There remains a general reluctance by police forces to handle individual insurance fraud cases, but there must be deterrents such as custodial sentences and heavy fines if insurers are to change the view that they are an easy touch, writes Tom Scott.
In 2005 the Financial Services Authority, wanted to establish how the insurance industry managed fraud. It asked who is responsible within an insurer for their fraud policy and who should be targeted — the chief executive, the board, the claims director or the fraud manager?
So, who is responsible for an individual insurer's approach to the prevention and detection of fraud, and how far has the industry come over the last five years?
The truth is, of course, that it is a culture created over a number of years, driven and championed from the top and believed by everyone. The best fraud policies are those that are sewn into the fabric of the organisation.
Without the necessary buy-in from the board, a fraud process cannot work effectively. There needs to be finance made available, an understanding of the problem and a long-term commitment. There are many things that can derail a fraud process. However, nothing less than serious intent must be applied and adhered to.
In these tough times, huge emphasis is placed on customer service, which is clearly the right thing to do. However, customer service and the investigation of fraud can sometimes collide head-on. Historically during times of recession, counter-fraud activity was often seen as a way of cutting costs and improving the bottom line; fraud is not seasonal or cyclical, the insurance industry is committed to countering fraud 100% of the time.
During recent years, both customer service and fraud detection have improved greatly, and have helped to create a modern insurer able to manage them both in tandem. It is well documented that the industry was previously not as well geared as it could be in the fight against fraud, allowing those committing it a free passage — to a certain extent.
One of the fundamental changes in recent years is a greater commitment to the prosecution and conviction of those committing offences. The phrase 'zero tolerance on fraud' is now heard and it sends the right message and has real impact. There are a number of examples where, within reason, insurers have pursued fraudsters to the bitter end, irrespective of economics, to ensure the message is delivered.
The 'f' word
The 'f' word is one insurers once guarded against using for fear of recriminations from those suspected of being involved or showing their hand. In recent times, due to a more pro-active approach and the introduction of the Insurance Fraud Bureau, insurers are a more confident and robust force.
Heightened press coverage resulting from successful prosecutions and other media exposure has raised the profile of insurance fraud and enabled the market to freely use the 'f' word like never before — and all before the 9pm watershed! Offenders are more aware in recent times that their actions are not merely deemed as exaggeration but clearly fraudulent and in the right circumstances, the insurance market has to make sure they know it. Those who are behind serious and organised insurance fraud need to know they are being targeted; the industry should maintain a strong and forceful approach and not hide away from the issues. The best customer service is one that demonstrates to customers the extent to which insurers are fighting fraud and that the 'f' word is not one to be afraid of and something the genuine customer can rightly expect.
It pleases everyone closely associated with tackling fraud to see how the industry is attacking areas previously untouched, such as recovery. If fraud is proven and repudiated, the market should ensure it makes every effort to recover its outlay. This will not only recover costs, but will send a message that will truly hurt the fraudster where it hurts most criminals — in their pocket. This forms part of an industry attack led by the IFB to disrupt organised insurance fraud.
However, there remains a considerable amount of work to be done to get the complete buy-in of police forces at grassroots level. Lobbying of senior police officers and government must be ramped up; they have to know the insurance industry is dealing with real crime, which is very much in the public interest. There remains a general reluctance by police forces to handle individual cases of fraud and if fraudsters are to be deterred in the coming years, there must be worthy deterrents, such as custodial sentences and heavy fines for those who are behind the organisations that support it.
Progress is being made with two insurer focused groups — the IFB and Insurance Fraud Investigators Group — receiving specified anti-fraud organisation status under the Serious Crime Act 2007, which shows recognition on behalf of the government as to the importance of intelligence sharing. Yet there remains some hesitation on the part of public bodies to enter into the spirit of the act.
As an industry, all must drive forward the cause of cross-border and cross-sector information sharing to make sure the act maintains its credibility.
Giant steps have been made over the past five years with well-managed, dedicated fraud teams positioned within insurers and supported by industry technology. There is an operational arm in the IFB that is essential in providing the conduit to law enforcement where serious and organised insurance fraud is present.
The IFB is the answer to the ongoing management of serious and organised fraud. It should focus on that management first and foremost, rather than being distracted and perceived as an intelligence provider. This is essential in support of the industry, but value lies in getting as many cases before the courts as possible. Many insurers have sophisticated fraud identification tools that will only get better.
No single intelligence platform is the answer in the same way as law enforcement does not have a single piece of software or data feed that will provide the silver bullet everyone is searching for. A single platform is needed from which to share industry intelligence. This is close to being achieved, however, it would be foolhardy to ignore the excellent systems that currently exist. There is no national platform that can provide detailed intelligence gathered from interviews, research and covert operations and place it on one system. This can be achieved operation by operation but not on a day-to-day basis, which makes all those individual intelligence systems vitally important in support of the IFB and the individual insurer.
So what is the answer? Unfortunately, there is no short answer to solving the problem of fraud within such a huge financial market, although one word that constantly raises its head is co-operation. Continued liaison, working groups and information sharing are essential in the coming years in order to change the view that insurance companies are an easy touch.
The next five years need to be as successful as the last. Big improvements have been made toward the prevention and detection of fraud, but three major hurdles remain at the top of the priority list.
First, insurers and brokers must take on the right business, using advanced technology and linking underwriting more into the claims fraud process; this is an area where much more traction is required.
Second, more dynamism towards fraud at the first notification of loss is needed to enable early intervention, which will ultimately save thousands of pounds in areas such as storage, recovery and credit hire. Those employed in first notice of loss areas must be made fraud aware and fraud should form a key part of their training so that it becomes second nature.
Finally, the lobbying of police forces and government must continue so that when fraud is identified, there is a prosecution. Police forces must be convinced to handle readymade and carefully prepared cases on insurers' behalf; if this deterrent exists, the fraudster will think twice.
There are areas where the 'f' word appears more and more such as creditor claims, which have seen a spike over the last 18 months. Insurers must be vigilant during the next two to three years as the UK comes out of recession. Again, this is an area where historically it was not seen as fraud, yet policies are taken out with the sole intent of claiming high-value monthly payments. The interesting demographic is that these claims are submitted by working professionals across all work types and is seen as short-term easy money, which is nevertheless fraud.
Another area with substantial claims coming out of the downturn is high net worth, an area that previously went under the radar. Many wealthy people have lost their businesses, careers and families, and some will turn to fraud to compensate for this. A number of insurers have seen a spike in high net worth claims and investigate very thoroughly.
Over the coming years, European integration will reach new levels. Fraud is easily carried out cross-border and the European state will become one even if only from the fraudsters' perspective. Big increases have also been seen in localised and expat fraud and insurers now speak to their European counterparts, which have similar intelligence tools and regularly share intelligence, on a regular basis.
So, what will the landscape look like over the next five years? The IFB will play a significant role in the industry's fight against fraud. It will achieve this by maintaining high-level contact with all UK police forces, government and other agencies. Its challenge is to maximise co-operation and create practices that become the norm. Around 15 agencies or organisations are dedicated to fighting fraud in their own areas, but are they talking to each other?
The insurance industry is in the business of making a profit for its shareholders. A heightened approach to fraud prevention and detection will save on claims spending, deter future fraudsters and be seen as a smart investment in the coming years.
The community in which insurers operate has a common goal to prevent and detect crime. By fully mobilising the IFB vehicle, insurance will become an industry no longer afraid to use the 'f' word and not to be messed with.
Tom Scott is chief executive of The Cotswold Group
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