A new study has revealed the worryingly high price to insurers of commercial insurance fraud in the UK. Andrew Holt reports
A new study has revealed the cost of commercial insurance fraud in the UK as a staggering £550m a year.
The survey, undertaken by MORI and commissioned by a syndicate of leading insurance-related organisations, has highlighted the need for insurers, industry partners and customers to work together - as firms are as likely to be the victims as perpetrators of fraud.
Little has been known about commercial insurance fraud until now. But the survey shows that it costs insurers a similar relative amount as personal lines claims fraud, representing 5% of total insurance premiums.
The figure is made up of fraudulent claims by businesses against insurers and against businesses by employees paid ultimately by the company's insurance policy.
The key findings of the research make shocking reading:
But the survey also found that companies were as likely to be the victims of fraud, with the majority of fraudulent claims arising from the exaggeration of genuine incidents. Over the last two years:
The research reveals that there is much work to be done in changing the perception that fraud pays, or that it is an "acceptable" crime.
The most costly frauds are those which are either entirely bogus or staged. Invented or staged claims are relatively low in volume, but higher in cost, because the costs of the claims are generally higher.
Whatever the type of fraud, the cost ultimately falls on businesses in the form of higher premiums.
The study also found that:
Other fraudulent techniques highlighted by the survey include inventing a claim or providing false information on an application for insurance. Of the firms questioned, 6% said they were aware of instances of withholding or providing false information on an application. This figure rises to 40% of the largest companies.
The survey also showed how insurance fraud arises when customers, suppliers and employees make claims against companies that are passed on to insurers. For example, in the last two years businesses revealed:
Of employees questioned, 22% said they thought it would be easy to exaggerate a genuine illness suffered in the workplace to gain compensation from their employer. A further 17% thought it would be easy to invent a similar claim against their employer.
When businesses and employers were asked the reasons for committing commercial insurance fraud:
Reasons given by employees included wanting to "cover up" negligence in order to avoid punishment, to make money or to get back at their employer because of a previously bad relationship.
Commenting on the findings, Bill Paton, head of claims at of Zurich UK, says: "This is the first research of its kind and the messages are stark - the £550m price tag and the fact that 15% of claims are exaggerated highlight the challenge we face as an industry.
"Fraud is not a victimless crime: it pushes up the cost of insurance for everyone, and we know this hits smaller firms particularly hard.
We have to protect honest policyholders, as far as possible, from unnecessary rises in premiums."
Nick Young, of law firm Davies Arnold Cooper, says: "Insurance companies take fraud very seriously. But it is clear that a minority of companies do not regard their behaviour as criminal."
He adds: "Fraudsters need to know that, at best, their actions may void their policy and, at worst, they risk prosecution and becoming uninsurable. This research gives us some invaluable information on the types of fraud and the nature of the risk, making the problem easier to tackle." IT
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