A panel of UK and US insurance professionals say insurance staff working from home may undertake opportunistic fraud to mitigate financial hardship brought on by the pandemic

A panel of UK and US industry experts has warned insurers to be aware of insider fraud as a result of the ongoing Covid-19 pandemic, as working from home could provide a window of opportunity for employees struck by coronavirus-related financial hardship to commit fraud.

Discussed as part of technology firm IBM’s webinar, Covid-19: Responding to the threat of fraudulent claims - it’s not the time to stand still, Ben Fletcher, director at the Insurance Fraud Bureau (IFB) and chief customer officer at the Motor Insurers’ Bureau (MIB), said that “insider fraud is something we are going to have to consider and look at” because “there is going to be economic hardship on absolutely everybody as a result of Covid-19”.

This could include, for example, professional fraudsters using social engineering to engage with insurance staff, or data theft relating to policy and claims information.

Glen Marr, financial crimes insurance leader, UK and Europe at IBM, added that the home working regime recommended by the government in response to the pandemic could, however, present insurance employees with the opportunity to commit fraud.

“It’s a difficult subject to talk about, but unfortunately it happens,” Marr said. “We now have larger amounts of resources working from home, not in their teams. Does the opportunity exist to do something wrong? The answer simply is yes.”

To mitigate this possibility, Marr recommended that insurers fully engage with their workforce.

He said: “One of the things they can do, and this is a preventative and detection measure, is to spend time engaging with the front-line claims and FNOL teams, picking out little snippets of information they’re picking up dealing with policyholders and third-parties and also picking up things that just don’t feel right. Anomalies that are happening.

“This is a time to embrace the workforce and make them feel part of the one team because we know disconnected, disillusioned people, they’re also in financial stress. They may take actions that are not welcome.”

Fletcher added: “It’s not just be aware in the claims space, it’s be aware on every aspect.”

Another prominent fraud trend, particularly in the UK, is application fraud.

Tom Gardiner, head of fraud, claims recoveries and risk at Aviva UK, explained: “The motivation for fraud in terms of premium fraud, application fraud is going to be significant. The risk of harm to customers and driving up premium through fraudulently presented risks is equally material. We need to look at both ends of the product lifecycle.”

Marr agreed: “These are desperate times. We know application fraud is a pretty significant issue – certainly in the UK – and this is a time where if you ever wanted to refine what you did at application fraud, it would be now, so you are nipping some of that in the bud. It’s certainly not just a claims issue.”

However, Gardiner added that adequately dealing with application fraud is a precursor to successfully tackling claims fraud.

“That’s where you start to fight claims fraud,” he explained. “If you can stop adverse moral risks and fraudsters accessing your products in the first place, then that takes away the risk of claims fraud further down the product lifecycle.”

Another type of fraud that Gardiner sees a lot within the UK market is ghost brokers.

He said: “Ghost brokers are becoming far more prominent. Ghost brokers are typically unauthorised intermediaries who hold themselves out as selling insurance. They grossly misrepresent the risks, they’re bogus products [and] typically exploit very vulnerable customer groups and young drivers.

“In terms of combatting that threat, which is a significant area of customer harm because these are often innocent people buying products that are worthless, disrupting their behaviour at the point of sale is a real responsibility that we have.”

Third-party threats

The expert panel further explored potential fraud that could arise from insurers’ supply chain, especially in terms of businesses such as bodyshops and repairers.

Matthew Smith, executive director at the Coalition Against Insurance Fraud, cited a new coronavirus-related type of fraud in the US, for example, where bodyshops were found to have charged policyholders for disinfecting their vehicle prior to completing any repairs, also stacking storage fees on top of this by claiming that they are unable to work on the vehicle for 14 days after the disinfection process.

Joe Wehrle, chief executive of the National Insurance Crime Bureau, added: “There’s loss of revenue. And when there’s loss of revenue, people are going to try to make up for it. The insurance companies are going to have to be particularly attuned to inflated claims coming from our bodyshops – we’re already starting to see some of that, trying to take advantage of the Covid-19 [pandemic].

“With vendors who have been closed for a month now, they’re probably on the ragged edge. Well, expect to see some inflated claims coming your way.”

Marr noted that to mitigate this threat, insurers should be maintaining close relationships with their suppliers, as well as paying valid invoices quickly, to ensure delayed payments don’t motivate business owners to undertake unsavoury behaviour.

He explained: “One of the ways of tackling this is to keep close to the suppliers. Insurers are fundamentally dependent on a broad supply chain and now is the time for the insurers to be engaging, which I’m sure they are quite regularly, with their suppliers and ask them open questions around how are they, how’s the financial stresses?

“When suppliers invoice the insurer, pay them quickly after you’ve done your validation. There’s nothing worse than delaying the payment to a supplier who’s already in a challenging position because that might just push them into a behaviour that may never have ever crossed their mind before.”

Desperate times, desperate measures

Although insurers will generally note an increase in fraud following a catastrophic event, as has been seen in the past, IBM’s expert panel observed that the Covid-19 pandemic has revealed a double whammy of fraud – a mix of professional fraudsters conducting business as usual, as well as opportunistic fraudsters turning to insurance fraud for the first time to mitigate a loss of income due to the lockdown regime, whether they’ve been furloughed, made redundant or had to close their business.

Marr said: “Fraud is driven by need and greed. We’re going to have a new situation here called desperation, where people’s finances are going to be put under [the] largest pressure they’ve ever been faced with as a result of this pandemic.

“The longer it goes on, desperate people do desperate things, and the insurer front-line will be dealing with the desperate people making the claims whereby temptation is too much. That’ll be a highly emotive situation to deal with, so insurers will find that challenging at best.”

Mitigating actions

But what can insurers do to tackle these fraud threats? All of the panellists agreed that fighting fraud involves a combination of skilled people trained to identify fraud, data – to enable risk or predictive modelling for example – and technology, which can automate part of this process.

Furthermore, the experts agreed that tackling fraud should not be deemed a competitive sport between insurers, but should instead be dealt with collaboratively, with insurance firms sharing best practice between them. This is especially useful for firms who have, perhaps, a less mature fraud structure than larger, more established businesses.

Fletcher noted that fraudsters are not precious about sharing information, so insurers need to also be more open when it comes to sharing data analytics and intelligence that can help dismantle fraudulent behaviours.

Gardiner, on the other hand, is an advocate of a risk-based approach that anticipates inherent exposures to fraud and then compares how robust a firm’s measures are and where there may be areas that need investment. Smith, however, shared his five-step approach: be aware, be prepared, re-assess, communicate and share information.

Smith concluded: “The message here is we’re in a brand-new world and we have to adapt very quickly on how to not only identify, but investigate that insurance fraud and also identify what the best practices are.

“This is just a microcosm of how the world of Covid-19 is changing insurance fraud.”

Other panellists speaking on the webinar include Frank Pinder, director, insurance financial crimes at IBM, Celeste Dodson, vice president of the International Association of Special Investigation Units (IASIU) and Wade Wickre, IBM’s insurance financial crimes leader for North America.