Unless the industry pulls together, the £1bn cost of fraud will need to be priced into premiums, says Mike Anstee
In the past our industry has been full of amusing anecdotes involving bogus claims, from the same damaged carpet moving around a block of Glasgow flats to classic cars disappearing before fires. But today the cost of fraud is no joke.
The ABI, in its most recent report, estimates that fraud now costs the insurance industry £1bn every year.
So what is the industry doing to address this problem, and are the current initiatives good enough?
If we listen to some of the leading lights, we are led to believe that there is serious investment in anti-fraud databases and that the sharing of information is helping to tackle the problem.
But if we peel away the rhetoric, we seem to be left with a hotchpotch of disparate commercial systems that are incomplete and that compete with each other for investment. Also, none of these databases can be comprehensively linked to related government information sources.
Accepting that in the current environment, personal liberty and law and order are in conflict over information processing, unless we make a fundamental change in the way we (insurers and government) fight insurance fraud, it will continue to grow and will need to be priced into premiums.
It is time to rethink industry data and to invest a significant percentage of the £1bn in smarter solutions if we really want to reduce the current unacceptable level of fraud.
Holding basic personal information and augmenting this with National Insurance and driver's licence details of claimants, data on the passengers, witnesses and third parties involved (for example, lawyers, repairers, medical practitioners) should be a basic requirement. There will be an additional cost, and the trend towards telephone claims services with minimal data capture will need to be reversed.
Standards will need to be defined and a central database developed. This could be through market-funded bodies or by merging existing commercial services. Supply of data to this facility on a daily basis will need to be mandatory for all insurers.
An industry-wide claims investigation unit should be funded, and this should include specialist IT data analysis resources that could scan the data regularly for trends and patterns.
Centralising this function will be less costly than each insurer developing its own skills in this area or subscribing to one or more of the current commercial offerings. As well as providing specialist reports to each insurer, this unit would be the industry interface to share information with the police.
There will be those who say such a solution will be too onerous and costly and that their company already has fraud under control.
I am sure that some insurers are far betterat sifting through their claims than others, and that some are well advanced in their ideas on how to improve things.
There are also those who believe that there is competitive advantage to be gained from better handling of suspect claims. But unless we all pull together and raise the standard for all, £1bn of bogus claims will disappear from the industry each year and law abiding insureds will be asked to fund it through increased premiums.
' Mike Anstee is director of Hindsight Partnership and non executive director of Sirius Financial Solutions