INSURANCE FRAUD

1

• INSURANCE FRAUD
• A BROKER PERSPECTIVE
• David Meur
• Chartered Insurance Broker
• Chairman, Property Committee
  Managing Director
• British Insurance Brokers Association
  Genavco Insurance Limited

2
Dimensions of the Problem

• Statistics based on research relate to the wider
  UK insurance industry
• Is there any correlation between frequency, cost
  and nature of fraudulent insurance claims and
  different distribution channels?
• We are probably a long way from knowing the
  answer
• But there are clear opportunities for the broker
  channel to be influential in combating insurance
  fraud

3
Dimensions continued

• 1. Estimated cost of bogus and inflated claims
• - 1.6billion
• 2. Adds around 5 to insurance premiums
• 3. Fraudsters more sophisticated and organised
• 4. Insurers seen as fair game
• 5. Increase in number of opportunist fraudulent
  claims, such as exaggerated claims

4
Dimensions continued

• 6. Recent attitude survey for ABI found that 76
  of people agreed fraud is common in making
  insurance claims
• 69 would themselves make a dishonest claim
  if they thought they could get away with it.
• 7. Another survey shows that only 15 would
  report someone who they knew had made a
  fraudulent claim.

5
An increasing problem

• Estimating the cost of fraud not easy
• Over 2,000 arson attacks each week in the UK on
  homes, businesses and cars
• Not known how many of these relate to insurance
  fraud
• Fraudulent arson notoriously difficult to prove

6
Fighting back

• Government strategy
• Insurer actions
• FSA
• IFB
• Insurance Brokers

7
Government strategy

• Fraud prevention initiative creation of
  National Fraud Strategic Authority
• National fraud reporting centre
• Review of how fraud is dealt with in the Courts
• Fraud Act 2006 introduced a statutory offence of
  fraud giving greater clarity to investigators and
  prosecutors and new impetus to enforcement
  authorities

8
Insurer actions

• In house anti fraud units
• Software alerts
• Databases facilitating sharing of claims
  information e.g.,CUE, MIAFTR, MID, CIFAS
• Cognitive interviewing techniques
• Lie detectors/voice stress analysis
• Aerial photography and mapping

9
FSA

• Focus on senior management responsibilities for
  managing fraud risks and ensuring systems in
  place
• Promoting working together government,
  insurers, consumers, police, law enforcement
  agencies, trade associations, all other
  stakeholders

10
IFB

• Launched in July 2006
• Analysis of data produced from industry databases
• Commitment to bring gangs of fraudsters to Court
• Operates fraud cheatline
• Saved the industry around 15million in first
  year of Operation
• Committed to reducing organised crime

11

• INSURANCE BROKERS

12

• The main responsibility lies with the insurer

13
Not true!

• A shared responsibility across the whole industry
• We must all
• work together
• be vigilant
• operate procedures, practices and systems
• collaborate
• communicate

14

• Brokers can be an important link in cracking
  fraud
• Brokers will know their customers
• Assist insurers with the validation process and
  speed up settlement of genuine claims
• Provide vital information in relation to
  suspicious claims or where insurer has concerns
• Broker has a direct and close relationship with
  the customer

15
BIBA survey of 50 member firms in August
2007National brokers, international brokers,
multiple outlets and smaller provincial brokers
throughout UKWe asked seven questions and
recorded the answersObjective information to
support future work
16
The questions we asked

• 1. What do you define as fraud?
• 2. How are fraud risks managed and understood?
• 3. What financial checks are undertaken on
  potential and actual clients?
• 4. What type of fraud do you see as the biggest
  problem for insurers?
• 5. What action/procedures do you have for dealing
  with suspected fraud?

17

• 6. How could insurers and brokers work more
  closely together to combat fraud?
• 7. What other challenges do brokers face in
  relation to fraud?

18
What do you define as fraud?

• 80 of respondents identified exaggerated
  claims
• A common definition reveals an attempt to gain
• financial advantage by deception or making
  fraudulent
• claims
• Other areas identified included non-disclosure,
  money
• laundering, staged motor accidents,
  fictional policies, deception and tax evasion
• Interestingly, employee fraud was only
  identified by one
• broker (0.5)

19
How are fraud risks and exposures managed and
understood?

• Training was the key with 50 of brokers surveyed
  stating that their staff were fully trained in
  fraud matters
• The majority of brokers confirmed that their
  staff undergo money laundering and data
  protection training
• 10 of respondents admitted to having no laid
  down procedures in place
• 20 of brokers surveyed required any suspicions
  to be
• referred to a Senior Manager or Director

20
What financial checks are undertaken on potential
and actual clients?

• 73 of brokers surveyed perform credit checks on
  clients
• It was acknowledged that checks would also be
  made by premium finance providers
• Some brokers only instigate checks once the
  premium exceeds a certain level e.g. 1,000,
  20,000 etc.
• Brokers main concern is driven by the ability to
  pay premiums

21
What type of fraud do you see as the biggest
problem for insurers?

• Exaggerated/inflated claims 61
• Staged motor claims 15
• Money laundering 7
• Employee fraud from within only one broker felt
  this was a big problem (0.5)

22

• General feeling was that the largest number by
  volume were exaggerated claims whereas the
  largest number by value were excessive personal
  injury claims
• Some brokers identified deliberate under
  declaring of payroll, and also fronting policies
  where motor insurance is effected by father or
  mother in the knowledge that the young driver is
  the main user
• Acknowledgement that loss adjusters can assist in
  combating exaggerated claims as can sourcing
  replacement equipment via designated suppliers

23
What action/procedures do you have for dealing
with suspected fraud?

• 77 of respondents would inform the insurer at
  the earliest stage, sometimes after referral to
  designated senior management within the firm
• 7 would contact the client with their suspicions
  and invite them to reconsider their claim
• 10 had no specific procedures but would now
  commit to implementing some
• Most brokers tend to be aware and alert to
  possible cases of money laundering

24
How could insurers and brokers work closely
together to combat fraud?

• 80 felt that better communication between
  brokers and insurers was necessary with
  designated contacts within the insurance
  companies being requested by some brokers
• 13 of brokers surveyed requested more
  statistical and database information to help in
  identifying the type of fraud to look out for
• There was a general feeling that insurers often
  pay suspicious claims too easily without
  investigation

25

• Some insurers are reluctant to involve the broker
  in specific cases on the basis that the broker
  works for, and is the agent of the client
• In the past there has sometimes been a lack of
  trust between the broker and insurer

26
What other challenges do brokers face in relation
to fraud?

• Update procedures/systems regularly
• Staff training in fraud issues
• Education of the public generally
• IT fraud considered to be more of a problem in
  the future
• Vigilance is the key
• At individual broker level, instances of fraud
  are still quite rare

27
Working together

• How are brokers and insurers working more closely
  together to ensure continued progress in the
  battle against fraud?

28
Communication

• Co operation between brokers and insurers
• Insurers should keep brokers advised in cases of
  suspicious claims and the claims processes
  generally
• Contact points within insurance companies
• Extend communication process to involve
  government, police, law enforcement agencies,
  data sharing, and other stakeholders

29
Training

• Most brokers have training modules in place for
  staff in money laundering issues
• Reconsideration and update of procedures and
  systems
• for recognising and managing potential fraud
• BIBA on line training Broker Assess has a
  module on financial crime

30
Image and Publicity

• Further work required to understand and address
  the consumer need to exaggerate claims
• Campaign to develop anti fraud culture
• Appetite to prosecute
• Industry should publish successes of fraud
  prevention through dialogue with law enforcement
  agencies

31
Responsibilites

• Treating customers fairly. The vast majority of
  claimants are genuine and honest
• Assist consumers so that they do not become a
  victim of identify fraud by safeguarding customer
  data and information security
• Investment by brokers and insurers in time,
  effort and energy to keep up to date with
  fraudulent activity
• Develop the ABI/IFB/BIBA initiative to produce
  best practice guidelines, sharing of data, and
  joint press
• releases

32
ABI/IFB/BIBA Workstream

• Launched in August 2007
• Need for more joined-up thinking between insurers
  and brokers
• Objectives agreed

33

• Raise profile of insurance fraud jointly by ABI
  and BIBA
  with customers
• Training of staff and increasing awareness
• Improve broker understanding of fraud
• Improve communication between insurers and
  brokers
• Use of SPOCs in insurers
• Develop anti-fraud good practice guide for
  brokers

34

• TOGETHER WE CAN CRACK INSURANCE FRAUD