, in 2015, there were 4000 cases of fraudulent motor insurance applications made every week and these cases amounted to around £65,000.
However, David Taylor, fraud operations manager at Mulsanne Insurance, said that it’s harder to calculate the financial damage cause by fraudulent brokers.
“There needs to be education of members of the public who are being innocently duped into purchasing illegitimate insurance through illegal intermediaries,” said Taylor.
“The actual financial loss incurred as a result of ghost brokers is more difficult to quantify than losses incurred through other fraud risks such as claims fraud. Insurers may have different methods of calculating the financial loss and as such there is no easy answer.
“There also needs to be a stark message sent to those members of the public who are knowingly purchasing illegitimate insurance and, of course, those who are selling the false policies by way of criminal sanctions.”
Due to the way the Financial Services Compensation Scheme works, insurers are likely to end up indirectly paying out for an accident from an uninsured who bought their ‘policy’ from a ghost broker.
As it stands, all insurers who offer motor cover pay into the FSCS and there is a complex set of rules surrounding people who have accidents, after taking out policies that may be void or cancelled.
The rules dictate as to whether the policy is truly classed as an uninsured or untraced claim that should be picked up by the Motor Insurers’ Bureau. Ben Fletcher, director of the IFB, said that money from the guarantee fund is often used to pay out for claims that arise from ghost broking.
“We see a number of things happening, for example, regular law abiding people who unwittingly go to a ghost broker and pick up a premium,” said Fletcher.
“On the other side of that spectrum, we also see claims fraudsters using ghost brokers to take out false policies and then make fraudulent claims. There are quite complex webs of criminality that lie behind these activities.”
Not reported enough
For Hussey, it’s not that this type of fraud isn’t happening, it just that it isn’t reported enough and since 2012 Ifed has had 90 separate cases of ghost broking. While this may not seem like a huge number, Hussey says that within each case lies a large number of policies.
“When we start an investigation, we find there are lots of other victims and policies across insurers. If we look at 86 cases, you could multiply this by 100 fraudulent policies.”
The investigation process itself is an arduous one and can take up to a year for a criminal prosecution to take place, “When we come across a case, we have to make a lot of decisions and balance the issues around whether to carry out a thorough investigation or straight out arrest them,” said Hussey.
“Carrying out searches works better as we get the laptops, phones and gather all the evidence we need. When we do that it means a lot more investigation work needs to be carried out, in the time it takes for us to collate our evidence, the ghost broking still goes on and there are more victims as a result.”
Fletcher said that whatever measures the industry puts in place to eradicate any type of fraud, criminals will work to intercept it.
“Despite this being a major problem, the majority of customers will look to buy insurance through normal routes,” said Fletcher.
“And so insurers’ processes have to be designed to suit the majority of genuine customers rather than the fraudsters who are trying to beat the system.”
Fletcher reiterates what many in the industry are saying – data sharing could work to dramatically minimise all aspects of fraud.
“Collecting and sharing data in incredibly important,” said Fletcher. “Fraudsters will often use common details such as payment and contact details, so there is an opportunity for insurers to tackle the problem through data sharing and a lot of that is facilitated through the IFB.
“There’s a longer-term desire to make data available at the point of quote. If we could get to the point as an industry where we could ask fewer questions and use data to validate people, for example ask people for their driving license number, the ability for people a circumvent those controls would be far less.”
Fraudsters not brokers
Steve White, CEO of the British Insurance Brokers’ Association, said he didn’t like the word ‘broker’ associated with what is simply a case of fraud.
“Insurance is a promise and whether that promise is broken through a fraudulent act such as ghost broking or a registered insurer – it’s bad publicity in any case,” said White.
“We don’t like the broker term being attached to this activity, because it’s fraud. Ghost broking is criminal activity and it has nothing to do with what brokers do. They aren’t brokers, they’re fraudsters.”
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