Roger Knight reports on the measures the insurance industry took to clamp down on those trying to defraud the system after the UK floods of 2007.
When you are up to your knees in alligators, it is hard to remember that the objective was to drain the swamp - or so the saying goes. The analogy was never more appropriate than in the summer of 2007, when the heavens opened and stayed open until large areas of Britain resembled a swamp.
And, just when everyone thought it was safe to go back in the water, the meteorological tap was turned on again, creating more misery for thousands. The first downpour, described as a one-in-100-year event, was followed by another some 10 days later.
What was the upshot for the insurance industry? Thousands of customers calling their brokers or insurers for help; call centres all but overwhelmed; all available resources from insurers and their supplier partners mobilised; resources deployed to the scene of the worst affected areas and surge plans activated.
But there was another dimension few people mentioned at the time: unscrupulous, opportunist fraudsters plotting to exploit the tragedy and defraud their insurers. If the test of insurance is when a claim is made, the insurance industry acquitted itself admirably and delivered a great response to its customers. But even as it was doing its best to look after traumatised, and sometimes homeless, flood victims, others were looking for the opportunity to defraud.
But most of the market was ready for them, including fraud management and prevention firmly in emergency plans. This saved insurance companies more than £2.5m in fraudulent claims arising from that wet fortnight.
So, what did the industry do that was different? Building on the lessons learned in previous floods, insurers tended to deploy experienced fraud managers to work as part of loss adjusters' project teams and to co-ordinate the counter-fraud response. A combined focus was placed on resolving genuine claims swiftly while taking appropriate steps to ensure that fraudsters did not take advantage of these events. A typical approach to ensure this happened included regular briefings on how fraud can manifest itself in flood claims, being constantly aware of the usual fraud indicators, watching out for unscrupulous contractors and making sure that special investigations techniques were applied.
If the claims management industry was going to deliver cost savings to insurers by pinpointing fraudulent claims, it simply was not possible to overlook any indicators of potential fraud. This meant thinking about how fraud indicators applied to flood claims and focusing on those where the alleged loss date was within a few days of the inception of the policy.
Why is this important? In some instances, uninsured victims might be tempted to buy insurance after the event and then change the circumstances to fit the cover. Certain examples of this arose in the aftermath of the floods, such as the man who was on the phone to his insurance company buying cover as the water was lapping around his feet.
Other indicators that became apparent were in those cases where the loss date reported by the insured was different to the dates and times of the flooding reported by the Environment Agency. This was important, not just to spot those who had arranged cover after the event but those who wanted a little more time to stage or exaggerate the damage.
Unfortunately, insurers were faced with fraud on more than one front: not only policyholders, but also the companies contracted to help them. Often this occurred without the knowledge or support of the policyholder although - sometimes - they were in on the scam.
In one case, a co-ordinated cross industry effort gathered evidence which showed that a contractor operating in the Hull area was posing as a major disaster management company and attempting to defraud insurers by seeking payment for work not done, making inflated claims for payment on his own behalf and making inflated claims with the support and involvement of the policyholder. Claims were repudiated, policies voided and a formal complaint made to Humberside police on behalf of the several insurers concerned.
So, what was achieved by the industry response to fraud in the floods? In Cunningham Lindsey's case, the company dealt with almost 23 000 claims resulting from these events. Of those, 195 claims required further investigation, with more than half eventually repudiated, generating savings of more than £2.5m for clients. That equates to a saving of about £12 for every £1 spent on investigations.
Clearly, the industry's focus at a time of disaster is delivering on the insurance promise of returning people's lives to their pre-loss condition. But what was clear during those months in 2007 was that fraud doesn't stop just because the heavens have opened and insurers need to keep a close eye on the reality of certain people taking advantage of the situation.
Though the occurrence of fraud during major events pre-dates the 2007 floods, it was previously something the industry was aware of, but less prepared for. Now, having a fraud strategy is a significant element in the contingency planning process, which strikes a balance between providing first class service for policyholders and beating the cheats.
The outcome of taking this joined-up approach is that the reputation of the insurance industry was protected. Genuine claims were paid quickly and efficiently, policyholders were helped in their time of distress and fraudsters were bought to account.
This approach to fighting fraud has proven itself a boon to insurers: their reputations are protected on the most sensitive claims; genuine claimants are dealt with swiftly without them subsidising the dishonest; and claims spend is controlled and reduced.
With the right process and plans in place we can still drain the swamp even as the alligators gather.
Roger Knight is the audit and training manager at Cunningham Lindsey's investigation services
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