A short history of insurance fraud

...where there is insurance, there will be fraud!

Since the beginning of insurance, fraud has existed. Paul Miller, a History Ambassador at the Insurance Museum joined us for a webinar recently. He took us on a journey through insurance history, by sharing some of the fraud stories held in their archives. Here we share some of the cases and consider what lessons can be learned as the problem of fraud constantly evolves…

The phantom ship

In 1862, Mr Calvert attempted to defraud underwriters at Lloyd’s when he insured an oil cargo ship called the Poseidon for £12,000. Mr Calvert falsely alleged that pirates had boarded and set fire to the ship but investigations found that Mr Calvert forged documents and that the Poseidon never existed.

Sailors who lunch

The Salem was a super-tanker that was deliberately wrecked (otherwise known as “scuttling”) off the coast of Guinea on 17 January 1980. Investigators noticed a distinct lack of oil where the ship sank had sank, even though there was supposed to be about 200,000 tons of oil on board. Other suspicious factors came to light when the crew were rescued by a passing ship as they very conveniently had all their belongings together and had even made packed lunches. Underwriters successfully repudiated the claim for the loss of vessel and the main conspirators served time in prison as a result.

Pearls of unwisdom

Cecil Aylmer Cameron’s wife had a pearl necklace and they insured it with Lloyd’s but later alleged that it had been stolen. Insurers suspected fraud and it later materialised that the necklace had not actually been stolen. In 1911, Mr Cameron and his wife Ruby were convicted of fraud and sentenced to three years’ imprisonment for attempting to defraud Lloyd’s. Mr Cameron refused to give evidence in his defence and served the full sentence. Mr Cameron was still in prison when his wife confessed that she was the guilty party and that her husband had taken no part in the crime. It’s not clear whether their marriage survived after Mrs Cameron’s release from prison but Mr Cameron was given a full pardon and was released from prison. Sadly, he later shot himself, aged 40, at Hillsborough Barracks in Sheffield.

Shoot to kill

In 1972, Victor Null patented an engine that dramatically reduced air pollution and later went into business with the Calvert brothers. Unfortunately for Mr Null, the Calvert brothers took out a $2m life insurance policy on the inventor’s life and he was later found shot dead. Lloyd’s and police investigated and found that the Calvert brothers had offered a friend $5,000 to kill the inventor and were convicted of fraud.

Goldfinger

In the 1970s and 1980s, Ian Posgate (also known as “Goldfinger”) was an underwriter at Lloyd’s of London and dealt exclusively in marine insurance and war risks, including the insurance of ships on the Mekong river during the Vietnam war. He later joined Howden under the wing of Kenneth Grob (also known as “The Grobfather”). When Howden was later acquired there was an investigation into $55m worth of missing funds. The transaction appeared suspicions to auditors and interestingly, the fine art was found at Mr Posgate’s house. Mr Posgate was expelled from Lloyd’s for misappropriation of funds but both Mr Posgate and Mr Grub were acquitted of fraud on trial.  

George Santayana once said that “Those who cannot learn from history are doomed to repeat it”. This history lesson then, if nothing else, shows that where there is insurance, there will be fraud! A suspicion of fraud, understanding fraud indicators and timely investigations will therefore continue to be crucial to fraud detection (watch our webinar on malingering). Furthermore, fraud prevention must involve ensuring that fraudsters cannot capitalise on weak processes where risks are low and aggregated gains are high with a 'little and often' approach.

Nevertheless, fraud continues to evolve and fraudsters are coming up with creative ideas all the time and adapting their working practices to exploit opportunities, both old and new. As fraud experts, we’re also constantly looking forwards to remain one step ahead. Whilst we realise that it is not possible to eradicate fraud completely, this will help us to detect the potential for fraud at an early stage in emerging areas and be ready for the next wave of fraudulent claims.