The Artful Fraudsters

With high-tech equipment increasingly being taken on holiday and fraudulent claims on the rise, the travel insurance industry is having a tough time balancing weeding out nefarious claims with a treating customers fairly mandate as Jane Bernstein reports

Travel insurers are currently going through their own voyage of discovery and it is one they hope will lead them to a land where the incidence of fraud is greatly reduced. The road, however, looks set to be a bumpy, uphill struggle.

It is becoming increasingly urgent for insurers to implement effective anti-fraud systems as they are being bombarded with a daunting array of fraudulent activity - from exaggerated claims of lost baggage or damaged cameras, to large scale organised fraud rings. While the most common claim associated with travel insurance is for problems such as lost luggage, there is the potential for more costly issues to arise. Paul Wells, technical claims manager for Norwich Union, points out that medical expenses claims are relatively rare, but, when they do happen, they are usually high value.

Detica senior fraud expert David Porter believes organised insurance fraudsters have evolved quickly, and are now exploiting the inability of some traditional detection methods to spot networked criminal operations rigged with false identities.

Mr Porter, somewhat ominously, adds: "Insurers must act now to keep up with, and ultimately overtake, professional fraud gangs. We have the technology; we just need the will to see it through."

However, it is not just organised gangs that insurers need to focus on but also the increasing numbers of opportunistic fraudsters. As holidaymakers pack expensive items such as Mp3 players, mobiles and high-spec cameras, the values of 'smaller' claims are on the rise.

Allan Clare, head of counter fraud services at Royal Bank of Scotland Insurance, which owns Churchill, explains: "The average travel claim cost is increasing, although this is probably a combination of inflation and an increasingly growing affluent society that has access to more expensive personal items."

According to Mr Clare, travel claim fraudsters are going to claim for the loss of expensive items and the latest technology, whether they owned the item or not. "When fraudsters make a fraudulent claim, the approach is usually think big and think best," he comments.

Peter Oakes, head of fraud at Hill Dickinson, also emphasises the problems associated with opportunists: "There is no doubt opportunist fraudsters will take advantage of insurers that fail to put in place appropriate safeguards to detect those who make multiple claims across a range of different sectors."

The increasing attention on treating customers fairly in this sector (Post, 26 July, p24) creates further urgency around the need to find a solution. Crawford and Company head of counter fraud solutions Bobby Gracey explains: "Travel insurers have obligations under the Financial Services Authority to ensure that the cost of fraud is not passed onto genuine customers, and it is no longer acceptable to blame poor anti-fraud systems."

Implementing anti-fraud systems is, however, no easy task for the travel insurance sector. Damian Ward, head of fraud at Halliwells, points to the inherent problem: "It tends to be a question of high-volume, low-value fraud and, therefore, difficult to detect in a cost-effective way."

Avis Easteal, commercial director of Experian Insurance Services, agrees: "Travel insurers are facing plenty of fraud but the premiums are small, so they need very cost-effective solutions. If they can't do it cost-effectively, then they can't do it all."

Furthermore, it is crucial to avoid treating genuine customers like criminals. "What you need is something that doesn't have a big 'F' for fraud when handling claims," asserts Mr Gracey.

The good news is that there are appropriate systems in place that can help. Some identify trends in fraudulent activity. Others rely on conversation management techniques, where claims handlers recognise behavioural patterns associated with fraudsters. These can all help to identify which claimants are worth investigating and, therefore, help insurers to target resources.

"The problem lies in the volume compared to the size of the loss, so insurers have to be careful about where they put their money but they are certainly serious about following up fraud," Ms Easteal explains.

Crawford uses a system called scientific customer orientated risk evaluation. Mr Gracey explains that part of its impact arises from the fact that most fraudsters do not like an emotional relationship with the claims handler. "What we try to do is to 'cuddle' the customer, and you find that two things happen - the genuine customer loves the attention; whereas the fraudster hates the cuddle because they want to remain evasive."

Furthermore, there is an increasing sense of determination among travel insurance professionals to take on fraudsters. Insure and Go managing director Perry Wilson says: "We investigate any claim we think is fraudulent, whether in the UK or abroad, because we don't believe we should pay a deceptive claim."

Logical step

For many insurers, the next logical step is for the travel insurance industry to take a more joined-up approach. Chris Price, Direct Line's head of travel insurance, observes that, when buying a single-trip policy, it is entirely possible for somebody to circulate their claims throughout the industry without being picked up. "Should we be more joined up about it? It's a perennial point of debate. The obvious answer is yes," he observes.

However, he adds the cost of adapting or changing existing operating systems is proving one of the biggest obstacles to a more co-ordinated effort.

However, Mr Price is optimistic that things will change: "We are starting to move in that direction, and a more joined up approach in the future is probable."

But while catching the fraudsters is a worthy goal, prevention must still be better than cure, so are there any steps insurers can take to discourage fraudsters in the first place?"

A potential solution to the more opportunistic fraud is to boost customer loyalty. There is anecdotal evidence, for example, that fraud is less prevalent on annual policies than it is on single-trip cover. Mr Price says: "As a general rule, fraud that is deliberately perpetrated rather than opportunistic is almost invariably going to involve single-trip policies." This is a widely held view among travel insurers.

For example, Mr Clare comments: "Experience would suggest fraud is more prevalent with single-trip policies where there isn't as much of a relationship between the customer and insurer."

Linda Norman, managing director of CIL International, adds: "It has been perceived for many years that a lack of customer loyalty results in an increased incidence of fraud."

Although a shift from single-trip policies to annual multi-trip has helped, she adds that the public still tends to shop around each year and buy the cheapest product they can find. As far as loyalty boosting initiatives - such as bonus schemes or reduced premiums - are concerned, the nature of the low-premium travel insurance market presents inherent problems. "The premiums are relatively low, so the amount of discount you could offer would also be fairly low," Mr Wells explains.

Mr Wilson believes rather than offering discounts as incentives, insurers need to build in added-value products that customers really need, and ones that provide tangible benefits. For example, travel insurance company Insure and Go recently launched a pre-paid travel card, which offers a variety of benefits to customers.

The initiative aims to deal with claims more efficiently by crediting the card with a settlement within hours of a claim being approved. Another major feature is that holidaymakers can put money on the card and use it as a debit card. And due to the fact that it does not contain an overdraft facility, it can also provide a level of protection for holidaymakers themselves against credit or debit card fraud.

So could a pre-paid card help in the fight against fraudulent claims on travel insurance? Richard Matthews, managing director of Binary Financial, suggests it could. "The anecdotal evidence is that the longer people wait to make an insurance claim, the larger that claim becomes. So if you are on holiday and have your handbag stolen, the immediate reaction is to tell the truth regarding what was in the handbag. If you wait until you return from holiday, you may decide that your I-pod was in there when it was not, and perhaps also your camera and phone," he explains.

The underlying message is that if an insurer can offer to settle claims immediately while the customer is still on holiday, then the risk of claim inflation decreases.

Public perception

Regardless of the level of success in the prevention or cure of fraud in this sector, insurers unfortunately still face the thorny issue of public perception. In particular, as Mondial corporate and travel director Steve Hook observes, travel insurers suffer from the apparent socially acceptable nature of making fraudulent claims on travel policies.

"Unlike household and motor claims, which can run into thousands of pounds, certain policyholders believe that they can 'over-inflate' the value of their claim for a travel policy to an amount that's still small in comparison to other insurance policies. This is because they think it's unlikely to be noticed, and will slip through," he explains.

In addition, exaggeration of otherwise genuine claims remains endemic, largely because of a perception that customers will get away with it and that insurers will simply accept a relatively small claim.

Mr Price says: "Losing personal effects while on holiday presents some people with a moral dilemma, and we have to hope that in the main, people will be honest about the quality of their loss."

One answer is to raise awareness among the public that insurers will act on fraudulent activity. "You have to be fair but our wording does drive the message home that if we do find a fraudulent claim, we will investigate it," Mr Wilson explains. He concedes, however, that while it might prevent opportunists, it will not scare off professional fraudsters.

According to Mr Gracey, although the travel insurance industry has been involved in fraud management solutions for some time, there has not been as much publicity attached to their actions as to that of motor insurers. "The time is right for the travel insurers to give a message to opportunists that we do have systems in place, we take this seriously and it will not be accepted as financial leakage," he asserts.

Travel insurers have certainly started their long journey towards a world of decreased fraud but if the question 'are we there yet' was asked, the answer would currently be no.


Nikki Grieve-Top is an investigative psychologist and head of research, intelligence and development within Innovation Conversant Data. She believes fraud in travel insurance claims is growing in popularity, and cites several key reasons.

She says: "There is little consequence of a detected fraudulent travel insurance claim, whereas in personal lines insurance, an unsuccessful fraudulent claim results in the loss of a 'no-claims' bonus at best and prosecution at worst.

"There is also currently no industry data on previous claims history for travel claims, meaning that multiple claims or claims of a similar nature will remain undetected as long as the policyholder migrates between different travel insurance providers or supplies a different name or address."

She continues: "Premiums on annual and single insurance policies are inexpensive, or even free in some cases with another product. This low risk and potential high reward could reinforce the fraudulent claiming behaviour, and as long as this remains the case, travel insurers remain a weak point in the sector's fight against fraud.

"There may also be a perception of high-volume, low-value claims that are paid with a requirement of minimum supporting documentation and investigation."

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