INSURANCE FRAUDINSURANCE FRAUD

A BROKER PERSPECTIVEA BROKER PERSPECTIVE

David MeurDavid MeurChartered Insurance BrokerChartered Insurance Broker

Chairman, Property Committee Chairman, Property Committee Managing Director Managing DirectorBritish Insurance Brokers Association Genavco Insurance LimitedBritish Insurance Brokers Association Genavco Insurance Limited

Dimensions of the ProblemDimensions of the Problem

• Statistics based on research relate to the wider UK Statistics based on research relate to the wider UK insurance industryinsurance industry

• Is there any correlation between frequency, cost and Is there any correlation between frequency, cost and nature of fraudulent insurance claims and different nature of fraudulent insurance claims and different distribution channels?distribution channels?

• We are probably a long way from knowing the answerWe are probably a long way from knowing the answer

• But there are clear opportunities for the broker But there are clear opportunities for the broker channel to be influential in combating insurance fraudchannel to be influential in combating insurance fraud

Dimensions continuedDimensions 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

Dimensions continuedDimensions 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.

An increasing problemAn increasing problem

• Estimating the cost of fraud not easyEstimating the cost of fraud not easy

• Over 2,000 arson attacks each week in the UK on Over 2,000 arson attacks each week in the UK on homes, businesses and carshomes, businesses and cars

• Not known how many of these relate to insurance fraudNot known how many of these relate to insurance fraud

• Fraudulent arson notoriously difficult to proveFraudulent arson notoriously difficult to prove

Fighting backFighting back

• Government strategyGovernment strategy

• Insurer actionsInsurer actions

• FSAFSA

• IFBIFB

• Insurance BrokersInsurance Brokers

Government strategyGovernment strategy

• Fraud prevention initiative – creation of National Fraud Fraud prevention initiative – creation of National Fraud Strategic AuthorityStrategic Authority

• National fraud reporting centreNational fraud reporting centre

• Review of how fraud is dealt with in the CourtsReview of how fraud is dealt with in the Courts

• Fraud Act 2006 introduced a statutory offence of fraud Fraud Act 2006 introduced a statutory offence of fraud giving greater clarity to investigators and prosecutors and giving greater clarity to investigators and prosecutors and new impetus to enforcement authorities new impetus to enforcement authorities

Insurer actionsInsurer actions

• In house anti fraud unitsIn house anti fraud units

• Software alertsSoftware alerts

• Databases facilitating sharing of claims information e.g.,Databases facilitating sharing of claims information e.g.,CUE, MIAFTR, MID, CIFAS CUE, MIAFTR, MID, CIFAS

• Cognitive interviewing techniquesCognitive interviewing techniques

• Lie detectors/voice stress analysisLie detectors/voice stress analysis

• Aerial photography and mappingAerial photography and mapping

FSAFSA

Focus on senior management responsibilities for Focus on senior management responsibilities for managing fraud risks and ensuring systems in placemanaging fraud risks and ensuring systems in place

Promoting “working together” – government, Promoting “working together” – government, insurers, consumers, police, law enforcement insurers, consumers, police, law enforcement agencies, trade associations, all other stakeholdersagencies, trade associations, all other stakeholders

IFBIFB• Launched in July 2006Launched in July 2006

• Analysis of data produced from industry databasesAnalysis of data produced from industry databases

• Commitment to bring gangs of fraudsters to CourtCommitment to bring gangs of fraudsters to Court

• Operates fraud “cheatline”Operates fraud “cheatline”

• Saved the industry around £15million in first year of OperationSaved the industry around £15million in first year of Operation

• Committed to reducing organised crimeCommitted to reducing organised crime

INSURANCE BROKERSINSURANCE BROKERS

““The main responsibility The main responsibility lies with the insurer”lies with the insurer”

Not true!Not true!

A shared responsibility across the whole industryA shared responsibility across the whole industry

We must all:We must all:

• work togetherwork together

• be vigilantbe vigilant

• operate procedures, practices and systemsoperate procedures, practices and systems

• collaboratecollaborate

• communicatecommunicate

• Brokers can be an important link in cracking fraudBrokers can be an important link in cracking fraud

• Brokers will know their customersBrokers will know their customers

• Assist insurers with the validation process and speed up Assist insurers with the validation process and speed up settlement of genuine claimssettlement of genuine claims

• Provide vital information in relation to suspicious claims or Provide vital information in relation to suspicious claims or where insurer has concernswhere insurer has concerns

• Broker has a direct and close relationship with the customerBroker has a direct and close relationship with the customer

BIBA survey of 50 member firms in August 2007BIBA survey of 50 member firms in August 2007

National brokers, international brokers, multiple National brokers, international brokers, multiple outlets and smaller provincial brokers throughout outlets and smaller provincial brokers throughout UKUK

We asked seven questions and recorded the We asked seven questions and recorded the answersanswers

Objective information to support future workObjective information to support future work

The questions we asked:The questions we asked:

1.1. What do you define as fraud?What do you define as fraud?

2.2. How are fraud risks managed and understood?How are fraud risks managed and understood?

3.3. What financial checks are undertaken on potential and What financial checks are undertaken on potential and actual clients? actual clients?

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

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

6.6. How could insurers and brokers work more closely How could insurers and brokers work more closely together to combat fraud?together to combat fraud?

7.7. What other challenges do brokers face in relation to What other challenges do brokers face in relation to fraud?fraud?

What do you define as fraud?What do you define as fraud?

• 80% of respondents identified “exaggerated claims”80% of respondents identified “exaggerated claims”

• A common definition reveals “an attempt to gainA common definition reveals “an attempt to gain

financial advantage by deception or making fraudulentfinancial advantage by deception or making fraudulent

claims”claims”

• Other areas identified included non-disclosure, moneyOther areas identified included non-disclosure, money

laundering, staged motor accidents, fictional policies, laundering, staged motor accidents, fictional policies, deception and tax evasiondeception and tax evasion

• Interestingly, employee fraud was only identified by oneInterestingly, employee fraud was only identified by one

broker (0.5%)broker (0.5%)

How are fraud risks and exposures How are fraud risks and exposures

managed and understood?managed and understood?

• Training was the key with 50% of brokers Training was the key with 50% of brokers surveyed stating that their staff were fully trained surveyed stating that their staff were fully trained in fraud mattersin fraud matters

• The majority of brokers confirmed that their staff The majority of brokers confirmed that their staff undergo money laundering and data protection undergo money laundering and data protection trainingtraining

• 10% of respondents admitted to having no laid 10% of respondents admitted to having no laid down procedures in placedown procedures in place

• 20% of brokers surveyed required any suspicions 20% of brokers surveyed required any suspicions to beto be

referred to a Senior Manager or Directorreferred to a Senior Manager or Director

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

• 73% of brokers surveyed perform credit checks on 73% of brokers surveyed perform credit checks on clientsclients

• It was acknowledged that checks would also be made by It was acknowledged that checks would also be made by premium finance providerspremium finance providers

• Some brokers only instigate checks once the premium Some brokers only instigate checks once the premium exceeds a certain level e.g. £1,000, £20,000 etc.exceeds a certain level e.g. £1,000, £20,000 etc.

• Brokers’ main concern is driven by the ability to pay Brokers’ main concern is driven by the ability to pay premiumspremiums

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

• Exaggerated/inflated claims – 61%Exaggerated/inflated claims – 61%

• Staged motor claims – 15%Staged motor claims – 15%

• Money laundering – 7%Money laundering – 7%

• Employee fraud from within – only one broker felt this Employee fraud from within – only one broker felt this was a big problem (0.5%)was a big problem (0.5%)

• General feeling was that the largest number by volume General feeling was that the largest number by volume were exaggerated claims whereas the largest number by were exaggerated claims whereas the largest number by value were excessive personal injury claimsvalue were excessive personal injury claims

• Some brokers identified deliberate under declaring of Some brokers identified deliberate under declaring of payroll, and also fronting policies where motor insurance payroll, and also fronting policies where motor insurance is effected by father or mother in the knowledge that the is effected by father or mother in the knowledge that the young driver is the main useryoung driver is the main user

• Acknowledgement that loss adjusters can assist in Acknowledgement that loss adjusters can assist in combating exaggerated claims as can sourcing combating exaggerated claims as can sourcing replacement equipment via designated suppliersreplacement equipment via designated suppliers

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

• 77% of respondents would inform the insurer at the 77% of respondents would inform the insurer at the earliest stage, sometimes after referral to designated earliest stage, sometimes after referral to designated senior management within the firmsenior management within the firm

• 7% would contact the client with their suspicions and 7% would contact the client with their suspicions and invite them to reconsider their claiminvite them to reconsider their claim

• 10% had no specific procedures but would now commit to 10% had no specific procedures but would now commit to implementing someimplementing some

• Most brokers tend to be aware and alert to possible cases Most brokers tend to be aware and alert to possible cases of money launderingof money laundering

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

• 80% felt that better communication between 80% felt that better communication between brokers and insurers was necessary with brokers and insurers was necessary with designated contacts within the insurance designated contacts within the insurance companies being requested by some brokerscompanies being requested by some brokers

• 13% of brokers surveyed requested more 13% of brokers surveyed requested more statistical and database information to help in statistical and database information to help in identifying the type of fraud to look out foridentifying the type of fraud to look out for

• There was a general feeling that insurers often There was a general feeling that insurers often pay suspicious claims too easily without pay suspicious claims too easily without investigationinvestigation

• Some insurers are reluctant to involve the broker Some insurers are reluctant to involve the broker in specific cases on the basis that the broker in specific cases on the basis that the broker works for, and is the agent of the clientworks for, and is the agent of the client

• In the past there has sometimes been a lack of In the past there has sometimes been a lack of trust between the broker and insurertrust between the broker and insurer

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

• Update procedures/systems regularlyUpdate procedures/systems regularly

• Staff training in fraud issuesStaff training in fraud issues

• Education of the public generallyEducation of the public generally

• IT fraud considered to be more of a problem in the futureIT fraud considered to be more of a problem in the future

• Vigilance is the keyVigilance is the key

• At individual broker level, instances of fraud are still quite At individual broker level, instances of fraud are still quite rarerare

Working togetherWorking together

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

against fraud?against fraud?

CommunicationCommunication

• Co operation between brokers and insurersCo operation between brokers and insurers

• Insurers should keep brokers advised in cases of Insurers should keep brokers advised in cases of suspicious claims and the claims processes generallysuspicious claims and the claims processes generally

• Contact points within insurance companiesContact points within insurance companies

• Extend communication process to involve Extend communication process to involve government, police, law enforcement agencies, data government, police, law enforcement agencies, data sharing, and other stakeholderssharing, and other stakeholders

TrainingTraining

• Most brokers have training modules in place for staff in Most brokers have training modules in place for staff in money laundering issuesmoney laundering issues

• Reconsideration and update of procedures and systemsReconsideration and update of procedures and systems for recognising and managing potential fraudfor recognising and managing potential fraud

• BIBA on line training “Broker Assess” has a module on BIBA on line training “Broker Assess” has a module on financial crimefinancial crime

Image and PublicityImage and Publicity

• Further work required to understand and address the consumer Further work required to understand and address the consumer need to exaggerate claimsneed to exaggerate claims

• Campaign to develop anti fraud cultureCampaign to develop anti fraud culture

• Appetite to prosecuteAppetite to prosecute

• Industry should publish successes of fraud prevention through Industry should publish successes of fraud prevention through dialogue with law enforcement agenciesdialogue with law enforcement agencies

ResponsibilitesResponsibilites

• Treating customers fairly. The vast majority of claimants are Treating customers fairly. The vast majority of claimants are genuine and honestgenuine and honest

• Assist consumers so that they do not become a victim of Assist consumers so that they do not become a victim of identify fraud by safeguarding customer data and information identify fraud by safeguarding customer data and information securitysecurity

• Investment by brokers and insurers in time, effort and energy to Investment by brokers and insurers in time, effort and energy to keep up to date with fraudulent activity keep up to date with fraudulent activity

• Develop the ABI/IFB/BIBA initiative to produce best practice Develop the ABI/IFB/BIBA initiative to produce best practice guidelines, sharing of data, and joint pressguidelines, sharing of data, and joint press

releases releases

ABI/IFB/BIBA WorkstreamABI/IFB/BIBA Workstream

• Launched in August 2007Launched in August 2007

• Need for more joined-up thinking between Need for more joined-up thinking between insurers and brokersinsurers and brokers

• Objectives agreedObjectives agreed

• Raise profile of insurance fraud jointly by ABI and BIBA Raise profile of insurance fraud jointly by ABI and BIBA with customers with customers

• Training of staff and increasing awarenessTraining of staff and increasing awareness

• Improve broker understanding of fraudImprove broker understanding of fraud

• Improve communication between insurers and brokersImprove communication between insurers and brokers

• Use of SPOC’s in insurersUse of SPOC’s in insurers

• Develop anti-fraud good practice guide for brokersDevelop anti-fraud good practice guide for brokers

TOGETHER WE CAN TOGETHER WE CAN CRACK INSURANCE CRACK INSURANCE

FRAUDFRAUD