Expertise-in-Action: Claims fraud - Contagion

Fraud is the scourge of the insurance industry costing firms hundreds of millions of pounds each year and adding to the price of cover for consumers. According to the National Fraud Authority, in 2011, £38bn worth of fraudulent activity was detected in the UK, with the insurance industry contributing £2.1bn.

Perhaps more troubling is that - despite the hard work of the insurance industry - fraud seems to be on the increase. Estimates published by services company Experian suggest that fraudulent activity increased by 600% between 2006 and 2012.

So what can be done to properly detect and combat fraud? The role of the broker in tackling the issue is especially pertinent. With intermediaries, the first point of contact is with the policyholder. Perhaps the sector should be playing a more central role in combatting fraud both at the application and claims stage.

AA director Simon Douglas thinks so. He says: "So far as the AA is concerned at any rate. We are members of the Insurance Fraud Bureau and have invested heavily on fraud prevention – indeed AA has a dedicated fraud team."

Ben Fletcher, director at the Insurance Fraud Bureau believes brokers should play a more active role in combatting fraud but says that application fraud should remain a primary aim for the intermediaries. He explains: "I certainly don't think there is too much focus on application fraud. A couple of years ago we didn't have any ghost broker application fraud investigations and they now make up a large percentage of what we are looking at. It is certainly a large scale issue. Some of the scams we see are significant and run into thousands of policies."

While brokers may be urged, by some commentators, to step up their claims fraud activity, their relationship with their insurance partners can often dictate how they work. Will Price, director, product and panel development, BGL Group, explains "Any decent broker will recognise that they have a mutual responsibility to see fraud prevented at claims stage and their role very much depends on the model the broker has in place with their insurers."

Working together
Collaboration could be crucial in helping brokers improve their performance on fraud – especially on claims. Sharing of information between the parties can ensure that brokers can strengthen their stance.

Price continues: "Data is vital in understanding more about customers and their motivations. It is important to share customer information to help address claims fraud. The more switched on insurers and brokers will no doubt apply appropriate ‘blocking' of suspicious customers as a result."

Douglas adds: "We work closely with insurers to reduce fraud and on a case by case basis - we are just as keen as insurers to tackle every aspect of claims fraud. However, we don't do the claims handling although we are a first contact for claimants; our systems can pick up potential fraudulent activity before it reaches the insurers."

Meanwhile, Matt Gilham, head of financial crime at Esure Broker, believes that data sharing has resonance beyond claims and is fundamental to help tackling organised fraudsters.

"As a broker, we have the ability to link policies and, therefore, associated claims seen across our insurer panel, when single incidents reviewed in isolation may not be of concern. We hold data about policyholders that our panel insurers would not ordinarily see, such as financial or contact information, and this can be critical in helping to identify a concern.

He adds: "While fraud typologies are always evolving, there will always be scope to identify potentially linked suspect claims through common traits in policyholder data or where application fraud trends, such as address fronting or ghost broking, are crossing from policy fraud into more organised claim fraud."

There is a danger, however, that collaboration between brokers and insurers could stretch too far, with the close links between the partners, meaning that the intermediary is not acting in the best interest of the customer – its most important duty.

Douglas disagrees: "Fraud is wrong, and it contributes to higher premiums, full stop. We have a duty of care to all our customers to ensure that they aren't ultimately affected by price increases because of fraud."

Price says: "Brokers don't want the majority of customers to have to pay increased premiums to compensate for the actions of a few – so we actively support claims fraud activities that insurers conduct on behalf of our brands. And we have no doubt that insurers on our panel do this in an appropriate and professional manner."

Pooled resources
Indeed, most brokers believe that more data could be shared with insurers to help catch fraudsters at the claims stage. "There is potential for closer collaboration, especially where panel underwriters have separate application and claim fraud resources," Gilham says. "We acknowledge that panel underwriters may not always wish to share intelligence about a suspect claim, however, by working with us we can help identify potentially larger issues such as organised claim fraud, work collectively to collate evidence and take steps to protect them in the future."

Douglas adds: "Some insurers are better than others at working on fraud but we encourage all our panel members to notify us at an early stage when fraud is detected. Most do, and we work closely with them."

While the largest brokers, such as the AA, are able to share information and invest in meaningful fraud techniques, such activities may be beyond the reach of the smaller insurers. With the industry keen to clamp down hard on fraud, some commentators believe bodies such as the IFB could be doing more to help SME brokers effectively tackle claims fraud.

"Brokers aren't generally able to refer to the IFB and the IFB should be more open to smaller brokers," Douglas continues. "After all, brokers with a panel tend to see the full picture and we think a fraud targeted at a particular broker doesn't get the same attention that an insurer would get – that should change and a way should be found for brokers used by fraudsters to have similar access to the IFB"

Gilham believes that the IFB is already beginning to up its interaction with brokers so they can gain a better handle on claims fraud. He adds: "We are an IFB member and active supporter, our interaction with the Bureau on broker cases is increasing.

"We know that we can, in particular, help spot fraud rings early where no single insurer would necessary see these linkages. By working with the IFB we can ensure that any issues that impact a wider cross section of the sector are more rapidly identified and action taken."

Fundamental practices
Looking ahead to the future, market commentators agree that claims fraud, as well as application fraud, remains fundamental to insuring the industry remains profitable and insurance rates are not being raised needlessly.

Indeed, the IFB will be working hard with brokers – especially on the smaller scale of the market where collaboration is crucial – to ensure that this is the case. Fletcher says: "One of our challenges is the problem of proportionality and scalability. We have issued, in the first quarter of this year, 588 intelligence reports to insurers which contain significant volumes of data on organised gangs.

"The issue is those insurers that have large exposures to those gangs and it is relevant and proportionate to them. For us, to be able to interact with brokers we would have to scale it down. The average high street broker, for instance, would not be able to cope with the level of data that the IFB currently issues."

He concludes: "The IFB has two broker customers at the moment, the AA and Swinton. We are talking to a lot of other brokers and we are looking at how we can develop our model. We need to understand how we can engage better with brokers.