December 8, 2022
In this series we explore common industry phrases and explain what they really mean.
In a report from the Association of Certified Fraud Examiners, over half of respondents claimed their organisation has been facing an increase in fraud cases since the beginning of the Covid-19 Pandemic. With a rise in application fraud being widely reported in the insurance sector, how can insurers use their own data to combat this trend?
There are clearly significant benefits if insurers can establish an effective strategy to manage application fraud. Robust systems, quality data sets and well-trained people will result in potential fraudsters being deterred. Ultimately deterring fraud cases is far more cost-effective than having to investigate and refute notified claims, the old saying ‘Remedy vs Cure’ comes to mind.
Application fraud can occur in many forms. It may involve applying for cover using a fake identity or manipulating information to obtain a cheaper premium. This could mean someone who drives extensively saying they have low mileage, or that their car is kept in a garage when it is not.
Another known form is ‘ghost broking’, where policies are purchased from insurers using fake or forged information, with fake policy documents appearing to be from legitimate insurers. ‘Fronting’ is also extremely common, when someone (often a parent or older family member) falsely claims to be the main driver, when in fact the main driver is a younger family member who has limited experience, and therefore should be paying a higher premium.
“Application fraud remains a key threat for the insurance industry and it has a significant economic impact on consumers.”, according to Stephen Dalton, Head of Intelligence and Investigations at the Insurance Fraud Bureau (IFB).
Preventing types of application fraud not only saves on costs for insurers, but it can also aid in preventing a further knock-on effect crime. For example, ‘ghost brokers’ often take out fraudulent motor insurance and sell it on at discounted rates to young people and vulnerable communities via social media, leaving them to face the consequences of unknowingly driving without valid insurance. Fraudulent motor insurance applications are also often used by criminal gangs to help facilitate dangerous ‘crash for cash’ scams on the road.
The Covid-19 Pandemic has without a doubt put additional pressure on claims staff and counter fraud specialists. The resulting impact of needing to work from home has meant less opportunity for collaboration amongst individuals who are vital for fighting against fraud.
Fraudsters have seen this as an opportunity to ‘make hay while the sun shines’. The most recent data from the Association of British Insurers (ABI) shows detection rates rose in 2020. Not only did the amount of fraud increase, but the average value of fraud detected also increased by 6% when compared to 2019.
Fraud may also continue to rise as the pandemic recedes. It is well known that fraud cases spike when times are hard in the economy, and there is no doubt the insurance sector must continue to be vigilant as we (hopefully) come out of the pandemic.
Sharing information has proved invaluable in the insurance sector when combatting insurance fraud, tightly linked with huge advances in technology and ability to use data. Whilst the IFB once focused largely on physical fraud such as ‘crash for cash’, it now takes application fraud extremely seriously, making reporting any form of insurance fraud to the IFB more important than ever.
While the pandemic has been a huge shock to the economy, insurers counter-fraud teams have managed the rise in varying types of fraud effectively. Remaining vigilant and keeping abreast of evolving fraudulent trends/behaviours is vital. The ability to understand, interpret and utilise data will continue to be a critical asset.
One of the ways to do this in the insurance sector is monitoring your contact centre conversations using specialist tools such as speech analytics. This type of software can notify you when particular phrases are used throughout conversations, making it easier to catch potentially fraudulent activity before it’s too late.
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