Covid-19 boosts opportunistic insurance fraud, says BAE Systems

As the UK is gripped by the ongoing march of the Covid-19 outbreak, BAE Systems Applied Intelligence’s counter fraud director predicts that the nation’s laser-like focus on public health, safety and hygiene will leave the insurance industry open to opportunistic fraud.

Chris Andrew, director, counter fraud at the business and consulting firm explained: “Bread and butter fraud is still occurring, but at the moment the likelihood for those claims to be processed or applications to be processed or accepted is greater because there’s going to be arguably less scrutiny; that’s not through the lack of willingness on behalf of the brokers or insurers, but there [may] be less scrutiny applied to their ability to validate some of that and stuff will slip through the net.

“[Insurers are] not able to validate claims to the same degree of accuracy and validity as they normally would. That just creates an opportunity for people.”

If attention to detail around fraud detection slides, Andrew believes this is linked to the sheer volume of claims and applications that insurers are having to deal with as global governments attempt to curb the spread of coronavirus.

He said: “If you look at Money Saving Expert, for example, there is a note within their website about people wanting to make a claim for travel interruption, curtailment, [or] cancellation and [if] their travel isn’t in the next week, then they’re asking them not to contact them to register their claim or make a query because they’re just inundated dealing with customer issues and claims.

“In that environment, some of those insurers aren’t doing any detection in real-time, and especially [because of] business continuity plans, it’s going to become more manually focused, creating opportunities for fraudsters.

“If somebody takes an opportunity and is successful, the likelihood of them doing it again is greatly increased. Opportunistic fraud will increase in the current climate.”

Evolution of fraud

However, Andrew further noted that fraud is no longer just the remit of organised criminals – he observed that these unprecedented times are causing some individuals to resort to desperate, and illegal, measures.

“Those fraudsters aren’t typically the profile of people who would normally look at committing fraud,” he explained.

“By virtue of the situation we find ourselves in, whereby people are unfortunately losing their jobs [and] more businesses are going out of business, people are taking opportunities to exploit loopholes in business continuity plans of financial systems for their own personal benefit.

“The profile of a fraudster will evolve because it won’t just cater for typical behaviours.

”We’ll probably start seeing some different behaviours in terms of how fraud presents itself and the channel in which it presents itself.”

Andrew added that opportunistic fraud is also the hardest type of fraud to detect – especially for property and home claims, where the wealth of information that motor insurers have access to isn’t available.

“The information you get is reasonably thin as opposed to all the relevant parties and connections associated with motor claims,” he said.

Secure systems

There is also the potential issue of insurance staff being required to work from home and ensuring that they can still access the necessary business systems as securely as possible.

Andrew added: “[Insurers are] having to deal with catering for a broader IT infrastructure to support people not working in an office environment.

”I think therein lies just one challenge in terms of how do insurance employees work from home, have secure access to the same systems to do their job, but also make sure that they fulfil and meet customer requirements and expectations in terms of queries and claims.

“You’ve got a far more fragile business infrastructure to support customer demand and arguably, you’ve got claims handlers trying to validate claims in the same way, in the same time frames who don’t necessarily have the correct access to all their systems and not all of that is possibly secure.”

And, with the number of claims increasing but employees potentially self-isolating due to illness, Andrew continued that insurers are still going to need a robust headcount to cope with customer demand while dealing with increased fraud investigations – this will be a tricky balance for many firms.

“Over the period of the next few months, [insurers are] obviously going to see an uptake in the number of claims and by default, you’d see an uplift in the number of cases they’re identifying as suspicious and requiring a level of investigation. So, that’s going to consume more headcount to fulfil that validation,” he said.

Fraud on the up

Alongside opportunistic fraud, Andrew said that application fraud is also increasing, despite the perpetrators often not realising they are committing an offence. Usually a faceless crime, this is when individuals manipulate quotes online, commonly using aggregator sites, to misrepresent their risks in order to drive a cheaper premium price.

Ghost broking is still a trend, as is identity fraud, where a fraudster will hijack a person’s details in order to obtain insurance for a vehicle, for example.

Andrew added that whiplash or bodily injury claims, crash for cash cases or staged or induced accidents are very much a managed risk for UK insurers now.

Future focus

Once the coronavirus pandemic has settled, Andrew said that insurers and brokers will need to re-evaluate how effective their business continuity plans were, especially in terms of underwriting, new business and claims.

This should include looking at how quickly they evolved their perception of fraudsters and associated fraudulent, opportunistic behaviour to be as near to real-time as possible.

“There are a number of contributing factors here which are creating more opportunities for not even the organised fraudsters, people who wouldn’t normally look at committing fraud to actually take a chance,” he said.