1. INSURANCE FRAUD A BROKER PERSPECTIVE
David Meur
Chartered Insurance Broker
Chairman, Property Committee Managing Director
British Insurance Brokers Association Genavco Insurance Limited

2. Dimensions of the Problem
Statistics based on research relate to the wider UK insurance industry
Is there any correlation between frequency, cost and nature of fraudulent insurance claims and different distribution channels?
We are probably a long way from knowing the answer
But there are clear opportunities for the broker channel to be influential in combating insurance fraud

3. Dimensions continued 1. Estimated cost of bogus and inflated claims
- £1.6billion
2. Adds around 5% to insurance premiums
3. Fraudsters more sophisticated and organised
4. Insurers seen as “fair game”
5. Increase in number of opportunist fraudulent claims, such as exaggerated claims

4. Dimensions continued
6. Recent attitude survey for ABI found that 76% of people agreed fraud is common in making insurance claims
69% would themselves make a dishonest claim if they thought they could get away with it.
7. Another survey shows that only 15% would report someone who they knew had made a fraudulent claim.

5. An increasing problem Estimating the cost of fraud not easy
Over 2,000 arson attacks each week in the UK on homes, businesses and cars
Not known how many of these relate to insurance fraud
Fraudulent arson notoriously difficult to prove

6. Fighting back Government strategy Insurer actions FSA IFB
Insurance Brokers

7. Government strategy
Fraud prevention initiative – creation of National Fraud Strategic Authority
National fraud reporting centre
Review of how fraud is dealt with in the Courts
Fraud Act 2006 introduced a statutory offence of fraud giving greater clarity to investigators and prosecutors and new impetus to enforcement authorities

8. Insurer actions In house anti fraud units Software alerts
Databases facilitating sharing of claims information e.g., CUE, MIAFTR, MID, CIFAS
Cognitive interviewing techniques
Lie detectors/voice stress analysis
Aerial photography and mapping

9. FSA
Focus on senior management responsibilities for managing fraud risks and ensuring systems in place
Promoting “working together” – government, insurers, consumers, police, law enforcement agencies, trade associations, all other stakeholders

10. IFB
Launched in July 2006
Analysis of data produced from industry databases
Commitment to bring gangs of fraudsters to Court
Operates fraud “cheatline”
Saved the industry around £15million in first year of Operation
Committed to reducing organised crime

11. INSURANCE BROKERS

12. “The main responsibility lies with the insurer”

13. Not true! A shared responsibility across the whole industry
We must all:
work together
be vigilant
operate procedures, practices and systems
collaborate
communicate

14. Brokers can be an important link in cracking fraud
Brokers will know their customers
Assist insurers with the validation process and speed up settlement of genuine claims
Provide vital information in relation to suspicious claims or where insurer has concerns
Broker has a direct and close relationship with the customer

15. BIBA survey of 50 member firms in August National brokers, international brokers, multiple outlets and smaller provincial brokers throughout UK We asked seven questions and recorded the answers Objective information to support future work

16. The questions we asked:
1. What do you define as fraud?
2. How are fraud risks managed and understood?
3. What financial checks are undertaken on potential and actual clients?
4. What type of fraud do you see as the biggest problem for insurers?
5. What action/procedures do you have for dealing with suspected fraud?

17. 6. How could insurers and brokers work more closely together to combat fraud?
7. What other challenges do brokers face in relation to fraud?

18. What do you define as fraud?
80% of respondents identified “exaggerated claims”
A common definition reveals “an attempt to gain
financial advantage by deception or making fraudulent
claims”
Other areas identified included non-disclosure, money
laundering, staged motor accidents, fictional policies, deception and tax evasion
Interestingly, employee fraud was only identified by one
broker (0.5%)

19. How are fraud risks and exposures managed and understood?
Training was the key with 50% of brokers surveyed stating that their staff were fully trained in fraud matters
The majority of brokers confirmed that their staff undergo money laundering and data protection training
10% of respondents admitted to having no laid down procedures in place
20% of brokers surveyed required any suspicions to be
referred to a Senior Manager or Director

20. What financial checks are undertaken on potential and actual clients?
73% of brokers surveyed perform credit checks on clients
It was acknowledged that checks would also be made by premium finance providers
Some brokers only instigate checks once the premium exceeds a certain level e.g. £1,000, £20,000 etc.
Brokers’ main concern is driven by the ability to pay premiums

21. What type of fraud do you see as the biggest problem for insurers?
Exaggerated/inflated claims – 61%
Staged motor claims – 15%
Money laundering – 7%
Employee fraud from within – only one broker felt this was a big problem (0.5%)

22. General feeling was that the largest number by volume were exaggerated claims whereas the largest number by value were excessive personal injury claims
Some brokers identified deliberate under declaring of payroll, and also fronting policies where motor insurance is effected by father or mother in the knowledge that the young driver is the main user
Acknowledgement that loss adjusters can assist in combating exaggerated claims as can sourcing replacement equipment via designated suppliers

23. What action/procedures do you have for dealing with suspected fraud?
77% of respondents would inform the insurer at the earliest stage, sometimes after referral to designated senior management within the firm
7% would contact the client with their suspicions and invite them to reconsider their claim
10% had no specific procedures but would now commit to implementing some
Most brokers tend to be aware and alert to possible cases of money laundering

24. How could insurers and brokers work closely together to combat fraud?
80% felt that better communication between brokers and insurers was necessary with designated contacts within the insurance companies being requested by some brokers
13% of brokers surveyed requested more statistical and database information to help in identifying the type of fraud to look out for
There was a general feeling that insurers often pay suspicious claims too easily without investigation

25. Some insurers are reluctant to involve the broker in specific cases on the basis that the broker works for, and is the agent of the client
In the past there has sometimes been a lack of trust between the broker and insurer

26. What other challenges do brokers face in relation to fraud?
Update procedures/systems regularly
Staff training in fraud issues
Education of the public generally
IT fraud considered to be more of a problem in the future
Vigilance is the key
At individual broker level, instances of fraud are still quite rare

27. Working together
How are brokers and insurers working more closely together to ensure continued progress in the battle against fraud?

28. Communication Co operation between brokers and insurers
Insurers should keep brokers advised in cases of suspicious claims and the claims processes generally
Contact points within insurance companies
Extend communication process to involve government, police, law enforcement agencies, data sharing, and other stakeholders

29. Training
Most brokers have training modules in place for staff in money laundering issues
Reconsideration and update of procedures and systems
for recognising and managing potential fraud
BIBA on line training “Broker Assess” has a module on financial crime

30. Image and Publicity
Further work required to understand and address the consumer need to exaggerate claims
Campaign to develop anti fraud culture
Appetite to prosecute
Industry should publish successes of fraud prevention through dialogue with law enforcement agencies

31. Responsibilites
Treating customers fairly. The vast majority of claimants are genuine and honest
Assist consumers so that they do not become a victim of identify fraud by safeguarding customer data and information security
Investment by brokers and insurers in time, effort and energy to keep up to date with fraudulent activity
Develop the ABI/IFB/BIBA initiative to produce best practice guidelines, sharing of data, and joint press
releases

32. ABI/IFB/BIBA Workstream
Launched in August 2007
Need for more joined-up thinking between insurers and brokers
Objectives agreed

33. Raise profile of insurance fraud jointly by ABI and BIBA with customers
Training of staff and increasing awareness
Improve broker understanding of fraud
Improve communication between insurers and brokers
Use of SPOC’s in insurers
Develop anti-fraud good practice guide for brokers

34. TOGETHER WE CAN CRACK INSURANCE FRAUD