Why treating insurance like bin bags is a fraud risk

We tend to think of motor policies as among the simplest of financial products, bought in a highly commoditised market.

The Chartered Insurance Institute’s Trust Index shows that customers rate the ease with which they can do business with their insurer higher than their insurer’s performance on a range of other indicators, including the speed of paying claims, appropriateness of the cover offered and confidence that the insurance will pay out.

Just as people might borrow more than they can afford on a mortgage to get the prize of a new home, drivers might distort the picture of who is a main driver in order to get the prize of greater mobility and freedom.

Matthew Connell, Chartered Insurance Institute

But while buying insurance may feel as easy and inconsequential as buying a roll of bin bags online, these products are binding contracts, and for motor and home insurance they cover liabilities that can run into hundreds of thousands or even millions of pounds.

This explains why consumers may become trapped in scams, or even unwittingly commit fraud themselves. Two key examples are the practices of ghost broking and fronting.

Ghost broking

Ghost broking is a type of fraud where an unsuspecting client is sold a fake insurance policy. 

Not only is the customer defrauded out of the cost of the policy and potentially exposed to very high claims, they can also face consequences for driving uninsured, which can include car seizure, points on their licence and fines.

Ignorance about ghost broking is not always accepted as a valid reason, especially as some fake insurance policies are obtained knowingly by ‘clients’ as a way of superficially demonstrating they have bought car insurance.

Fronting

Fronting occurs when one person (usually a parent) presents themselves as the main driver of a car to get better rates for the person (usually a child) who actually does most of the driving. 

In the eyes of the law, fronting is a form of fraud and could lead to the customer being liable for damages and injuries caused in an accident and, in some cases, it can even lead to a criminal record.

However, awareness of the risks of fronting is low. In 2021 YouGov conducted research for LV that suggested that 90% of parents are unaware that fronting is a form of fraud.

It is easy to see how an otherwise law-abiding family could slip into fronting. Some young people talk about receiving prohibitive quotes that run close to £10,000. 

They feel as though insurers are playing a game, trying to trap them into a product that is more expensive than it needs to be.

In return, they start playing a different game, presenting the risk they take with the most positive spin possible.

Just as people might borrow more than they can afford on a mortgage to get the prize of a new home, drivers might distort the picture of who is a main driver in order to get the prize of greater mobility and freedom.

Trust deficit

The motor insurance market does not exist in a vacuum. Consumers judge their actions against the actions of others. 

If they are able to complete an insurance application with less challenge than they get when they enter the wrong credit card expiry date into an online form, they will be more likely to assume that the application process has little consequence. 

If the only warnings they see are the boilerplate warnings that appear in other transactions, they will ignore them. 

And if they feel they are in a conversation where spin seems to be more important than substance, they might be tempted to fight exaggeration with exaggeration.

However, if insurance professionals can convey the importance and value of the contract that customers are signing, the market can work better for everyone – with the single exception of the real criminals.