Briefing: Insurers must be ‘mindful’ of recession-induced fraud

By Associate Editor Katie Scott

New year, new lockdown. This week, prime minister Boris Johnson once again confirmed that the UK is entering a national lockdown due to the ongoing Covid-19 pandemic, with an indeterminate end date potentially ringfenced for February.

Alongside the government’s announcement, more companies providing non-essential goods or services have had to shut their doors once more, continuing the stop-start business model many had to grudgingly adopt last year.

From an insurance perspective, the ramifications of financial dire straits are linked to fraud, particularly opportunistic fraud or application fraud.

Economically, a coronavirus-caused recession has been rumbling along in the background since last year, tipping its hat to furloughed or redundant staff and shaking hands with shut down firms.

Robin Challand, claims director at Ageas UK, told me at the end of last year that insurers have to be mindful of recessions such as this one because “recession tends to lead to changes in customer behaviour [and] fraud”.

“Fraud is something that is a broader challenge, but we need to be mindful of any changing patterns that we start to see off the back of any downturn in the economy,” he continued.

With many consumers viewing insurance companies as faceless entities, it’s not too surprising that insurance fraud is often perceived as a victimless crime, with the direct impact on premiums and fellow customers not really signposted to those outside of the industry.

For example, an individual who has just been made redundant may decide to not be entirely truthful when renewing their home insurance, in a bid to bump down their premium price.

Although the individual in question may simply view this as omitting a few harmless truths, within the industry we know these types of actions are classed as a crime – something that Carpenters Group director Donna Scully emphasised during last year’s virtual Fraud Charter meetings.

A potential solution, in my opinion, lies in transparent communication. As Boris rallies Brits to work together to beat the virus, so too should insurance companies rally their customers to help stamp out fraud, explaining how a reduction in fraud can impact on premiums.

Equally, more customer education wouldn’t be a bad thing either – many consumers may not even know they are committing fraud when filling in applications. Plus, greater awareness should also lead to customers being more vigilant and reporting any instances of potential fraud they may come across.

Amid this pandemic recession, insurers and brokers should also increase communications to customers around support measures, adopting an open-door policy, so to speak. Hopefully, a step such as this can nip in the bud any lurking thoughts of opportunistic fraud because customers know their insurance providers are on their side and offering useful aids to help mitigate any financial stress.

For example, pledges made by ABI members around home and motor insurance have been extended until 19 March 2021 rather than ending in December as originally planned – I’m sure many insurers will be promoting this to their customers already.

Granted, fraud is a complex beast and looking at recession-driven fraud is only one facet. However, as we continue to share the ‘be kind’ mantra, it all seems inexplicably linked - tackling fraud resulting from financial hardship will no doubt be on insurers’ agendas this year.