Tackling the issue in this week’s Market Watch are:
Steve Phillips, head of fraud services at Legal & General’s general insurance business
Graeme Trudgill, head of corporate affairs at British Insurance Brokers’ Association (BIBA)
Matt Morris, senior policy adviser at LifeSearch
Steve Phillips, head of fraud services at Legal & General’s general insurance business
Fraud can take many different guises, but amazingly our research highlighted that nearly a third of people don’t associate exaggerating home insurance claims or falsifying claims as fraud. They think it is acceptable to add items that they have never owned to an insurance claim.
This is fraud and the challenge we have is that over half of intermediaries think that a customer could get away with an inflated claim.
It is clear we need to improve understanding of what constitutes insurance fraud and the consequences of fraudulent activity, which is why we are asking for brokers’ support.
Legal & General has a very clear zero-tolerance policy on fraud, which is outlined in our policy booklets. Any adviser or broker who is unclear of what constitutes fraud should review the section, ‘What is fraud?’ and highlight its contents to their clients.
It explains that fraud is committed when someone deliberately makes an untrue or misleading statement about their circumstances or their claim.
It also includes failure to disclose all material facts and a person is considered to be committing fraud if they intend to make a personal gain or cause a loss to someone, such as their insurer.
We want to pay all valid claims. Whether arranging insurance cover for their clients or helping with a client’s claim, advisers and brokers could explain the implications of fraud and its impact to their clients. This may help people to appreciate that even a small exaggeration could result in their entire claim being rejected.
We hope this will act as a deterrent and reduce the level of fraudulent claims received, avoid the possibility of a client’s policy becoming void and also help reduce the overall costs of insurance cover.
Graeme Trudgill, head of corporate affairs at British Insurance Brokers’ Association (BIBA)
Insurance fraud costs the industry as much as £1.9bn a year. Insurance brokers are on the front line, so are often the first to suspect or experience suspicious behaviour by the customer or another firm involved in the transaction.
The Financial Services Authority requires general insurance brokers and intermediaries to ensure that they have the necessary systems and controls in place so that they are not being used for financial crime purposes.
Insurance fraud generally falls within the wider scope of this anti-financial crime objective, so not only is there an economic imperative for firms to tackle the problem, but also a regulatory one.
BIBA encourages its members to take the identification and reporting of insurance fraud seriously through a number of activities.
We have issued a guide to all members about how they can identify and protect their businesses against financial crime.
BIBA also has regular contact with the Serious Organised Crime Agency (SOCA) and alerts members about developing financial crime trends, such as virtual offices or the rise of illegal intermediaries, the so-called ‘ghost brokers’.
Brokers have a duty to report when they suspect criminal behaviour, whether that is to SOCA, to the FSA or both.
BIBA has also drawn up a single point of contact (SPOC) list at insurers, which allows brokers to raise concerns about fraud at a particular provider.
In addition, we are working with the Association of British Insurers on a new guide for brokers to help prevent application fraud. This will cover areas like misrepresentation, customer verification and payment issues, and will be published later this year.
Matt Morris, senior policy adviser at LifeSearch
Out and out insurance fraud by consumers is a relatively rare occurrence in our experience, but it does happen.
We have a dedicated claims desk of two people whose sole job it is to speed claims up and, when necessary, argue the case for our client against an insurer that is unwilling to pay. As such, we are probably a lot more hands on during the consumers’ claims experience than most brokers.
One of the steps we have taken to ensure that clients’ disclosure is properly accounted for is to record all calls made with customers.
These calls are then securely stored within the client records so that we can track exactly what has been discussed, not just on email and via the usually paperwork, but orally too.
We also have a team of specially trained tele-interviewers who are adept at talking clients through an application form and ensuring that full disclosure has been made and that there is no confusion caused by the questions. This ensures, as far as possible, that accidental non-disclosure is minimised.
Of course, there will always be a small minority of applicants who lie.
The key is to have a clear record of what is said at application, a claims team who can verify all the facts, and close contact with the insurers and client so that the issues can be worked on together.
We put in place our systems to ensure claims are not unfairly declined, but it can work in favour of the insurers too. If someone is deliberately fraudulent, we have a good chance of catching it and being able to provide proof.
It is impossible to guard against insurance fraud 100% of the time, but we believe our measures have reduced the risk substantially.
