As the UK edges towards recession, suspicious claims are rising. Can the industry cope?
Doom-mongering, perhaps, but there are already signs of a surge in fraudulent claims as the economic outlook worsens. Insurers and loss adjusters are reporting more suspicious claims. AXA has already surpassed its target for fraud detection this year, with detected fraud up 80% year-on-year.
It is no surprise that the incidence of fraud increases during economic downturns.
During the last recession in the early 1990s, the number of fraudulent arson claims rose as cash-strapped firms looked to their insurance policies to keep them afloat.
Insurers are now preparing to tackle another upsurge in fraudulent claims. The industry has changed since the last recession and is implementing new systems, processes and technologies. There are clearer metrics and measures across the industry. Data is shared. Insurers as a whole are less naïve when it comes to the problem.
But some question the extent to which insurers are fully prepared for the wave of fraud that could engulf them. In the past few years, the industry has taken on the organised fraud gangs. Indeed, the Insurance Fraud Bureau appears to be enjoying some success. But how well placed are insurers to tackle opportunistic fraud?
Research in recent months suggests consumers are increasingly willing to exaggerate claims and make false statements in order to obtain a cheaper premium. Many of these will be low-risk customers, who have been driven to lie because of economic pressures.
How many of these claims will be identified? It is likely that many will fall through the net.
Insurers will have to take some of the blame for this. Claim handlers’ targets are based on speed, process and customer service. Some argue there is simply not enough resistance in the system to pick out low-value frauds, despite the investment in new detection systems.
Others point to the decline over the years of skilled and experienced senior fraud specialist staff, arguing that it is now less likely that fraudulent claims, particularly large, complicated commercial losses, will be identified.
One area that insurers have yet failed to address is the perception that insurance fraud is a victimless crime. A recent survey conducted for ITV1 found one in seven Britons believed it was acceptable to exaggerate a claim.
Last year the insurance industry, through the ABI, was poised to begin a campaign to raise consumer awareness of the cost of fraudulent claims. That plan fell apart because of lack of support from some insurers.
While individual insurers have their own strategies for raising awareness of the cost of fraud, the industry is lacking a coordinated strategy for changing consumers’ misconceptions about fraud. Until individuals really understand its financial cost and the risks they face in committing it, then the problem will not go away.
As the economy moves ever closer to recession, insurers cannot afford to be complacent about fraud.
• As the economy slows previously low-risk customers will make fraudulent claims.
• Insurers must look at their systems to ensure opportunistic fraud is identified.
• Targets for claims staff should be reviewed.
• Processes should add sufficient “resistance” without compromising customer service.
• Greater investment is needed to educate consumers about the cost of fraud.Key points