Many believe fraud in the high-net-worth market is rare. Is this the case, or are insurers just remaining tight-lipped about the problem?
The high-net-worth market is not immune to fraud. Insurers rely on data analysis and the work of specialist loss adjusters to investigate it while ensuring a smooth claims process.
Insurers' fight against fraudsters across the market has been well publicised in recent years. With the cost of insurance fraud estimated at more than £1bn annually, the Insurance Fraud Bureau, the Insurance Fraud Enforcement Department and the Insurance Fraud Taskforce are all working to rid the industry of its soft-touch image and bring cheats and scammers to justice.
But in all this activity, mentions of the HNW market are rare. Are insurers simply being tight-lipped about the fraud detection measures used when dealing with wealthy private clients? Or is this section of the market an anomaly where fraud is not an issue?
Many of the individuals who work in this area do believe that fraud is less of a problem than in other parts of the market. “I’ve been doing this for 20 odd years. The cases where I’ve experienced fraud are few and far between,” says Giles Greenfield, CEO of AIG-owned Markham Private Clients. “The clients tend to have these wealthy assets, so why would they risk everything by making a fraudulent claim?”
However Eva Berg-Winters, head of claims at Hiscox, says that fraud is an issue across the spectrum, even though “proven fraud is a very small slice whether it is mid net worth or HNW”. And while the rich and famous do appear to have more to lose from insurance fraud, they have not always shown themselves to be above committing it.
As Mark Pierce, head of major loss and private clients at Davies, observes, Old Etonian Lord Brocket was jailed in 1996 for his part in a £4.3m classic car insurance fraud and he is not the only aristocrat to have spent time ‘at Her Majesty's pleasure'.
Although what constitutes a HNW client can change depending on the insurer, most companies use the term to refer to clients who pay premiums in excess of £2500. Then there are the ultra-HNW – with helicopters and vast art collections – who pay considerably more. But while their level of wealth may vary, most HNW clients believe that along with cover for expensive personal assets, they are purchasing superior service in the event of a claim.
The polar opposite of the price-driven personal lines space, where shopping around has become the norm, the HNW market is characterised by long-term relationships between insurers, brokers and clients – retention rates are around 90% – meaning the key battleground is service. And customer expectations are high.
While ‘old money’, the landed gentry and aristocracy, can be somewhat forgiving on the service front, ‘new money’, especially self-made businesspeople who have often made their fortune in the service arena, are far less tolerant, according to Pierce.
And in a market in which intermediaries still have significant influence, it is not only the customer that you need to impress, says Barry O’Neill, managing director of Allianz subsidiary Home and Legacy. “You’ve got to have the confidence of your brokers that you can consistently deliver excellent service. That’s the ticket to be in the game.”
But how does a market predicated on personal relationships, good customer service, and swift payouts square with a robust approach to fraud detection?
According to O’Neill, the key is to ensure the necessary checks happen quickly behind the scenes so that straightforward claims can move quickly to settlement.
“Most customers are quite reasonable in their expectation that an insurance provider should ask questions to establish the nature of the loss. If that leads to some indicators of potential fraud, it’s a question of how we manage that. For us, that would typically involve the use of specialist loss adjusters. But for the vast majority of clients the process is seamless and doesn’t add any delay into the claims journey,” he says.
It is a task that has been greatly aided by technology, as both high tech and low tech allow for everything, from background checks to proof of ownership, to be done at ever greater speeds.
Berg-Winters notes: "It is much easier to look at all kinds of data sources in the background - including publicly available information - to see if there are any triggers or facts we should be aware of. And that allows you to react quickly rather than keeping the customer waiting."
Once sufficient checks have been done, online banking makes settlement a much quicker process, says Greenfield, giving a recent example from his own experience. “One of the brokers that we look after had a client with a claim. We got the details through and we settled within 34 minutes by transfer into their account. It wasn’t a massive claim – about £3000 – and they had the receipt, so they sent it through and we did the settlement right away.”
HNW home insurance in the UK
- Hiscox and Chubb hold the largest share of the market
- The market is low in profitability with an estimated combined operating ratio of just under 100%
- By 2020, the combined mid-net-worth and high-net-worth market is forecast to be worth £1.3bn in gross written premium
- MNW business is moving away from the broker channel
More due diligence
A key reason cited by many in the industry for the lower likelihood of fraud in this segment of the market is that customers are normally acquired via referrals from brokers or wealth management companies, meaning that more due diligence is done on clients upfront. But another key area where brokers add value is in providing detailed and accurate information about the risk.
O’Neill points out: “The biggest problem for customers is when fraud indicators are triggered because of poor quality of information. The best way to avoid that is to get the best quality information upfront. For example, rather than just describing a watch as a Rolex watch, describe the model and year. The more brokers can give clear information at the start of the journey, the easier the claims process is.”
For HNW claims that are not straightforward, loss adjusters are key. Although a loss adjuster may simply be appointed because the claim is above a certain financial threshold – anything from £5000 to £15,000 depending on the insurer – it can also be a sign that something about the circumstances of the claim does not feel right.
“Insurers have their own measures. They will score it and they will get to the point when they feel there is sufficient concern to merit further investigation,” says Pierce.
A third factor that could warrant an adjuster is if there is an element of recovery involved. He adds. “It might be that there is a household policy and a travel policy in force, so the level of complexity is such that you need to appoint an adjuster.”
While fraud in UK domestic market in recent years has taken the form of
ghost-broking and crash for cash, the HNW market has seen fewer scams of this nature. So what does HNW fraud look like? James Long, operations director at Criterion, says one of the types he comes across fairly frequently is people making false claims about a list of specified high-value items.
“A lot of insurers don’t ask for validation of those items at the outset. So if you want to insure a Rolex watch for £25,000, not all insurers will ask for proof that you own it. When you have a list of specified items, it’s very easy to generate money very quickly by losing one of them.”
While fraud does happen in the HNW space, detecting requires different skills. As Berg-Winters points out, “for them to come with [a claim for] a very large piece of jewellery, or similar, wouldn’t raise an eyebrow because it would normally fit with the lifestyle”. So what would lead to the suspicion that a HNW claim was fraudulent?
“Financial distress is the main indicator,” says Long. “You can have HNW customers living in very substantial properties, but when you look into the background the property might be owned by a trust, or some other setup of which the HNW customer is not a part.”
Gaming the system
Then there are things that indicate that the policyholder may be trying to game the system. “The kind of things we look for are if someone’s had a smaller value similar loss within a short period of time. Fraudsters sometimes try the system by putting through a fairly straightforward small value claim and if that goes through easily, then they will try a slightly higher value claim,” says O’Neill.
While the use of fraud checklists does have its place in the HNW arena, adjusters also have to rely on intuition, which is why many insurers swear by the use of specialists on HNW claims. Some will only work with an adjuster like Criterion that focuses exclusively on HNW. However, others will work with general adjusting firms, as long as they have a separate HNW division.
According to Long, this requirement makes sense, given what investigating HNW claims entails. “Often [the HNW clients] are very important to the brokers, so you have to be very sensitive when investigating. It’s less of a process-type operation where you tick boxes for fraud indicators. We still do that but we use very experienced loss adjusters who’ve been dealing with HNW claims for many years and we rely on their intuition.”
“If we get instructed on a claim at 10:30 in the morning, we have all the support staff here ready to do the background checking and we have the adjusters ready to visit the customer within a couple of hours. They don’t have a couple of household or commercial claims to do on the way, where the emphasis is very much on economical settlements [rather than] customer service.”
In 2014, insurers uncovered 130,000 fraudulent claims worth £1.32bn across all insurance products. In addition, there were 212,000 cases of application fraud.
The most frequent fraudulent claims were in motor lines: there were 67,000 fraudulent claims, valued at £837m.
Also, 19,800 liability claims were detected as fraudulent and valued at £343m.
Fraud is estimated to add £50 to the annual insurance bill for every policyholder.
Insurers invest at least £200m each year to identify fraud.
Earlier this month, Questgates, a firm that has made its name working on environmental and flood claims, launched a dedicated private clients division.
Explaining the decision Alex Wakefield, head of private clients at the firm, cites similar factors.
“It allows us to be more responsive and that’s what our clients want. They want us there immediately and they want us to be able to have a closer personal contact between the adjuster and the customer. It allows us to triage cases at an early stage and get the right people in the right place at the right time.”
According to Wakefield, the firm is also betting on the market’s continued growth. “A lot of our clients have told us they’ve seen increases in their volume of sales. And while before there were more traditional HNW insurers, people like Chubb, Hiscox and AIG are starting to give ground to more high-street names.”
Greenfield agrees that the market is growing, a fact he credits with driving the already high service standards even higher. “In the UK, more insurers, MGAs and brokers have gone into the HNW market because they’ve realised the benefits of cross-selling. What that means is that everyone is constantly looking to improve their service.
“Twenty years ago, if you did [HNW] you were one of the few people that did it. Now a lot of people are doing it. The difference is those that are specialists and those that aren’t. The specialists will find different ways to improve policy wordings, speed of claims, or specialist loss adjusters.”
O’Neill agrees: “The competition drives two things. One is around price: generally prices are sharper now in the HNW segment than they have been for some time. But it also drives product and service differentiation. If you can’t deliver those things, then the price side becomes less of an issue.”
While new technology and cover innovations can be welcome additions, the key to being successful in this market remains old-fashioned people-based claims handling, according to Anne Bozier, private clients claims leader, at RSA-owned Oak Underwriting.
“When somebody makes a claim, it doesn’t matter if it’s a television or cinema screen, or the whole property has been lost due to fire, there is a grief life cycle. However small or large the claim is, we consider that it is the most important thing that has happened to our client at that particular time. Our role is to give the most personal service we can under the cover they have, as speedily we can.”
Despite this, if fraud is suspected, there is no special treatment, according to Adele Sumner, head of fraud intelligence and strategic development at RSA: “If there are any suspect fraud indicators, we have a dedicated counter-fraud unit made up of ex-police officers and ex-loss adjusters who will investigate that claim in the same manner as they would any other, so the response after that point is the same.”
Gary Simmons, head of HNW and commercial claims at Covea, says some insurers are more conciliatory towards HNW clients. “There appears to be a greater tendency in HNW for insurers to enter into compromise agreements, where sufficient evidence exists to raise an allegation of fraud, whereby they agree not to invoke the fraud condition if the customer agrees not to pursue the claim and terminate their policy.
“While these agreements avoid the risk and cost of continued investigations and potential litigation, they usually involve confidentiality clauses and do leave the HNW fraudster free to move on to the next unsuspecting insurer.”
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