Is fraud detection the only funding certainty in insurance?

In the same way that Kevin Costner’s Ray Kinsella in the film Field of Dreams was told: “If you build it, he will come”, it seems that in the world of fraud, the more insurance industry builds and invests in detecting it, the more they find.

Last week Aviva was the latest insurance company to report its findings noting it had detected 39% more instances of fraud in 2023 than it did in 2022, uncovering more than 11,000 fraudulent claims worth more than £116m.

Aviva is not alone in detecting and preventing more fraud than ever with Allianz’s personal lines business reporting a 29% increase in fraud prevention in 2023 compared with the previous year; while in commercial it detected £77.4m worth of claims fraud in 2023 – up from £70.7m in 2022.

I am certain that insurers will continue to hit home runs when it comes to the equation of more fraud investment + more resources = greater detection/prevention.

In an uncertain world, it would seem if the insurance industry has one certainty it is the more time, effort and money it spends rooting out fraud, the more it uncovers.

While there is no certainty a new claims platform will deliver an improved performance straightaway or that a recently installed underwriting tool will offer the necessary efficiencies to bring down the combined operating ratio within 12 months; when it comes to fraud the equation seems simpler: The more you invest, the more you save.

Tipping point

Which raises the question will there ever be a tipping point when this no longer the case – and how close are we to it?

Could we soon reach a juncture when increased investment is necessary just to keep detection levels static year-on-year? To tread water rather than show continued improvements?

In short I would suggest this could be many years away, not least because the scope of the frauds insurers are now unearthing covers such a breadth of product lines and modus operandi.

The days of the focus being almost solely on motor, crash-for-cash, personal injury and opportunistic travel claims is long over.

At a roundtable event I chaired last week it was incredible to hear about the crimes being committed in speciality lines such as marine.

The lengths criminals were going to commit commercial fraud with wrongdoers willing to wait years not months to make ghost businesses seem as legitimate as possible was mindblowing.

Fraud is simpler

The other thing that emerged was the fact insurance fraud has become a lot simpler to commit than when the Insurance Fraud Bureau first came into operation in 2006.

As one attendee noted while in the past you might have had to buy two cars in order to stage an accident in the hope you might hoodwink insurers; nowadays you can commit insurance fraud from the comfort of your bedroom with a computer and basic image manipulation software.

Indeed one of the key messages that came loud and clear from many of the roundtable guests was that the number of people being tempted into making opportunistic fraudulent claims shows no sign of abating; and that shallow fakes were becoming more prevalent.

The fact the Covid-19 lockdowns meant people had more time at home to refine these skills was also commented upon.

So while the old adage used to be that someone might be tempted to commit fraud having learned about a regular at their local pub who “got away with it”, that voice is being amplified to an audience many times greater in online chat rooms and on social media.

It is no surprise Verisk recently reported one in 10 images from claims have been flagged for fraud concerns.

This is unlikely to decline as the use of artificial intelligence becomes more widespread, which only offers more ammunition to the investment case to support the UK’s fraud managers aiming to stay up with – if not ahead of – the criminals looking to make illegal gains from insurance.

Soft touch no more

Because while the notable increases in fraud detection and publicity these results have garnered probably means insurance is no longer seen as the soft touch it might have been two decades ago, it is still a target, especially as an industry that is hardly beloved by the nation’s population.

So back to Field of Dreams.

The film is about a redemption of sorts for baseball player Shoeless Joe Jackson whose storied career was derailed by accusations of fraud alongside seven members of the Chicago Black Sox, who were accused of intentionally throwing the 1919 World Series for cash.

While sports aficionados the world over still debate the guilt or otherwise of these players, I am certain that insurers will continue to hit home runs when it comes to the equation of more fraud investment + more resources = greater detection/prevention.

That is likely to be the case for more than nine innings taking us well into the 2030s.