Counter fraud experts question how commercial brokers are being trained to spot insurance fraud

By editor Katie Scott

Insurance fraud is not slowing down. In fact, the opposite is true.

According to figures published by the City of London Police’s Insurance Fraud Enforcement Department (Ifed) in June 2023, reported cases of opportunistic fraud – where fraudsters exaggerate or falsify claims to boost payout amounts – grew by 61% between March 2022 and April 2023, compared to the body’s prior reporting period.

Katie Scott_bw_path

Katie Scott

Of the opportunistic fraud cases that Ifed handled between March 2022 and April 2023, 51% concerned motor insurance fraud, while 29% were labelled as property insurance fraud.

Although opportunistic fraud typically stays within the realms of personal lines, counter-fraud experts are now increasingly worried about the escalation of commercial-based fraud – as well as the fact that brokers in this field appear to have less know-how on how to halt the spread of this type of scam.

Speaking at this month’s Fraud Charter roundtable on 21 March 2024, held in-person at Marylebone’s Home House and sponsored by law firm Carpenters Group, guests flagged the uptick in fraudsters focusing on the commercial arena.

For example, legal professionals Paul Holmes, partner at DWF, and Sarah Hill, head of fraud at Clyde and Co, both commented on the creation of fake business entities that were being established purely to submit commercial insurance claims. In some cases, these claims were even being generated by artificial intelligence (AI).

This trend mirrors the rise in identity theft that anti-fraud professionals are also spotting in the personal lines market.

Fraud Charter delegates agreed that commercial insurance fraud was a growing issue the industry had to get its head around – however their main complaint was that commercial brokers were seemingly unaware of the fraud threat.

More to do

James Burge, fraud manager at Allianz, questioned why application fraud from these bogus companies was so rife.

He said: “My question is what [has] the broker done? How has [application fraud] got past [its] validation?

“I do appreciate that there are different distribution models, but we’ve still got to challenge those brokers and I think Biba will play a big part of that to make sure that [it is] educating [brokers] because we need to talk more [about this type of fraud].”

Fleur Lewis, head of application fraud at Covea Insurance, agreed: “There is more work to do in the intermediary space. I just think brokers in general [are] very naïve.”

Donna Scully, director of Carpenters Group and Fraud Charter chair, explained that historically, application fraud was often left on the back burner as “no one wanted to deal with it because it impacted on sales”.

However, in her mind, application fraud transforms into claims fraud “as [certainly as] night turns into day” and brokers “can’t just sell for selling’s sake”.

She added: “[Brokers] have to do some checks because [they] just let the bad people in, which puts premiums up.”

All attendees agreed that education on insurance fraud for commercial brokers has to be improved to combat these emerging trends – especially as a lot of the incidents so far appear to be “one offs” rather than clearly defined tactics that can be easily spotted a mile off.

In line with this type of education, Burge confirmed that the Insurance Fraud Bureau (IFB) established its Commercial Intelligence Fraud Group last year to help provide more information to the market.

The downside, however, is that this body is “still in its infancy”, so data remains scarce.

I did contact Biba to try and establish what training on fraud was provided for brokers, however the trade association was unable to respond to my request before publication.

Broker education

Knowledge is power, so this has to be a priority if brokers are to work hand in hand with anti-fraud professionals to snip commercial application and claims fraud in the bud.

If the counter-fraud sector feels broker education is lacking, maybe it needs to provide the extra resources to either Biba or brokers directly in order to plug the knowledge gap and ensure firms are informed on how to tackle the new types of insurance fraud that are hitting the market.

Primarily, this is why Insurance Times so extensively covers the insights that arise from the quarterly Fraud Charter roundtables.

The development of the IFB’s group will also be interesting to watch.

As Scully said over the roundtable lunch, industry competition has to be put to one side to tackle insurance fraud because it is a detriment to the entire market. The advancements and learnings around combating personal lines insurance fraud now need to be applied to commercial lines.

Watch this space.