Torrance: application fraud on a par with claims fraud

Motor insurance application fraud could become as big an issue for insurers as claims fraud if it is not kept in check, according to Allianz Insurance chief executive Andrew Torrance.

Announcing its first-quarter 2011 results on Monday, Allianz revealed it would be focusing on detecting car insurance application fraud. This would expose online applicants who deliberately used incorrect job titles, post codes or ages in order to be given a cheaper premium.

“It is one of those areas where if we don’t get much better control over it, it will come to rival the claims fraud issue for the industry as a whole,” Torrance said.

Torrance said Allianz had been working on the issue and now has systems in place to detect application fraud. As a result, the company will be going back to the relevant applicants either to void policies or to seek a higher rate.

“This is hopefully something the market as a whole will do more of over the next 12 months,” he said.

Torrance admitted that detection of application fraud accounted for a minority of the overall savings Allianz was making from fraud detection, in part because private motor makes up a smaller portion of its portfolio than some of its peers. But he added: “For the market as a whole, it will be more important.”

He laid part of the blame for poor motor results at the door of application fraud. “Insurers have not been getting the premium for the exposures in the market. They have been getting premium for exposures represented to them as being better than they were,” he said.

Allianz posted a slightly lower operating profit of £34.4m in Q1 2011, compared with £36.7m in the same period last year.

Torrance attributed the 6% decline mainly to lower investment returns as a result of persistent low interest rates. Allianz’s combined ratio came in at 96.9% – slightly above Q1 2010’s 96.5%.