Cross-border fraud is a big threat for European insurers and to tackle it, they must work together and share information to fight crime. However, data protection is causing its own issues, writes Stephanie Denton.
Counter-fraud strategies are an important part of UK insurers' businesses. But with borders now open across Europe and the economic climate hitting customers hard, the threat of cross-border fraud has reared its head and the insurance market is starting to consider how to tackle it.
Last month, Cunningham Lindsey announced it would investigate the size and nature of pan-European organised fraud and see how big the threat is. Cath Williams, complex technical services director at the loss adjusting firm, told Post: "What I have been led to believe by talking to people across the group is that organised fraud is not just a UK problem. And with the open borders, fraudsters are able to go back and forth across Europe." (22 October 2009, p2)
Scott Clayton, claims, fraud and investigation manager at Zurich, supports this view, but says measuring it will be a nightmare: "It is impossible to put a figure on mass organised crime, although it is true there are those going from country to country committing fraud — especially in personal injury or vehicle fraud across continental Europe."
Bobby Gracey, vice president of global counter-fraud solutions at Crawford & Company, adds each country measures its own problem and "the common exposure to fraud is 10%" media/download/96996
Although it is difficult to measure the size of cross-border fraud as countries tend to look inwards, there is a consensus that this could begin to pose a real threat to all insurers in Europe. Mark Jones, a consultant in financial crime at consultancy EMB, says: "Fraud has no borders and, in fact, some of the largest and most well co-ordinated crimes are perpetrated from overseas via the internet. Detecting fraud across regions is all the more important as borders come down and the internet delivery of services becomes greater.
"In these tight recessionary times, fraud thefts are on the increase, so with a global recession, all regions have to be vigilant," Mr Jones adds.
He believes the only way to stop this is for insurers to share data: "The only thing that limits a fraudster is their own imagination, and with the growth of faster internet transactions and relationships, it is critical for data to be shared appropriately across regions and countries."
Chris Warren-Smith, a partner at law firm Fulbright and Jaworski, supports this, adding: "The logical thing to do is share information; if you share information, then you can see patterns and organised crimes gangs will be defeated more easily. It would be logical for European firms to see if they are experiencing the same types of fraud in different countries and then share that information."
"Europe needs to recognise the problem, and a co-ordinated and structured approach is needed," agrees Christian Aplin, head of investigation services at Cunningham Lindsey. "To understand the size of the problem, there needs to be a good common strategy and then this needs to go down to claims handlers."
Peter Upton, a director of CIFAS, the UK fraud avoidance service, adds that data must be shared across industries, as well as countries. "I am very aware of the great interest held by member states in true cross-sector data-sharing, and this model is held up as a flagship not only by the attorney general's office, but as a legitimate model for sharing data in European Union territories," he says. "We must avoid being parochial about data-sharing, as it must be remembered that many 'first-time fraudsters' come from other sectors, such as banking, into insurance as they move up the fraud education ladder. New and innovative technology is in use across the EU; the problem is the same as the UK, though — the data is not pooled as much as it should be."
And one of the main reasons for this is the data-sharing issue, according to Sue Jones, head of unit at the Insurance Fraud Bureau. "The UK can share data for the prevention of crime, but a lot of European countries would balk at this idea," she says. "Our experience is that in most of the European countries we engage with, there is a desire to establish a central unit and collate data to detect fraud, but they are currently constrained by data protection legislation." Mr Clayton agrees: "We can share data, but in some areas — for example, Spain — data protection is particularly onerous."
But many believe that global insurers could kick-start this process by sharing information and techniques between their offices, as Ms Jones explains: "Global insurers can take the best of breed and use it across their offices."
However, Mr Clayton says this is easier said than done. "We try to knit together best practice, but this can but difficult, he says. "First, because of language barriers and second, because of different liabilities. For example, where in the UK personal processions are covered under household insurance, in Germany, for example, the person who damaged the TV is liable."
And Ms Jones agrees that many countries are focused on different aspects of insurance, making it harder to find common ground to share. "We talk to our European counterparts — although there are no exact copies. Sweden, for example, focuses on the recovery of assets."
Cultural differences can also affect what is viewed as fraud and how it is recorded according to Mr Gracey. "A global solution could be a challenge, as in some countries fraud can be cultural, rather than intentionally fraudulent. For example, in countries where bartering is commonplace for goods, it is perfectly acceptable to start with a high settlement price and expect it to get lower. But in other countries, like Brazil, insurance fraud is considered a serious crime and we saw the example this year where British tourists were jailed for it."
Mr Jones supports this and believes because of this, cultural views to fraud techniques must also be considered. "Data matching and mining technology can be highly agnostic, but more direct approaches to fraud, such as the application of psychology, need a cultural change in some territories."
But even if this utopia of data-sharing was achievable, Mr Gracey believes education would be needed to make sure it was used properly: "The key is data-sharing and, therefore, it would take a systematic system with data merged in a non-competitive way. But even if this happens, insurers still need to use it in the right place. For example, some insurers use fraud data at claims stage, whereas actually it should be used at the underwriting stage."
To get the ball rolling, fraud techniques and existing data sets must be studied and shared, and many believe the UK is ahead of most of Europe on these terms and can help teach its experiences.
Mr Gracey explains that the UK is at an advantage because of Financial Services Authority regulation. "In the UK, regulation means that insurers must respond to managing financial crime," he says. "The rest of Europe does not have the same regulatory pressure. The introduction of regulation in the UK meant those insurers that didn't already have an appetite for fraud were forced into it."
Mr Aplin supports this: "The regulatory environment provided by the FSA challenged UK insurers to tackle fraud. This strategic regulation does not exist in Europe."
Mihir Pandya, fraud manager at Allianz, adds that fraud is higher up the insurance agenda in the UK. "The UK speaks about it more and at board level, especially with the FSA and Association of British Insurers. In Europe they have fraud managers, but they tend to be reactive, rather then proactive. In the UK, there is more strategy and it is aligned to business needs."
And John Freeman, director of fraud at Teceris, says the UK can offer a lot in terms of training. "Companies are either looking to send delegates to us in the UK or for us to send trainers over to them," he says. "Since 1990, there have been more than 11 000 accredited counter-fraud specialists in the UK public sector and they are qualified to foundation or advanced degree level. Accreditation is needed by the private sector in the UK to raise the standard of investigation. If we lead the way in training, then the increase in competency in Europe will follow," Mr Freeman concludes.
And Mr Jones believes it will not take long for the rest of Europe to catch up: "It would be very arrogant to say that the UK are teachers to the EU countries, because fraud evolves so rapidly that everyone needs to learn from each other. Many of the new EU states are in a more fortunate position because they have no real legacy systems or processes as a result of a very mature insurance market. They can, therefore, learn from our mistakes and jump light years ahead of the both UK technology and processes."
In fact, he believes this sharing of information has already begun. "Many wise insurers are bringing together representatives from a number of EU territories to learn and share best practice, innovation and technology in the fight against fraud so that strategies fit each country hand-in-glove to minimise losses and maximise opportunities for detection," Mr Jones concludes.
And many believe the logical step for sharing data would be to bring together the fraud associations of each country. However, the UK's own association has some way to go before it could do this, according to Mr Clayton. He adds: "The IFB would have to expand into more lines in the UK before it can expand into Europe."
However, Ray Collins, fraud manager at Pru Health and chair of the Health Insurance Counter Fraud Group, says conversations are ongoing with the IFB about the potential for all insurance types to feed into the IFB and to be cross-matched. He explains: "Cash for crash cases often have a dodgy doctor involved, so there is potential to pool intelligence and also assist local law enforcers for a whole scope of crime."
There is an obvious need for communicating about cross-border insurance fraud, but at the moment it seems it is a long way off. "At the moment, fraud strategy is still being done company by company, let alone country by country, and then globally. If you ask 20 UK insurers about their strategy, you will get 20 different answers," Mr Gracey explains.
Ms Jones adds that because data protection legislation currently prevents sharing: "Consequently, financial crime control rests with individual companies with their industry federations having an interest, but with little or no tactical or operational capability."
But there is hope, according to Mr Gracey. "There needs to be a commitment to fraud, and to cross-border fraud, and to commit to data-sharing," he says. "Consistency is needed in data and we are still 10 years away from that. The trick Europe needs to learn is to have a starting point — this could be motor, but the journey should not end there."
Mr Aplin agrees and concludes: "There is no doubt cross-border fraud is going on, but we are just at the start of the journey in terms of counter-fraud data-sharing, just like 15 years ago in the UK."
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