The changing face of insurance fraud

The future of fraud may be digital, but the biggest threats facing insurers and their fraud teams today remain surprisingly familiar.

Insurance Post’s latest fraud prevention survey, in association with CRIF, found that exaggerated or inflated claims are creating the biggest problems for insurers, cited by 80% of respondents. But opportunistic claims fraud (44%), application fraud (40%) and staged accidents (39%) are also soaking up huge amounts of capacity.

But while the types of fraud are very familiar, the way in which these methods are being used is increasingly influenced by technology, and insurers are rushing to keep up.

• More than two-thirds (68%) of respondents believe fraud has become more technologically enabled over the past three years.
• And more than half (53%) say it has become increasingly opportunistic and volume-driven.

The fraud might not be changing but the way in which it is perpetrated is, and that rate of change is only going to accelerate.

“We are increasingly seeing fraud become more technologically enabled, and while this represents a shift, it follows a familiar pattern where trends emerge first in personal lines before developing in commercial lines,” says Nick Errington, global head of claims governance and performance excellence, claims corporate solutions at Swiss Re. “The pace of technological change is the biggest concern, as fraudsters are quick to adopt new tools and techniques.”

 

 

Traditional fraud is remarkably resilient

For all the valid concerns about the influence of artificial intelligence (AI), the survey indicates that it is exaggerated claims that are having the greatest operational impact, as Ruth Needham, partner at Kennedys Law, explains: “The fraud trends, while they change slightly over time, are ultimately the same, as are the drivers. Most insurance fraud comes from greed or economic need.”

Richard Cliffe, counter fraud and recoveries manager at Collinson Insurance, says that economic conditions are only part of the exaggeration problem – the fact that insurance fraud is still seen as a largely victimless crime, compounds the issue.

“There is still the common misconception that it’s okay to exaggerate a claim, and more needs to be done to educate the general public to understand what the repercussions of committing fraud are,” he says.

Impact injuries and bruising are the new whiplash.

Dean Witherington, Wakam

The more traditional approaches to organised fraud haven’t gone away but they are evolving with the help of technology. Dean Witherington, chief claims officer at Wakam, explains that staged accidents remain a feature of the market, but while the UK no longer has the weakest necks in Europe, according to the claims data, we now have the weakest wrists, ankles and knees.

“Impact injuries and bruising are the new whiplash,” he says.

More than that, the staged crashes aren’t necessarily even taking place anymore: “In the old days, you used to get two cars and bang them into each other and arrange for people to be in the cars to claim. Today the collision, the damage and the people can be entirely virtual,” he adds.

In addition, fraudulent ‘bent metal’ claims are on the increase and, as Ben Leech, counter fraud strategy director at Keoghs explains, this form of fraud taps into long-standing issues with the credit hire market.

“It is still the case that insurers will see credit hire claims up to £80,000 for a trivial claim, where the value of the car is about £3,000. So, a claim comes in, the vehicle is a total loss, and with the spectre of credit hire in the background, the insurer is incentivised to pay out so it doesn’t go into the credit hire process.”

Technology is changing the rules

While opportunistic fraud remains a key concern, the growing sophistication of organised criminal networks is always on the radar. Armed with AI-generated documents and deepfake technology, these groups are increasingly able to operate at scale, targeting multiple insurers and lines of business simultaneously. And the front lines are bearing the brunt.

Nearly seven in ten respondents (68%) said fraud had become more technologically enabled over the past three years, while only 8% believed the landscape was largely unchanged. Technology is making fraud easier to commit, harder to detect and far more scalable than it has been before.

Needham highlights that the growing use of AI-generated receipts and supporting documentation is leaving claims teams to question everything they receive.

“The old-school investigation tools of asking for the receipt or the document to prove the purchase or the level of damage sustained is no longer enough,” she says.

While fraudsters and insurers are locked into a technology arms race, the fraudsters have the distinct advantage of not having to comply with regulations, legal limitations and corporate oversight.

“The organised criminal gangs are cash rich and are free of the corporate sign-off processes when it comes to investing in the latest technology,” says Collinson’s Cliffe. “There has been much talk of the AI arms race and, at the moment, the organised criminal gangs are ahead of insurers and are winning the race.”

The organised criminal gangs now operate at scale and can submit multiple claims, so it’s almost like a sausage factory.

Richard Cliffe, Collinson Insurance

Detection is improving but so are the fraudsters

The good news is that insurers are responding with more than half (52%) of respondents using AI-driven fraud detection tools, according to the survey, while training programmes, intelligence partnerships and specialist fraud teams are now firmly established across the market.

But despite this dash into the digital realm, insurers complain about the technology limitations and resource constraints they have to work under, with 49% citing these as the greatest barriers to tackling fraud. At a time when organised gangs are increasingly connected and able to use technology at scale, this starts to look like a fundamental risk.

“The organised criminal gangs now operate at scale and can submit multiple claims, so it’s almost like a sausage factory,” says Cliffe. “They will do their research on each insurer’s claims acceptance criteria and will find the weak spots.”

 

Taking the hybrid approach

The human hunch will always be a key aspect of anti-fraud work.

Ben Leech, Keoghs

While exaggerated claims remain the most significant source of fraud today, there is a danger that in focusing too sharply on tomorrow’s threat, today’s more traditional challenges slip under the tech radar.

That could mean – in this discipline at least – that humans will never be fully replaced by the robots. The hunches, the gut feelings and the decades of experience spotting and catching fraud still have a vital role to play in this tech-driven landscape.

As Keoghs’ Leech puts it: “The human hunch will always be a key aspect of anti-fraud work and that can be augmented by technology. A trend is a trend and that is where the gut feel can come in to spot it at source before it turns into a pattern.”

The motivations to commit fraud remain largely unchanged, but the tools available to fraudsters are becoming more powerful by the month. For insurers, success will depend on whether they can harness technology without losing the human expertise that has always sat at the heart of effective fraud detection.

 

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