Initiatives to reduce insurance fraud have generated positive publicity, says Tony Baker. He thinks the industry should keep its foot on the accelerator....
The insurance industry has been praised over the last few years for its determined efforts to contain, and hopefully reduce, fraudulent insurance claims. Will this commitment continue into the future or is this an area that is slipping down the industry's agenda?
If the industry takes its eye off fraud detection and prevention, it could have disastrous commercial and image consequences. Following a review of activities at the Association of British Insurers (ABI), the staff running the ABI Crime and Fraud Prevention Bureau leave next month.
What priority will fraud work now have at an industry-wide level? Will the pressures that came from the ABI for company fraud prevention action be reduced?
Since the bureau was established in 1994 there have been a series of insurance initiatives that have been favourably publicised by the media and welcomed by the government. The insurance industry's high profile on fraud has complemented the efforts of a government determined to publicise its efforts to reduce DSS fraud.
Good support for initiatives
The government, police and other agencies have been very supportive. Ministers have been readily available for launches. The police have given good support to initiatives, helping with tips-offs on the insurance “cheat-line” and in special operations against organised crime.
The massive positive media publicity for the industry's fraud work has come at a time when it was much needed to counteract a weak or negative industry image.
It is estimated that the cost of insurance fraud has actually fallen in the past five years, whereas fraud in other areas has increased substantially. Currently the cost is estimated at around £650m.
But this is still a massive figure that adds up to 5p in the pound to the cost of some classes of insurance. It could, however, be a great deal worse – as insurers in other countries have discovered. In some markets it is twice as high. In some areas in America there is a climate of acceptability of insurance fraud as legitimate and inevitable.
The good UK work on fraud prevention has been achieved in spite of relatively little interest in the work at a senior level in the industry, and with limited resources. Strange really, especially as uninsured driving really attracts the interest of chief executives and general managers, and fraud costs the industry nearly four times as much.
The industry-wide fraud work has been a series of tactical initiatives within an overall strategy. The strategy embraced the value of co-ordination within the industry, a gradual move towards ensuring the best use of resources, a commitment to working with others and a strong emphasis on publicity.
You can never prove success in this area. What might have happened to the cost of organised fraud without all the work by the industry?
Would the industry have attracted negative publicity for lack of action? Might honest policyholders have come to think inflating claims was fair game?
If fraud was rising by 25% a year how would motorists have reacted to the 20% increases in premiums? Would the recent floods have cost appreciably more?
An indication of the potential for disaster comes from credit card fraud. The total cost of fraud has more than doubled in three years. There has been widespread negative publicity for the credit card companies for lack of effective action.
The companies are blamed for high charges as a result of fraud. The culture has changed to one where the public cares little and it will be much more difficult now to win them over on anti-fraud initiatives.
Build on success
Rather than reduce resources for insurance fraud prevention work there should be an increase to build on past successes. A little money spent now could achieve major savings in the future.
Constant initiatives and campaigns have worked well but they have had to be driven. If there is no one doing the driving then talk there may be, but action there won't.