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Insurance fraud costing consumers dearly
By Sam Barrett
Bump up an insurance claim, deliberately cause some accidental damage or be a little creative on an insurance application form and you could find yourself with a criminal record, out of pocket and barred from buying insurance or credit products.
"'Insurance fraud has become acceptable, but it's a crime under the Fraud Act," warns John Beadle, counter-fraud manager at RSA Insurance and chairman of the Insurance Fraud Bureau. "It's also thought to be victimless but it affects every insurance policyholder."
The extent to which it's become OK to rip off insurers can be seen in research carried out by the industry. According to the Association of British Insurers, one in 10 adults is happy to admit to having made a fraudulent claim. Price comparison service Gocompare.com found that two-thirds of parents would insure their child's car in their name, a fraudulent practice known as 'fronting', in order to save money on premiums.
Acceptance of insurance fraud is costing the industry dearly. According to the Insurance Fraud Bureau, bogus and inflated claims account for more than £1.6 billion a year.
"Around 5% of claims are fraudulent, with 80% of these claims opportunistic fraud such as exaggerating the loss or creating additional accidental damage," says Richard Davies, fraud risk manager at AXA and a board member of the IFB. "But this activity puts an extra £40 on every insurance policy each year. So, if you have four or five policies, this will be an extra £160 or £200 a year you'll pay for cover."
Economic conditions mean the practice is becoming more common. "The credit crunch is making more people consider insurance fraud to help them make ends meet," says Emma Griffiths, case manager for Absolute Fraud Management. "We analyse our data every quarter and there was a 13.8% increase between quarter one and quarter two of this year."
Hard line on fraud
With the insurers intent on stamping out fraud, many are now taking a zero tolerance approach when they catch someone committing fraud.
Although the insurers will take into account whether it was deliberate or not, there are a number of things that fall under the fraud banner, some of which are obvious, others possibly less so.
Exaggerating a claim is the most common form of opportunistic fraud, with many people happy to add a few more DVDs to a home insurance claim or upgrade their Seiko watch to a Rolex on a travel insurance policy.
While it may be an amusing myth that more Rolex watches appear in insurance claims than have ever been made, get caught fibbing about your loss and you won't be laughing.
Andrew Buck, claims fraud manager at Norwich Union, explains: "You might have had a genuine loss but if we're able to establish that any part of the claim is fraudulent we would turn the claim down and you wouldn't receive a penny."
The exaggeration need only be minor too. As an example, Buck says a policyholder had a household break-in and most of their electrical items and DVDs were stolen.
Fronting, where you take out motor insurance as the main driver on someone else's behalf to reduce the premium, is another relatively common practice. The classic example is when a recently qualified driver attempts to get insurance but, faced with a four-figure premium, asks a parent to take out the cover for them at a much lower premium.
Another common fraudulent claim for motor insurance involves an accident victim claiming for older damage. Buck says: '"his can be very easy to spot. We'll instruct engineers to check out the vehicle and they'll be able to assess exactly what damage could have been caused by the accident
Mocking up accidental damage is another form of fraud the insurers spot more often than they'd like. "It's amazing how many people spill paint and it ends up all over the carpet, throughout the house as well as on the sofa," says Baden Smith, head of assurance services at Legal & General.
While the repercussions for lying on your motor insurance application form or pushing up the value of a damaged TV when claiming on your contents insurance could be severe, they are nothing compared with the consequences you could face if you were to make a false claim on a life policy.
Fraud and omissions
Clients need to be aware that purposeful non-disclosure is likely to result in a waste of their money and disappointment for their families. Advisers can help by explaining non-disclosure and picking up on areas such as smokers suggesting that they are non-smokers.
How the insurer will penalise you when these omissions come to light varies. If it would only have a small effect they might simply ask you to pay the difference in premiums, but there's always the risk they'll take firmer action.
As well as potentially having your claim declined and the policy voided, insurers will also take other steps that can be potentially more damaging than having a claim turned down.
The police force is also taking insurance fraud more seriously. The National Fraud Reporting Centre is being set up, which will include details of insurance fraud to help the police to identify cases of serial fraud.
But while their anti-fraud strategies may make it seem as if the insurers are suspicious of your every move and may interpret even honest mistakes as criminal activity, they're all keen to stress this isn't the case.
Organised insurance fraud
Staged accidents, also known as 'crash for cash', are a particular concern for the industry.
"The criminals target innocent motorists, driving into their cars or causing the unsuspecting motorist to crash into them. They'll then claim for injury, loss of earnings and so on and by adding extra people to the car, the claim can easily be for £30,000 or more," explains Richard Davies, fraud risk manager at AXA.
Because of the risk to innocent people as well as the amount of money involved, the Insurance Fraud Bureau has focused its investigations on this area with significant success.
How the insurers will catch you
Insurers also use computer programmes such as voice stress analysis and predictive analytics to identify possible cases of fraud.
Where claims do arouse suspicion, they will be referred to fraud specialists, who further investigate the case, checking other details about the policyholder and bringing in other specialists where necessary.
But, a subsequent invoice for £25,000 for landscaping of the garden aroused suspicions because it was significantly larger than had been expected. An investigation revealed the claim was fraudulent. As a result, the whole claim was rejected, the policy voided and the policyholder sued for the cost of rebuilding the house.
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