‘Doing more of the same’ isn’t working to tackle the issue, says head of counter fraud 

Ghost broking is “one of the biggest risks” for the insurance industry, according to Markerstudy head of counter-fraud Clare Lunn.

Speaking at Insurance Times’ Fraud Charter roundtable event last week (30 March 2023), Lunn said: “The risk for consumer confidence and reputational damage to insurers is massive.”

Ghost broking – whereby fraudsters imitate insurance brokers in order to sell fraudulent insurance – has been well-publicised as a threat to the industry.

However, attempts to tackle it have gleaned only minimal success and the threat is increasing as the cost of living crisis increases the attraction of committing fraud.

Lunn added: “While insurers agree [that ghost broking is an issue] and are doing a lot to tackle it, doing more of the same clearly isn’t working.

“If you close one down, three more pop up – we just have not got to grips with ghost broking as an industry.

“If there is one area that we will be criticised on by consumers, it will be ghost broking – this is because it costs consumers and puts them at risk.”

Mike Hallam, Biba’s head of technical services, echoed the point made by Lunn.

He explained: “Ghost broking has been a problem for a long time now, but in recent times the issue is that they’re much more agile – they can close down, reopen and remerge to change the types of people they target.”

In dealing with the threat of ghost broking, Lunn suggested that the insurance industry should explore more “creative” and “innovative solutions to the problem.

These solutions should then be aimed at proactive, preventative action to target ghost brokers before they could become established, she added.

Keep your enemies close

Any serious discussion of how to effectively tackle ghost brokers must appreciate the sophistication of the criminal elements that the insurance industry must counter, explained experts at the Fraud Charter roundtable.

James Burge, fraud manager at Allianz, provided the example of ghost brokers who were effectively imitating legitimate insurance contracts by amending versions found on websites of businesses who had posted them to demonstrate their own credentials.

Other ghost brokers had set up their own websites to increase their own appearance of legitimacy and had labelled any payments to themselves as luxury goods, in an attempt to circumvent automatic fraud checks.

Commenting on this, Ben Fletcher, director of financial crime at insurer LV, said: “It’s a good reminder of just how sophisticated a lot of our opponents in this arena are – criminals are trying to circumvent the system.

“We as an industry continue to work hard to put in controls to try to ensure the baddies don’t get through, but in reality – and we need to be realistic here – the same level of planning and diligence that we put into our business plans are shown by the ghost brokers and criminals behind these scams, [which] are equally sophisticated.

Fletcher added that, in some respects, ghost brokers had the agility advantage to counter-fraud elements of the insurance industry because they were not constrained by the rules and regulations of the legitimate, lawful financial system.

Tackling the issue

So how does the sector tackle such an agile, persistent opponent?

Tom Hill, detective chief inspector at the City of London Police’s Insurance Fraud Enforcement Department (Ifed), said that his department were exploring new tactics in charging ghost brokers with crimes.

He explained: “Prosecutions are really challenging for ghost brokers because the Crown Prosecution Service really struggles to want to prosecute for fraud because of this feeling – often wrongly – that customers and ghost brokers are complicit, that it’s done with a nod and a wink.

“We’ve looked at charging more in relation to financial services and markets defences, [including charges for] acting as an unauthorised brokers, which is a useful way of charging people and putting them before the courts, albeit the sentencing is gentle.”

Outside of the legal system, the insurance sector has a role to play in educating the public about the risks they face from buying services from a ghost broker.

Brokers especially have a role to play here, said Burge: “Brokers play an incredibly important part in that education piece for us.”

Hallam agreed here, adding: “Ghost brokers are reliant on social media like WhatsApp [and utilise] an online methodology [to target their victims].

“In terms of educating people that are going to be victims of this, they are going to be the social media types and that’s where education campaigns should be focused.”

Despite the threat of ghost broking, fraud experts were keen to emphasise that the industry was taking action against ghost brokers.

David Phillips, NFU Mutual’s claims validation technical manager, explained: “This all seems a bit doom and gloom but as an industry we are doing things about this.

“It sometimes feels like we’re in the middle of a tornado holding up a candle, but we did the ghost broking campaign as an industry and the feedback so far is that the response from Joe Public was phenomenal.

“We are also talking to other industries about what they do for their victims of fraud too – we’re not going to have an instant silver bullet for ghost broking, but there is some positive there for the industry.”