With opportunistic fraud attracting little public attention compared with large-scale organised fraud, the insurance sector is battling to change attitudes to such crime and develop methods to catch its perpetrators.
It is rare that a week goes by without organised fraud dominating headlines, column inches or Twitter feeds.
The value of these cases – such as ghost broking and ‘crash for cash’ motor fraud rings – is often in the millions of pounds, and the elaborate schemes concocted by the perpetrators provide an interesting insight into the criminal mind.
Opportunistic fraud, on the other hand, attracts much less publicity. It’s still a crime but, as the moniker suggests, it’s largely carried out on a random and individual basis, making it harder to detect.
But while opportunistic fraud may not be high on the public agenda, it is certainly a major issue for the insurance industry – with commentators approached by Post insisting it is just as big a concern as its showier relative.
QBE special investigation unit claims manager Rob Smith-Wright explains: “We all know it is occurring and we have all got the measures in place to identify it, but it is much harder to prove both the issues of the fraud and also the burden of proof, whether it is a civil or criminal standard.”
RSA counter-fraud unit head John Beadle agrees that the perception of organised fraud dominating industry attention is false. “I would be surprised if every insurer didn’t have various controls within their infrastructure to control opportunistic fraud,” he says. “This is because the controls for tackling opportunistic fraud sit within each individual company, whereas organised fraud is much more difficult to deal with on an individual insurer basis – you need market controls to tackle it.”
Indeed, Insurance Fraud Bureau director Ben Fletcher told Post last month that it is unlikely his organisation, which is tasked with combatting organised motor fraud, would get involved with individual opportunistic cases: “Although the IFB can help insurers by aggregating the data, looking at trends and patterns and facilitating some of that introduction and collaboration, an opportunistic case is an individual case that an insurer will assess itself.
“Nonetheless, if you spoke to an individual insurer I don’t think there would be any less focus on opportunistic fraud than organised fraud. Insurers spend more time, effort and money on opportunistic fraud than organised fraud, it’s just that a lot of the opportunistic cases are low value.”
They are also harder to detect. Speaking at a Post Roundtable discussion this month, First Central fraud director Glen Marr said: “Opportunistic fraud is harder to deal with than organised fraud, where there are lots of people involved and it’s fairly quick to spot. The opportunist stuff is much harder.”
However, there are measures that insurers can take to help them sniff out bogus claims. According to Questgates counter-fraud head John Freeman, training is key in enabling staff to spot lower‑value fraud. “The way we teach people to spot [a genuine event that has been exaggerated by adding items to the claim] is to help them understand what motivates fraudsters, the way fraud can occur, the fraud indicators that can crop up and the deceptive behaviours people will deploy when they are creating opportunistic fraud,” he says.
Allianz fraud manager Mihir Pandya agrees, saying insurers have used fraud indicator facilities for years. “It is about giving the time over to training your handlers to spot discrepancies, and explaining what to expect in the course of a claim being made,” he adds. “If a claimant is being evasive and giving very little detail, that could be a clue – but so could a claimant wanting to talk to the handler all the time.”
Figures released by the Association of British Insurers in July show the industry is improving its efforts against opportunistic fraud. Although the value of fraud nearly doubled between 2007 and 2012 – with the level of detected fraud increasing by more than a third in the same period – savings of £614m were made from the 42 700 detected dishonest claims made under personal and commercial motor policies in 2012.
Home insurance frauds were the most common in 2012, with 51 000 cases detected, costing £95.5m. But had the 42 700 dishonest motor claims not been detected, they would have been the most costly type of fraudulent claim, totalling more than the household total.
Commentators agree that home and motor – as well as travel – are among the most common insurance lines targeted by opportunistic fraudsters. Smith-Wright says: “Opportunistic fraud occurs within all lines of business, but there will be higher elements of fraud in those mainstream areas.”
Marr agrees that motor is a problem area, calling it a “grudge purchase” for many consumers, while Pandya adds that Allianz has noticed fraudsters have also targeted ‘slip and trip’ claims.
Still, opportunistic fraudsters continue to slip under insurers’ radars. In other research, the ABI has estimated that undetected fraud costs the industry £2bn per year, of which £400m can be attributed to organised motor fraud. “No one actually knows the scale of this fraud,” says Marr. “You hear about the ABI figures, but those are just estimates. It would be helpful to understand the true value of fraud in this market.”
Jackson agrees that speculation over the value of fraud does not help the industry deal with the problem. “We are confident there is a lot more fraud out there than we are tackling at the moment, but putting a value on it is really hard,” he says. “Everybody measures fraud in different ways, and there are always variations in the ways people define fraud.” However, Jackson adds that research by the National Fraud Authority is valuable to the industry.
Marr, meanwhile, would like to see more analysis. “I think that is the missing piece – some comprehensive research investigating what fraud looks like,” he says. “It would be helpful to get a handle on that, because we haven’t got one at the moment.”
The Insurance Fraud Register, an ABI-run national database of fraudsters, could be one way of achieving that. In July, the ABI told Post that more than 50 insurers had expressed an interest in participating in the scheme, with the first group of insurers expected to be using the register in the coming months.
However, despite being launched last September, the register is still not live. Marr calls the delay frustrating, and believes that once the register is up and running it will be crucial in helping the industry combat opportunistic fraud. “The register is a form of deterrent,” he says. “It is about creating the fear factor that if you do something wrong, you will get caught, and if you get caught, there is a punishment.”
Fletcher agrees the register will change the public’s perception of being caught. “Part of sharing data through the IFB and the industry is about raising awareness that there are methods there to find people,” he says. “The Insurance Fraud Enforcement Department sends the message that if you are found you will be prosecuted, and the register is the final piece of the overall jigsaw.”
Indeed, for Fletcher and Smith-Wright, the public message that opportunistic fraud will not be tolerated needs to be stronger. The latter heralds the Republic of Ireland for its proactive advertising campaign, which emphasises that insurance fraud is a crime that carries consequences.
Fletcher adds: “At the moment, many people still see insurance fraud as being socially acceptable, and consider [gains made through fraud] as a ‘return’ on their investment – or their premiums. They don’t necessarily understand the impact opportunistic and exaggerated fraud has on insurers, or that it affects innocent policyholders. They also probably don’t make the connection that if they are exaggerating a claim, they are committing a crime.”
Smith-Wright says that as well as publicising the consequences of committing opportunistic fraud, the industry also needs to better publicise legal decisions that demonstrate these consequences. In December last year, QBE was successful in a contempt of court case where a claimant was found to have exaggerated the extent of an injury suffered in his workplace. Had the claimant, Adam Roberts, succeeded in his claim, his employer, Airbus, and its insurers faced a potential liability of more than £500 000.
“[The industry needs to] utilise those cases and put them out to the mainstream media to let people know that insurance fraud doesn’t just happen in organised circles, it happens in individual cases as well,” Smith-Wright says.
Freeman, meanwhile, believes that understanding the thought patterns of those who regard insurance fraud as acceptable would assist with catching more fraudsters. “I would like to see more work on profiling the behaviour patterns of these individuals,” he says. “In the last few years we have seen more examples of fraudsters being interviewed in study groups to find out what prompted them to do it.”
Freeman puts the motivation to commit fraud down to “need and greed”: “The need side could be that a person is backed into a situation where they are in financial stress and need to find an easy way to make money. Greed could come from people around you enjoying a lifestyle that you aspire to, for example.”
Although the industry has various potential solutions up its sleeve, there is still some way to go in changing the widespread belief that inflating an insurance claim is acceptable. Profile of a household insurance fraudster, a research paper published this year by the University of Portsmouth’s Centre for Counter Fraud Studies, cited UK statistics from 2003 that found 47% of respondents would not rule out committing an exaggerated insurance claim in the future, 40% thought it was acceptable or borderline and 6% admitted to having already done it.
Freeman adds: “There is still a big sector of the public that [thinks it is ok to exaggerate a claim] and that it is just the big, bad insurance company with lots of profits that will suffer as a result. The reality is that we all suffer, because it’s loading our insurance premiums.”
Marr agrees with Freeman’s view. “It could be down to perceptions of insurers and what you view them to be,” he says. “The challenge with fraud is that if you treat every customer with suspicion and over-evaluate claims, you will alienate them.
“If you’re picking up your newspaper every day and reading things about big ‘crash for cash’ gangs and you’re just an opportunist fraudster having a go at your household, travel or motor claim, is that really going to concern you?”
Jackson believes the industry is heading in the right direction, but warns that momentum needs to be maintained. He concludes: “I think the industry needs to persist with the action it is taking, with initiatives such as Ifed. If those initiatives fail, the message will be that there was a consequence to opportunistic fraud but now the fraudsters are safe again and can carry on.”
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