Are you taking the risk of insurance fraud seriously?
In 2016, the UK insurance industry reportedly detected 125,000 dishonest insurance claims valued at £1.3 billion (source ABI). Three years later the figures have increased. So far in 2019, one insurer alone has detected £80million of fraud. Do you know how many UK insurers there are? The future looks scary and we need to improve the way we identify fraud.
Fraud means many different things to different people. Yet the reality is even worse, as some insurers believe they don’t have any fraud then begrudgingly allow a little opportunistic fraud or claims exaggeration. Some directly target hard fraud (organised) and surprisingly, a large proportion still rely on the instinct of their frontline staff as a point of triage. The reality is that there are still so many variables at play in our market, yet there is little science or uniformity in approach.
We can share the fraud statistics on the detected, but how much is the undetected fraud worth? Put simply, you don’t know what you don’t know. So who knows?
I often find it best to keep matters simple – we are in the risk business and we all have a duty to ring-fence risk, but not all risk is fraud. We would not pay a claim presented genuinely that, unbeknown to the insured until they are told, is not covered by the policy terms and conditions. That’s a well identified risk not settled, but it also isn’t fraud.
Fraud, however, is also a risk and we need to think carefully about how we identify risk from the outset. I always hear the term ‘counter-fraud’ when it should be ‘counter-risk’. The fraud will show itself if a robust and ethical claims’ validation process is followed as part of an overarching counter-risk strategy.
It is of no surprise that so many claims are settled when they were never subjected to any form of intelligence washing. It looks fine, smells fine, so therefore it is fine. Sadly, a recent pilot showed that 45% of those claims paid would have been referred to underwriters for potential voidance issues – if only the correct checks were undertaken!
My mantra has always been and will always be ‘Intelligence leads into information which leads into evidence’. If it is a fraudulent claim, fraud cannot hide if you follow this simple mantra. The claim will simply not pass the test if the correct solutions are put in place for each of these three stages, so long as you adopt the right ones. You will also probably more than half your supplier claim costs!
I have worked in the insurance sector now for 11 years but have worked in the game of risk identification for 26 years as an academic and in practice. There is so much we can learn from other sectors. Do not be afraid of adopting the right intelligence screening tools and partners to make you more informed about the risk in your books of business. Think safe-guarding. Think developing business intelligence. Think protecting your genuine customers. Use your intelligence findings to create an ethical tactical plan for reducing the risk you carry and think about whether you have the right people, with the right expertise, supporting you long-term.
We shouldn’t allow genuine customers to continue to swallow premium increases that cover the cost claims made by the dishonest few! If you don’t have an over-arching intelligence-led strategy that addresses the risk of fraud in your books of business – are you effectively discharging your duty to identify risk and protect your genuine customers? It may just be time to take another look!
