The exponential increase in insurance fraud over the past six-years is a major problem, and one that should set alarm bells ringing for everyone in the industry, says Andrew Anderson.
In the time it will take you to read this article, fraudsters will have cost the UK insurance industry £79 908. The culprits aren't organised crime syndicates or mafia-like gangs, but individual households, motorists and businesses that cost insurers £2.1bn annually.
With fraud up 600% on 2006, insurers are now devoting increasing amounts of time to sifting and checking authentic claims from false ones. According to the Association of British Insurers, its 350 members paid out £3.3bn for household claims and £9.3bn on private motor-related insurance policies last year, and the figures are growing daily.
For an average household fire claim the pay-out was £10 200, for a theft claim, £1 500 and a claim following a major flood is estimated at 30 000. This doesn't include business property damage, private healthcare bills, accident and health claims, accidents at work, professional indemnity and injuries to the public on commercial premises.
For seventeen successive years, insurance underwriters have seen year-on-year losses on private motor insurance, paying out more in customer claims and expenses than they received from customer premiums - 2010 was the worst result on record. In 2011, insurers uncovered 138 814 fraudulent general insurance claims, or 2 670 every week. Insurers prevented just £40m in fraudulent long-term insurance claims.
In general insurance, liability insurance saw the highest level of detected fraud as a percentage of the value of total claims (10.4%). The number of detected fraud cases in long-term insurance grew by 32% between 2010 and 2011.
Avoiding the situation
Chasing fraudsters post pay-out is a thankless task as the individuals are likely to be long gone - along with any chance of recovering assets. But what if there was a way of processing the vast amounts of data in claims documents and identifying discrepancies? Could that make this whole situation avoidable?
At the moment, it seems, the industry is content to watch from the side lines as the Police Insurance Fraud Enforcement Department, Insurance Fraud Bureau and Insurance Fraud Register mop up long after the horse has bolted - and pay for all three for their work.
If the industry were to invest in more accurate cost-effect information management and claims handling - the life blood of any insurance business - to ensure there is absolutely no room for error, there is a very good chance of stopping fraud.
Engaging everyone across the business in a risk management strategy from the brokers upwards will not only help deliver competitive edge, but also operational benefits in terms of regulators and reduced bills for honest policyholders.
Power of paperwork
Whereas once, brokers and the insurance industry had both the time, staff and budget to manage paper trails, it is more important than ever in the current climate for insurance firms try to meet customers and client demands in a depressed environment.
Fraudsters thrive on the massive margins of human error and confusion when trying to handle the unstructured content that's buried in around 3 000 documents a day - of which 25% are paper - managed by claims teams while process requirements and meeting service levels required by customers. And they are looking to exploit any chink in the armour of any organisation, big or small.
The best way of rooting out fraud and managing daily regulatory challenges is adopting technology that can automatically check for compliance in every claim document, eliminating errors and making the claims side of the business a money earner rather than loss maker.
Emerging Artificial Intelligence software exists today that will not only identify discrepancies and enable staff to effectively weed out fraud or errors, but enable firms to deliver bespoke claims management and validation solutions.
All too many in the industry are failing to address the issue and unless they act soon, this headache is only going to get worse and will have a significant impact on the bottom line.
Employing scalable clear strategic and operational processes with information management that drive innovative, agile services in a fiercely competitive marketplace without sacrificing quality, accuracy or compliance are the only way forward.
Andrew Anderson is CEO at Celaton UK
A huge well done to all involved with organising our Remembrance Day event on Friday, including our Corporate Real Estate team. One of them, Ibrahim, took this incredible footage of poppies dropping as he (along with others) leaned (safely!) over the gantry to let them go. pic.twitter.com/pSbapkWBBR— Lloyd's (@LloydsofLondon) November 12, 2018
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