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:

  • Up to one in seven claims made by businesses is exaggerated
  • One in three of the UK's biggest firms has supplied false information on insurance proposal forms
  • One in 12 firms believes exaggerating a property or motor insurance claim is acceptable - with smaller businesses most likely to regard it acceptable.
  • 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:

  • One in 10 companies was the target of a false compensation claim by a member of the public
  • Two in three larger firms were subject to a fraudulent compensation claim
  • One fifth of employees are aware of someone exaggerating a genuine illness or injury.
  • 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:

  • People working in smaller firms are five times as likely to see insurance fraud as acceptable
  • 15% of sole traders feel it is acceptable to exaggerate a property insurance claim, compared with 3% of firms employing more than 500 people
  • The better news is that only 8% of businesses believe exaggerating an insurance claim is acceptable.
  • False information
    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:

  • 9% of businesses received a false personal injury claim from a member of the public
  • 2% had a false compensation claim made by an employee
  • 13% reported that they had received incorrect supplier invoices and 10% had been invoiced for work not done
  • Larger firms are most likely to be a target for these fraudulent claims. 64% of companies employing more than 500 staff reported at least one fraudulent personal injury claim made by a member of the public
  • 56% of firms with 500 or more staff has experienced an employee claim for injury/illness allegedly caused in the workplace that was not. This falls to 12% for firms with under 100 employees.
  • 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:

  • 18% said for personal gain
  • 34% believed that policies may not cover all the costs involved
  • 31% wanted to claw back the money they'd paid in premiums.
  • Stark message

    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

    Beating the cheats: anti-fraud initiatives

  • Effective database use: the report identifies that the industry needs to allow its databases to be cross-referenced against one another to ensure that criminals cannot move easily from one product to another.
  • Close industry links: the report highlights that insurers are engaging with the Federation of Small Businesses and the CBI to explore some of the common pitfalls that can often lead to fraud, as well as to better understand the business conditions facing clients.
  • Improving risk management: insurers should play the vital role of helping firms to understand and manage their exposure to risk. Better risk management not only cuts down fraud, but can also reduce premiums for companies.