Blog: Thinking creatively to tackle rising inflation and commercial insurance fraud

Eurozone inflation is continuing to soar to record highs, with the latest estimate from the European Union’s statistics body predicting an annual eurozone inflation of 9.1%. Meanwhile, over the summer, energy inflation peaked at 38.3%. Therefore, it is no surprise that sales and profits are declining for thousands of the 5.6m SMEs that make up over 99% of the economy.

It is a well-documented fact that challenging economic times lead to increased fraudulent insurance claims. These increases will be felt across both personal and commercial books of business, typically arising from the desperate financial situations faced by policyholders.

In the personal lines market, insurers are well equipped to identify, prevent and track increased fraudulent behaviours and can share cross industry data to assist them with their counter fraud controls. But the commercial insurance market has been less progressive in fraud detection and prevention, which is something that insurers are aware of – and concerned by – as the economic crisis deepens.

Key barriers

One of the key barriers is the industry’s inability to quantify the scale of commercial insurance fraud. If organisations had a clearer idea of the impact on their bottom line, there would be increased motivation to invest and develop solutions to reduce the risks.

Commercial insurance is often sold through the intermediated channel, so a joined-up, consistent approach is required between insurers and their agents, with continual monitoring and refining of processes to reflect evolving fraudulent behaviours.

Then there is the nature of commercial insurance fraud. The premeditated fraudulent property claim resulting from a fire or flooded premises can be classed as opportunistic, and it is similar in context to premeditated, opportunistic personal lines fraud. Albeit only business property claims and associated business continuity costs are likely to be considerably more sizeable.

Organised criminals

Of equal – if not greater – concern, is organised fraud. Organised criminals are becoming increasingly sophisticated in their connectivity, data use, and modus operandi. They are adept at identifying the weak links in an insurer’s fraud controls and taking advantage of them, and they know that insurers are less equipped to identify commercial insurance fraud.

Insurance cover for these criminals gives them the dual purposes of carrying out their criminal activities, for example motor fleet cover for transporting drugs, arms and human trafficking, and raising funds from fraudulent claims. They are skilled at creating and registering companies with Companies House using accurate data so they appear to have a credible history. They are also quick to buy up failing or closing reputable businesses and use that reputation to secure insurance.

How can commercial insurers protect their businesses when they effectively remain in the dark? Has the time come to think creatively? As creatively as the premeditated fraudsters and organised criminals hitting their profits?

New data and storing information

Is there an opportunity to use new data to help identify and prevent fraud at quote and claim? Open-banking data represents a PDS2-compliant, innovative way for commercial insurers to gain augmented knowledge of their prospects and customers via dynamic, accurate and insightful current account transactional data and credit scores.

It can be used to validate a business that is registered with Companies House, avoiding high-risk policy inception, and to identify financial difficulties that could predicate claims fraud.

Commercial insurers are effectively operating in silos, and have no centralised source of industry information – analysis of which can supplement internal and third-party data sources and help to inform thinking and decision-making.

What information could be shared that would help commercial insurers to tackle commercial fraud? Perhaps information on different risks, or a historic policy database, could be used to flag areas of concern such as frequent upgrading and/or downgrading of policies or multiple address changes.

Collaboration will be vital in helping commercial insurers to better equip themselves for the fraud challenges anticipated over the course of the economic crisis and its slipstream. Is it time to harness the power of the collective?

Sponsored