Spotlight: Fraud – Will the cost-of-living crisis lead to more fraud?

A recent survey by Insurance Post found that 98.1% (see figure one)of respondents believe the current economic conditions in 2022 will impact organised and opportunistic fraud volumes.

The research also found that 79% (see figure two) of respondents had seen a rise in opportunistic claims fraud, ranking it as one of the most challenging types of fraud identified as it follows no discernible pattern.

Adele Sumner, head of counter fraud strategy & financial crime at RSA, explained: “It is unfortunate to say, but we do expect and are already experiencing a rise in single article-related insurance fraud.

“Over the years, we tend to see insurance fraud rise during economic downturns. It is important to develop different strategies, including using different technologies to tackle organised fraud v opportunistic fraud, as their behaviour is wildly different.

“An organised fraudster will never stop; they do not mind who they harm with their actions, so they need to be treated very differently from an opportunistic fraudster.”

Head of investigations at Woodgate & Clark Marie Quinn said that there is a perception that fraud is the exclusive territory of “criminals”.

While this is undoubtedly true in organised insurance fraud, opportunistic fraud is very different, often committed by those who perceive themselves as law-abiding.

She said: “For example, a claimant may decide ‘in the moment’ to commit insurance fraud by exaggerating a genuine loss; they may act fraudulently and criminally in that moment and may never do so again.

“Some may not perceive this as insurance fraud or consider that insurance fraud is criminal; they could see it as negotiation or compensation for items not covered or inconvenience or find other justifications to rationalise their actions.”

James Dawson, head of claims at UIA Mutual, added that there is usually no background in opportunistic fraud, so it is tough to pick up on behavioural analytics.

In addition, most voice analytics do not work with opportunistic fraud, as there is a natural nervousness among people who haven’t claimed before, so it is hard to identify in that way.

He added: “Where you can get some success in that area is the lack of preparation, the documents, the receipts. But it is a lot more difficult with opportunistic fraud v organised.”

Lack of modelling

Head of fraud technology and intelligence at Sedgwick Laura Horrocks agreed, saying: “A lot of modelling and technology solutions we have in place look at patterns of behaviour and experience.

“When it comes to opportunity claims, those factors don’t necessarily exist. These people might never have made an insurance claim before in their lives. We are relying on the experience and expertise of our team members just to look at some of the cues we might need to investigate a little bit deeper.”

More data would make detecting this type of fraud easier. However, the research showed that 47.2% (see figure three) of respondents highlighted point-of-quote as the least successful area in terms of data and technology being used to combat fraud.

This is because most point-of-quote policies are completed online, Horrocks said.

“I think the challenge with point-of-quote is most of that is now done online. So, the insurer doesn’t necessarily know that person they are taking the risk for”, she explained.

Mid-term adjustments are also a grey area in terms of fraud data. Dawson explained that it is not highlighted as a significant concern, so insurers don’t investigate it.

He said: “Because of the lack of information available now, I don’t see, in our system, how MTAs are recorded that well. If they had done an MTA with us, the next company would not know about it. There isn’t that cross-industry platform.”

Horrocks, however, said there are cues that insurers could pick up at this stage of the process as signs of preparation to commit fraud.

She said: “If they are making an MTA, it could be the type of adjustment they are making. Adding a lot of value suddenly onto their contents policy…may pose some additional questions in terms of the validation side of things.”

Stephen Adams, senior fraud, and compliance manager at Confused, added that there were ways to identify opportunistic fraud from policies taken out online.

“For opportunistic fraud, it’s often the multiple quotes with differing information that can indicate something may not be completely correct with the policy”, he said.

“Many areas where information may be changed can’t be checked through an independent source with low enough false positives to be reliable.

“In this case, a manual document check post-quote is often the best way to ensure genuine customers have a frictionless journey. Those policies with any inconsistencies can then be checked post-sale.”

Sumner agreed, saying that several different technologies and systems insurers, comparison sites, and brokers can detect fraud at the point of quote.

She said: “However, organised fraudsters will continue to attack systems and create new methods to avoid detection. There is a trend of simply using the telephone to avoid website controls.”

Another area of concern regarding insurance fraud is social media’s impact – second only to the current economic uncertainty. The survey found that 43.3% (see figure four) of respondents are concerned about changes to these platforms could have.

Facebook and Tik Tok

Adams explained: “Given the current financial difficulties we’re all facing, it’s unsurprising that many are concerned about social media being a source of fraudulent activity, given the influence it can have on consumers.

“Ghost brokers often advertise their services on various platforms, including Facebook, Instagram and Tik Tok.

“As the cost-of-living crisis worsens, it’s likely that those who are financially vulnerable may be drawn to advertised offers and cheaper policies offered by such brokers.”

Michael Richards of Zurich Investigations added: “Social media intelligence can be pivotal in terms of investigating and validating insurance claims from a fraud perspective.

“Therefore, any changes to social media are likely to have a significant impact on the industry’s ability to combat and validate suspected fraud.”

Quinn added that the use of social media within the investigative arena has been changing for some time. Many claimants are now fully aware that open-source research will be conducted and either don’t post or do so with privacy settings.

She said: “Open-source research across the internet is still an incredibly powerful investigative tool despite the increased controls and evolving legal views.”

“Social media presents a unique challenge, in particular the risks associated to who you are doing business with, there are no ID requirements to open a social media account, for fraudsters that presents a unique opportunity”, added Adele Sumner.

She said that the “sharing of trends and strategic intelligence is key to defeating fraudsters”, and RSA had insurance data sharing frameworks in place.

Data sharing

Horrocks agreed, saying more information and data leave fraudsters few places to hide.

She said: “The more information available, the less likely they would get through and present a false claim.”

She added that the Insurance Fraud Bureau is paving the way in terms of data sharing. Horrocks said: “There is a willingness for information to be shared, but it must be done in the right way, so it is secure for all parties, so no one is gaining any competitive advantage – these independent bodies are there to piece the information together.

Quinn added: “The benefits are already evident in the work of the IFB as organised fraudsters operating across the sector are shut down and convicted. Fraudsters move around the market targeting insurers and suppliers with weaker fraud controls.”

She said that information on new and emerging trends could help businesses implement mitigations swiftly.

Adams added that streamlining the number of platforms with databases covering insurance fraud would be helpful.

He said: “In an ideal world, we’d see a single list of insurance fraudsters logged in a similar way to the Claims Underwriting Exchange, which holds customer claims information for all companies to access.

“This would be fed into and accessible by all in the insurance industry.

“Other opportunities could include being able to tap into additional sources of industry information, including the Motor Insurance Database, MyLicence and Vehicle Ownership data, which would also allow enhanced fraud prevention.

Dawson agreed, saying: “Fraud is such a problem that if one company repels it well, they will just move on to the next.”

He added that with data, “it is the way that you use it and the way you build products around it that matters.”

Synetic Solutions’ Insurance product manager, Chris Hallett believes that the key to a robust counter fraud strategy has always been to have pertinent checks at each point of the customer journey.

“These checks will vary depending on the touch point in that journey and will ideally be as ‘light-touch’ as possible,” he said. “We don’t want to ruin the customer experience for the 99% of genuine policyholders and claimants.”

The survey results showed that there was a need to enrich and enhance the data that existing fraud analysis technology has recourse to enable those trying to improve their predictive models to reduce false positives and increase accuracy and detection speed (see figure five).

This could reduce investigation costs and caseloads while simultaneously improving the speed of fraud detection.

Dawson commented that collecting data from outside the industry was also critical to achieving this aim.

He said: “The thing that has piqued my interest more than anything else for combatting fraud is contributory data.

“By looking outside of insurance, we can get the information about our customers. You can see how risk-averse people are by their hobbies and that type of thing.”

Access to phone data, either through the client or tech vendors such as Threat Metrix, can help enrich the fraud technology that insurers are utilising to help them address fraud screening.

Respondents to the survey said that information, such as device location intelligence, would be useful in enriching and improving their fraud and identity authentication challenges.

But how can insurers persuade their clients to share their information, such as phone analytics, with them?

Dawson said there was an issue with trust in delivering insurance claims.

He added: “We have got to work very hard in getting this trust back. When we ask people for more data, they think, ‘you are asking for more things to turn this down’. ‘You are going to use this against me’. We have got to have actual tangible benefits for the data.

“You have got to have that bespoke policy. You have got to have that reduction in costs or an increase in cover in certain areas, whichever is more applicable to that person. We don’t bring the benefits unless you claim.”

Education

Educating customers about the impact fraud can have, particularly on the cost of insurance premiums for policyholders, is also critical when asking clients to hand over their data.

Ensuring a good customer journey and not asking for data that is irrelevant to a claim can also help persuade people to supply additional information.

Horrocks said: “If someone is making a genuine claim, they are quite amenable to giving that information.

“It is about explaining why that information is needed because there is an obligation by the insurance company to make sure the claim is genuine and is of the correct value.”

Richards added that honest policyholders feel the impact of insurance fraud because of increased premiums.

He said: “While there is, of course, a balance to be struck with data protection laws, this is a point that is certainly worth exploring. However, ultimately this is a long way off in terms of potential implementation.”

Quinn went further, saying: “The actual reality is that fraud is the crime we all pay for, and there is much to be done across the sector to ensure that customers realise this – it’s not a victimless crime.

“Neither is insurance fraud the exclusive territory of those who are inherently criminal. It can be committed by any policyholder and claimant throughout the insurance lifecycle from policy inception through to claims.

“It’s a complex issue that requires a multi-faceted approach capable of responding swiftly to the changes in fraudulent behaviour.” 

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