In series - first-party fraud: banging the drum


The industry is slowly changing public perceptions that insurance fraud is a victimless crime. Jane Bernstein looks at recent initiatives and asks what more the market can do in terms of prevention?

In the long-running war against insurance fraud, one of the key battles has always centred on the need to raise customer awareness and to alter the perception that this is a 'victimless crime'. Recent years have seen some notable successes — such as the rise of the Insurance Fraud Bureau's Cheatline and the high-profile convictions of known fraud rings. But insurers still have much work to do to convince the general public of the costs and repercussions associated with fraudulent activity.

Industry experts acknowledge that, if they are to change attitudes towards fraud, they need to attack the issue from a number of directions. There is a sense insurers need to use both the carrot and the stick — enticing customers with the prospect of lower premiums in a fraud-free world, while also threatening legal action against those who commit this crime.

Getting the message through
The good news is that one of the key messages — that increased fraud means increased premiums — does appear to be getting through. Tom Gardiner, head of loss prevention at Aviva, believes consumer attitudes are starting to change with the National Fraud Authority and the IFB publishing data on the cost to consumers. He observes: "The public is beginning to appreciate how much of their premium is covering the cost of fraud and uninsured drivers."

Certainly, the rising numbers of calls to the IFB's Cheatline is a good indication honest policyholders are losing patience with fraudsters. As Sue Jones, head of group financial crime for LV, observes: "In times of austerity, there is a sense people are less willing to see others getting away with things while they have to tighten their own purse strings."

IFB director Glen Marr agrees: "People are not happy that others are getting away with fraud." He explains that a high proportion of those calling the Cheatline to report fraudsters specifically refer to the fact they are angered by the impact of fraud on their own premiums. "The industry has been getting the message out and it is hitting home."

This is certainly good news but, while the industry can afford a small pat on the back, there should be no resting on laurels. Raising awareness among policyholders about the direct link between premiums and the cost of fraudulent activity is one part of the battle. But, as Ms Jones points out: "Insurers can spend a lot of money trying to educate their own customers when, actually, the people who make fraudulent claims aren't necessarily going to be your customers — indeed they may not have any insurance policy at all."

Fraudsters, unmoved by the argument that their actions serve to drive up premiums, might pay more attention if there is a chance they will be caught and punished. Mr Gardiner believes the fear of detection and prosecution is a significant 'preventative' control in the management of insurance fraud, and he praises the work carried out by the IFB to raise the profile of successful prosecutions.

High-profile prosecutions
Indeed there has been a string of high-profile successes, where the insurance industry and police have worked together to identify fraud rings. In February, for example, four people were arrested as part of an investigation into organised crime in the North East. Those arrested were suspected of being involved in conspiracy to commit insurance fraud. At the time, Mr Marr commented: "The message is now loud and clear — seek to defraud an insurer and you risk serious repercussions, including prosecution and seizure of assets."

However, given the government cutbacks during these difficult economic times, will the perception be that insurance fraud is not a priority for the police? Ms Jones responds: "That is a cause for concern. If people don't think the police will be interested, that makes our job a lot more difficult."

Again, there is much to be gained by ensuring that, where arrests and prosecutions are made, these are publicised effectively. Nick Blocksidge, operations manager for the complex technical services unit at Cunningham Lindsey, emphasises that several successful convictions have been secured recently and reported in the media.

He also points out the importance of helping the police, by providing clear and concise information regarding the suspicions of the insurer and any evidence that has been obtained, which appears to indicate fraudulent activity. "It is up to the insurer to do all it can to detect fraud through technology and experienced personnel, and provide the police with all the information they need in order to secure prosecutions," asserts Mr Blocksidge.

Mr Marr emphasises once threats have been made regarding the consequences of fraudulent activity, then insurers must be in a position to act on these. "When you raise the profile of fraud, insurers also need to have the controls in place to ensure there are repercussions." The message is that while the risk of prosecution is a powerful deterrent, empty threats can do more harm than good.

While publicising the strong and clear action that will be taken against 'career fraudsters' and organised rings, it is also important to ensure the smaller, opportunistic fraudsters do not feel they are immune from the law.

As Mr Marr emphasises: "There is a focus on large organised fraud rings and, yes, that does attract attention and publicity. But the challenge for the industry is also successfully getting the message across to opportunistic fraudsters that not only do they risk getting caught, but they should also fear prosecution as one of the outcomes."

This is an area Gary Humphreys, group underwriting director at Markerstudy, is keen to highlight: "It is fair to say the insurance industry does a good job of detecting fraudsters, but what about the opportunists; the otherwise honest section of society that would never steal from a shop, but would not think twice about fronting a policy or adding a few items to a household insurance claim? These are the people that we have to reach and we must be sending the same message to them as we do to the organised gangs; fraud is a criminal offence, we are getting much better at detecting it and, if caught, you will be subject to criminal prosecution."

There is consensus that industry-wide efforts to raise awareness about fraud must continue and that insurers cannot work in isolation. As Andy Pagett, Groupama's counter fraud manager, asserts: "We can bang the drum ourselves as a company but we reach a far greater audience through bodies like the Association of British Insurers and the IFB. The IFB is very much a credible organisation within the UK and we need to maximise those benefits."

Industry initiatives
Ms Jones adds: "It is important that successes we have as individual insurers are not just fed back into our own PR campaigns — raising awareness that, as an organisation, we take fraud very seriously — but are also fed into the overall industry initiatives."

Given that industry experts tend to agree it is impossible to completely eradicate fraud, how far can raising awareness or altering consumer perceptions really result in significant reductions in fraudulent activity? Mr Humphreys responds: "If we can change the general public perception then it stands to reason that some people will be deterred from making fraudulent applications or claims. What we can't predict is how big an impact it will have. But whether it's a reduction by 5% or 50%, it's the right thing to do."

Mr Pagett highlights human nature is such that need, greed or sometimes just opportunity will inevitably lead some people to perpetrate a fraud or exaggerate a claim. But while fully defeating fraud may be an unrealistic goal, he asserts: "We can certainly go a long way towards achieving that."

Another factor that can be frustrating for an industry intent on fighting fraud is that the problem is so often compounded by outside factors, over which insurers have little control. Mr Pagett explains: "There are times when the message is getting through but then something will happen to put additional pressures on. The current changes in circumstances as a result of the recession are putting people into difficult positions and affecting their livelihood. Insurance fraud could, therefore, prove tempting."

Furthermore, it can seem like an uphill struggle, as statistics continue to emerge that prove the problem is far from being resolved. A recent report by Legal & General, for example, revealed some worrying trends in attitudes to home insurance fraud. Research conducted for its Fraudstoppers Report found nearly a third of respondents think it is acceptable to exaggerate a home insurance claim.

The report highlights the problem of 'up-raiding' — where policyholders commit fraud in order to upgrade their technology. One in 10 of those surveyed believed there is no harm in using a contents insurance policy to try and replace and upgrade to the next generation gadget.

As insurers continue to invest heavily in anti-fraud strategies, there is the belief efforts to catch the fraudsters must go hand-in-hand with a focus on raising customer awareness about the consequences of fraud. "It's a cycle of deterrent, prevention and prosecution," comments Ms Jones.

Mr Gardiner expands: "It is both: awareness and the fear of prosecution combined creates an effective preventative control and deterrent, and a comprehensive claims process also has 'detective' controls. It is probably fair to say that, on balance, there is greater reliance upon fraud detection versus prevention at present, but this is something the industry is beginning to respond to."

There is no doubt insurance industry initiatives have helped raise awareness about fraud among the wider public and there have been some notable successes in terms of high-profile media attention. Furthermore, there are encouraging signs consumers are beginning to take note. It will now be important for the industry to maintain the momentum.

Mr Humphreys sums up: "Change is certainly taking place but it will take a long time for the significant shift in public perception that is needed. The industry, as a collective, has to be in it for the long haul."



Cheatline is a free confidential service run by the Insurance Fraud Bureau, which allows anyone who has information on insurance fraud the opportunity to report it. IFB director Glen Marr provides an update on its progress.

Is Cheatline working and are the numbers using it going up? We are experiencing record levels of reporting and the month-on-month increases are significant. In particular, the volumes of reporting are directly associated with the level of media activity we drive. Every time we have some publicity focused on, for example, a prosecution, there is a significant spike.

Are the rising volumes of reports also related to honest policyholders losing patience with fraudsters, particularly in a recession and when premiums go up? We ask why people contact us and there are a lot of callers saying they have intolerance towards fraudsters because it is directly impacting on the cost of insurance in their view.

How do people prefer to report fraudsters - by phone, online or via text messages? People do like the complete anonymity of our online secure reporting facility. In terms of reporting levels, it's about 60% online; approximately 37% telephone and the remaining 3% split between letters and texts.

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