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Spotlight: Application fraud - Intelligence and a united front bring progress


With a rise in application fraud post-Covid being widely reported, Rachel Gordon asks insurers and brokers how they are using the art of data science to make sure honest policyholders do not suffer.

There are significant benefits if insurers can establish an effective strategy to manage application fraud. Good systems, quality data sets and well-trained people will result in fraudsters being turned away early – and this is far more cost effective than having to investigate and refute notified claims.

Meanwhile, application fraud can occur in many forms. It may involve applying for cover using a fake identity or manipulating information to obtain a cheaper premium. This could mean someone who drives extensively saying they need low mileage, or that a car is kept garaged or on a driveway when it is not. It also encompasses ghost broking, where policies are purchased from insurers using fake information or forged, with policy documents designed to appear to be from legitimate insurers. A further aspect is fronting, when someone – typically a parent – falsely claims to be the main driver, when in fact the main driver often is the child who has limited experience and so should be paying a far higher premium.

According to Stephen Dalton, head of intelligence and investigations at the Insurance Fraud Bureau: “Application fraud remains a key threat for the insurance industry and it has a significant economic impact on consumers. Preventing application fraud not only saves on costs but it can also help to prevent further crime. For instance, ghost brokers who pretend to be genuine brokers often take out fraudulent motor insurance and sell these on at discounted rates to young people and vulnerable communities via social media, leaving them facing the consequences of driving without valid insurance. Fraudulent motor insurance applications are also often used by criminal gangs to help facilitate dangerous crash for cash scams on the road.

“The insurance industry takes this type of fraud seriously and the IFB is spearheading this collaborative work through the continued development of its counter fraud database services and next generation data analytics – as well as continuing to share intelligence alerts and coordinating cross-industry investigations.”

The industry is indeed concentrating its efforts and as Michael Kelly, head of underwriting and fraud for Axa UK says: “We’ve placed great importance on tackling application fraud for many years now and we continue to ensure that controls, resource and expertise are in place to tackle the problem. We’re committed to having the most robust measures in place so that we can protect our customers against the wider impact of fraud. It is a long-term problem which requires ongoing activity. The issue of ghost broking, and fraud in a broader sense, is well understood and insurers are setting aside budget and resource to tackle the problem. This has improved vastly in the last 10 years. However, the problem continues to evolve and we need to work hard to shut down new opportunities for fraudsters.”

Pressures from the pandemic

The Covid-19 pandemic has put additional pressure on claims staff and counter fraud specialists, who have needed to work remotely and had less opportunities for collaboration.

For fraudsters, Covid-19 has been an opportunity to make hay while the sun shines.  The most recent ABI fraud data published in October shows detection rates rose in 2020, both by number (up 0.02 percentage points), and by overall value (up 0.47 percentage points). The average fraud detected also increased to £12,000, up 6% on 2019.

Aviva, for example reported that last year it saw a 10% rise in fraud, with some 12,000 cases worth over £113m and more than 19,000 claims investigated. Notably, fraudulent policy applications and ghost broking increased by some 34%. Aviva said that ghost broking now accounted for around 20% of policy fraud, with criminals targeting more vulnerable customers such as those who spoke little or no English or young drivers who are often charged the highest premiums.

LV has also seen a rise and Matt Crabtree, head of financial crime strategy, comments: “We’ve seen a rise in ghost broking and fraudulent advertising compared to the previous year, as consumers look for cheaper insurance. From our investigations we’ve been able to share this evidence with the police, via the Insurance Fraud Enforcement Department to take further action and help protect the public from falling victim to these criminal activities.”

Fraud may rise as pandemic recedes

It is well known that fraud spikes when economic times are tough and there is no doubt the insurance sector must be on their guard. Stephen Adams, senior fraud manager for Confused, says: “As we come out of the pandemic, there’s certainly concern among the industry that instances of quote manipulation and ghost broking may rise. This was the case previously, when the financial crisis happened.” However, the industry does now have far better defences, and as Adams adds: “It’s unclear as yet if this will transpire, because there is far more uptake of systems to validate customers’ information, alongside systems such as Device ID, so there may not be such a significant spike of ‘successful’ fraud on this occasion.”

Confused also picked up on other trends. “In the initial phase of the pandemic, we saw ghost broking reduce”, notes Adams. He believes fraudsters had switched to other areas, such as “Covid-related phishing”, while he says some ghost brokers who continued to operate, began advertising to attract key workers. He adds that where these were spotted they were reported both to the Financial Conduct Authority and IFED. He says it is “undoubtable that fraudsters benefited during lockdown, even if they were not always specifically targeting insurance, and there are now signs that ghost broking is on the rise”. Adams adds that throughout the pandemic, his team at Confused continued to investigate and prevent fraud and support insurer partners and customers, without a reduction in service.

This is echoed by larger brokers too and as Julia Walker-Smith, associate director at BGL, explains: “It’s absolutely vital for us to be focused on stopping fraud and we were very much focused on this during the pandemic. We’ve a duty to our insurer panel to stop application fraud and also in a wider sense – we want to protect customers from having their identities stolen and also block these activities, which can also have links to organised crime.”

Education matters

When it comes to “tweaking” an application to obtain a cheaper price, some consumers may believe this is a relatively minor misdemeanor. LV’s Crabtree says his company focuses on communicating with customers regularly and that there needs to be awareness of all types of insurance fraud, including manipulation and fronting. “We help customers understand that the consequences can be severe – including fines by the police if people are caught driving without valid cover, difficulties in obtaining future insurance, and even a prison sentence for the more extreme cases.”

Meanwhile, Walker-Smith, adds: “It’s important the industry continues to push out warnings about ghost broking. There are many young drivers starting their driving lessons and a backlog in tests, which is causing problems. They may be anxious to get cover as soon as possible and as cheaply as they can and they need information – they may be more willing to be open with their data and have less suspicions than a more experienced driver would.”

Adele Sumner, head of counter fraud and financial crime at RSA, comments: “We’ve made a lot of progress on tackling fraud within RSA and across the market, with the use of much better data and technology, but crime like ghost broking is not going to go away. I agree that we need to keep getting the message out and it’s also good to see there are videos about the crime on YouTube, for example, which is a targeted way of reaching young drivers. We also need to ensure customers understand what the issues are around manipulation and if necessary, ensure brokers understand what tactics fraudsters may be using.” She adds RSA has not seen a particular surge during the pandemic and in part, this is because much tighter controls are in place.

Crabtree says LV educates brokers and customers on the types of fraud trends it sees through webinars and communications. And Matthew Stevens, director of counter fraud at broker Hastings Direct, says: “When it comes to quote manipulation, customers should specifically be aware that if they do not have accurate information captured on their policy, it could invalidate a claim at a later date.”

He explains Hastings Direct has also ensured it keeps a very tight rein on fraud controls and has not experienced any lockdown-related pressures. But he says there is no doubt that some fraudsters will have profited from other sectors. “They won’t have benefited from us, but I think fraudsters have switched their attention to other income opportunities, such as government Covid grants.”

On ghost broking, he says the industry must continue to track what the latest trends are so that it can keep all informed. “I don’t think there is an end point to the war on ghost broking. The issue will continue for as long as fraudsters are able to steal or imitate consumer data. Ghost broking will simply evolve and the challenge for insurers is to anticipate and stay one step ahead.”

Dalton at the IFB, says: “We’ve been pushing for greater awareness of application fraud and have launched several public awareness campaigns in the past year. Most recently, we teamed up with the Driver and Vehicle Standards Agency to raise awareness of the issue of fake car insurance deals on social media. The aim of this campaign is to help prevent the many hundreds of thousands of learner drivers that are catching up from the pandemic from falling victim to the scam when they get their first car.”

Sharing knowledge is key 

Sharing information has proved a big step forward  in the insurance sector counter fraud response – along with advances in technology and data. And while the IFB once focused largely on organised physical fraud such as cash for crash, it now takes application fraud extremely seriously, both behind the scenes, and in getting the message out to the public.

As Crabtree adds: “Collaboration helps us to share intelligence and gather any insight we may need to investigate a suspected fraudulent case. We work closely with a number of organisations and other insurers, including the ABI and the IFB. We also work closely with IFED and the National Fraud Intelligence Bureau.”

Adams says: “Fraud prevention agencies such as the IFB and fraud prevention service Cifas are leading collaboration with great counter fraud teams at insurers, brokers and price comparison websites. As an industry, we’re undoubtedly in the strongest position for countering fraud in 2021 than ever previously.” He explains Confused was recently called on to support the successful prosecution of two ghost brokers. “It’s so important that we, as companies and as an industry continue to work closely together to combat these issues. We’ve held counter fraud forums, which are open to anyone in the industry, so that we can share trends and best practice in fraud prevention – because collaboration and knowledge sharing is key to winning this war.”

In for the long haul

While the pandemic has proved a huge shock to the economy and the way many businesses have needed to operate, it is clear insurance counter fraud teams have remained effective.

As Crabtree says: “As an insurer we’re constantly evolving – keeping up to date with the latest fraud trends – and our anti-fraud detection systems are continually reviewed and developed to trace fraud. We also use a variety of techniques to spot behaviours, entities and triggers that may not seem normal. However, fraudsters are getting smarter with new techniques and are constantly finding loopholes, so collaboration across the industry and educating consumers are both key. “There is more that can be done to stop ghost broking more specifically, which is why we support the ABI calling on the government to include financial scams promoted by paid for adverts in the Online Safety Bill.”

There is a sense of determination among fraud managers that borders on optimism – although this remains tempered by realism. As RSA’s Sumner says: “Fraud is on the board agenda and we continue to innovate and do all we can to stay ahead of the fraudsters. They realise we are absolutely not a soft touch. They will continue to push – but they can see that we are prosecuting. There is better collaboration and the use of effective tools is helping to prevent application fraud.”

Kelly says: “Axa continues to test data and technology with third parties and where we can demonstrate a tangible benefit in helping us tackle the problem of application fraud, we will onboard the data and add it to our suite of fraud controls.”

Walker-Smith concludes successful counter fraud needs to be a mix of “art and data science”. This means gaining deep insight into the methods and techniques and ensuring that there is a means to stop the fraudster in their tracks. “We’ve invested a lot, but there is no one magic bullet with application or any type of fraud. You need great data, but equally it is about how you join it all together and fraud systems and your algorithms also need to update in real time. I would agree there has been a lot of progress across the product lines and as the next phase, the insurance sector could also have a leading role to play across many other sectors. We have a lot of experience we could talk about and fraud in all its forms cannot be seen in isolation.” 


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