Prevention is better than cure: deterring fraudulent claims – Part 1
Much of the conversation around reducing the number and cost of fraudulent claims centres around detecting and then defeating them. But what if we could prevent them from being brought in the first place?
In this series of three blog posts I shall look at how we can seek to deter fraudulent claims from the outset. Whilst there is always more that can be done to disincentive a fraudster from initiating a claim, there are a number of measures available within the industry and the legal system, which can be used strategically to attempt to kill the claims at source.
The sanctions are diverse and can be characterised as preventative (e.g. data-sharing) and/or punitive (e.g. criminal and civil sanctions).
In the first part of this three-part blog, my focus is deterrent measures put in place by the insurance industry to combat fraud.
The Insurance Fraud Bureau was set up in 2006 and works to support the insurance industry in the face of insurance fraud. They also assist law enforcement by providing details of insurance fraud activities to support prosecutions of suspected criminals.
It is paid for by membership and data cannot be shared with non-members. Members share information on suspected insurance fraud and the IFB will seek input from the wider membership in order to assess the nature and size of the threat. They will co-ordinate the investigation of cross-industry fraud to ensure that the bigger picture is examined.
They analyse data and trends provided by the members to produce quarterly strategic threat assessments, which provide an picture of the incidences of various types of fraud and horizon-scanning for new or increasing threats.
They have a public awareness role too, ensuring that the industry’s response to fraud is visible. They also administer Cheatline, a tip-off line for the public to report suspected insurance fraud. Those tips are then passed to the relevant compensator to investigate.
Four years ago the IFB widened its membership base beyond compensators when it introduced the affiliate membership. Suppliers to the insurance industry were able to join, so solicitors, investigators, loss adjusters and the like are able to join the intelligence sharing opening up limited investigation for their own clients to check whether there is IFB data on an entity they are investigating. Kennedys are an Affiliate Member of the IFB and work with them to share intelligence on behalf of, and for the benefit of, our clients.
After the IFB came IFED – the Insurance Fraud Enforcement Department. Historically there was real frustration in the insurance industry that local police forces had little interest or means to prosecute insurance fraudsters. Limited budgets and other priorities meant in reality that unless the police had an interest in prosecuting a particular individual or company, no action would be taken.
That black hole for criminal prosecution was, to some extent, filled by the creation of IFED. IFED is paid for by ABI members via a subscription. It is hosted by the City of London Police and their criteria for taking on a prosecution is broadly based on the IFB’s strategic threat assessment. They target the full spectrum of insurance fraud – from opportunistic to organised.
Once IFED take it on the investigation has the potential to have the usual criminal sanctions applied – they have the power to arrest and charge suspects, resulting in cautions or prosecutions with sentences in accordance with criminal sentencing guidelines, including custodial ones.
Inevitably they cannot take on all referrals that do fit their criteria as their resources are finite. As such, the decision to prosecute is beyond a referrer’s control and subject to a number of variables at the time. That can lead some compensators to use other methods of securing a punitive and non-financial sanction where they can have a greater influence on a decision to proceed, by funding it themselves.
The Association of British Insurers, in conjunction with the Insurance Fraud Bureau, introduced the IFR in November 2013. This is the first industry-wide database of known insurance fraudsters. The IFR lists the individuals who have been detected acting fraudulently toward insurers, whether in the process of applying for/renewing insurance cover or when making a claim.
There are clear criteria set out on the IFR website for which individuals can be added and the process for doing so. There is also a requirement for fair warning to have been given to the fraudster, which usually would take the form of a fair processing notice.
The IFR is designed to help insurers identify whether individuals have committed insurance fraud. They can then take appropriate action at the point of sale, the renewal of a policy or when a claim is made, with the intention of stopping fraud as early as possible.
It also has the effect of making it much more difficult for fraudsters to obtain insurance cover and financial products which not only makes it more difficult for them to carry out first party fraud, it is also a disruption to everyday life that can act as a deterrent.
It is a cost-effective sanction, so long as you are an ABI member. There is a stated intention to roll it out to other stakeholders in the future, so watch this space....
The industry does, therefore, have some means already at its disposal to disrupt fraudulent insurance activity. Sanctions range from data-sharing to enable a claim to be dismissed for fraud, to recording proven fraud which could result in an inability to obtain insurance or, more seriously, a criminal conviction. The key to success of these deterrents is public awareness and it is important that insurers continue to publicise successful prosecutions to drive the message home that insurance fraud is not a risk-free option. Not only could it cause you serious disruption in everyday life, it could even result in the loss of your liberty.