A plan to create an international database of insurance fraudsters has not received a warm welcome in the UK. Sarah Kennedy explains why

When the US-bred ‘cash for crash’ fraud hit the UK, many insurers paid out expensive collision claims, not realising they had become victims of the latest international scam. The fraud was so extensive – it is believed to have cost the industry about £200m – that the Insurance Fraud Bureau (IFB)?was launched solely to tackle the crime.

Had an international database of shared information existed at the time, insurers may have been prepared for the fraud and scrutinised the claims before hundreds of millions of pounds were paid out to organised gangs. The International Association of Insurance Supervisors (IAIS) last week revealed plans to launch just such a database. But could costs, legal hurdles and the practical difficulties of compiling large amounts of data on a global scale kill off the initiative before it even begins?

Based in Switzerland, the IAIS has a membership of regulators – including the FSA – from more than 140 countries. The database, which has been given high priority by the association, would allow insurers to share information and access lists of known fraudsters as well as study inventories of fraud cases that have happened across the world.

Staged collisions

On the surface, an international database sounds like a groundbreaking idea for tackling fraud on a wide scale. Dig a bit deeper however, and the plan is fraught with conflict.

John Beadle, fraud expert at Royal & SunAlliance and chairman of the IFB, agrees the industry would have benefited greatly from information on the staged motor collisions prior to the scam reaching the UK, but questions whether the benefits of a global database would outweigh the likely exorbitant costs of getting such a system up and running.

“I don’t see insurance fraud as being an overly cross-border issue and the costs of setting up a database would be considerable,” he adds.

That said, Beadle agrees that a database that could provide a trends analysis based on international crime patterns could help insurers save money.

Diane Colton, chair of the insurance fraud sub-committee at the IAIS, says problems experienced in certain countries can often spread to other areas of the world, and the more information that is in the hands of industry officials, the better equipped they will be to tackle fraud.

“On the other hand, fraudsters may be blocked in well-equipped countries and may move to other countries,” she adds.

This is where a list of known fraudsters, as proposed for the database, could come in handy.

The UK has become an extremely popular destination for eastern Europeans and other foreigners looking for work. If one of those employees had committed insurance fraud at previous jobs in his homeland, a shared database could alert UK employers before they become victims themselves.

The UK has been the victim of other crimes essentially global in scope, such as the theft of high worth vehicles and construction plant. The vehicles are stolen, packed in crates and shipped out of the country to areas like the Middle East. These thefts, committed largely by organised crime rings, have cost the industry hundreds of millions of pounds in claims, but are essentially still viewed as more of a theft issue, and has already seen the insurance industry paired up with the police in order to aggressively investigate the cases.

Legal issues

Scott Clayton, claims, fraud and investigations manager for Zurich, says devising a list of known fraudsters is a risky business fraught with numerous legal concerns.

In order for insurers to avoid mass lawsuits, a fraudster would have to be convicted of the crime in order to be listed on the database. Given that it is extremely rare for insurance fraud cases to go to court, the list of known criminals is unlikely to be overly significant.

Another major potential challenge in launching a global database would be how to gather the information, says Beadle.

Currently, the UK insurance industry is in discussions with the Home Office over plans to initiate a public/private database of shared information between the two sectors when the Serious Crimes Bill becomes law in the spring.

The bill provides new powers to disrupt crime. Last year, insurers said the information could be used nationally to refuse cover to individuals if they had been involved in multiple scams against the public sector.

Without such a national set-up in place it would be difficult to provide information to a global database. If such an endeavour has yet to be launched in the UK, it’s unlikely to happen soon for many other countries.

According to the ABI, the IAIS faces a number of challenges in launching a global initiative, including issues surrounding data protection, which is viewed differently by individual jurisdictions.

An ABI spokesman says: “Different countries have different requirements that I wouldn’t think could be replicated throughout the world.

“Any database across Europe and globally that deals with fraud would be something we’d always be interested in, but the devil is in the detail.”

Whatever the apparent shortcomings in a global database, the ABI spokesman says insurers now recognise that technology will play a massive role in tackling fraud and there are definite benefits to exchanging information on an international scale.

The ABI has an international division that liaises with similar divisions in other countries, particularly with fraud issues involving organised crime. But the ABI says a significant amount of research and time would be needed to make a global database a reality, or even to be able to determine whether it is worth it.

“At the moment,” the spokesman says, “I think this is a bit of kite flying.

What a global database could do:

*Providing a list of known fraudsters from around the globe
*Supplying an inventory of fraud cases that has happened in the world including; internal fraud, policyholder and claims fraud, and intermediary fraud
*Trends and patterns analysis
* Information on the most common forms of fraud facing insurers