Economic struggle places the insurance market ‘in danger of sleep walking into a tsunami of fraud claims’, says group director of investigations
UK businesses are facing heightened uncertainty as inflation and labour shortages strike, according to the Bank of England’s latest survey, published last week (1 September 2022).
The survey – entitled The Decision Maker Panel (DMP) – surveyed chief financial officers’ (CFO) attitudes towards inflation, recruitment and business doubts.
It was conducted between 5 and 19 August and received 2,561 responses.
Data from the respondents’ answers showed that this year:
- Firms are becoming less confident about the future – in August, 63% of companies reported business uncertainty as high or very high.
- Recruitment difficulties remain widespread – around 86% of firms reported they were finding it harder to recruit new employees compared to normal.
- Inflation remains a challenge – in the 12 months to August, the price it costed to produce, store and sell goods increased by 9.8%.
- Companies are still trying to absorb price increases – annual private sector output price inflated by 7.7% in May, June and July.
Considering the uptick in unit costs, Hargreaves Lansdown senior investment and markets analyst, Susannah Streeter, said: “Companies are attempting, valiantly, to try and avoid passing rising costs onto customers, given that output inflation was limited to a still painful 7.7% in the three months to August.
“However, other data has indicated that many firms are now fighting a losing battle against the rising tide of prices and are passing on more of the hike to their customers.
“There is no easy solution to the problem of overheating overheads, with energy prices expected to stay elevated – so the clamour for government help from industries across the board is likely to continue.’’
In terms of labour shortages, Streeter further noted that “concerns about the UK’s trading relationship with the EU loom large in the survey, with a growing number of respondents concerned about the repercussions of Brexit compared to July”.
‘Tsunami of fraud claims’
From an insurance perspective, Garry Slater, group director of investigations at Claims Consortium Group, echoed Streeter’s sentiments that the UK was “heading for unchartered waters”.
As a result, this will create a “economic climate that will stretch all businesses, organisations and individuals to the limit” – leading to an potential increase in insurance crime.
He continued: “The insurance market will be impacted by challenges around recruitment and skills along with all businesses. However, one of the biggest challenges will be around fraud, in both personal and commercial lines, which always increases at a time of recession.
“Past levels of fraud may not be an indicator of what they can expect and this time around the insurance market is in danger of sleep walking into a tsunami of fraud claims.
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“The main threat to the insurance market will be in areas that have not traditionally been hit hard during a recession and where it is ill-prepared to identify and combat fraudulent claims.
“One of the reasons that the insurance market needs to react quickly is because AI (artificial intelligence), automated claims processing and validation systems are seen as easy targets for both opportunistic and organised fraudsters and these systems need to be supported by traditional, experienced human claims handlers – ideally fraud experts – to spot emerging patterns of fraud.
“The market also needs to collaborate more. Fraud data – outside of the motor sector – is patchy, inconsistent and rarely shared across the insurance market.
“Many insurers are not recording or sharing the right data and – where they are – there is often a lack of consistency of approach, details are missed or omitted and sometimes incidents are not even logged.”