Fraud Charter: Prevention measures

At our last Fraud Charter, delegates said they wanted to learn more about other industries’ tactics.

So we invited former fraudster Tony Sales, who now advises retailers and banks on combating fraud, to tell us how he cracked retailers’ fraud barriers.

Fico also provided valuable intelligence on the banking and finance industries, while insights from Insurance Fraud Bureau director Ben Fletcher pointed to the need for industry collaboration.

• What can insurers learn about fraud from banking and finance?
• What is being done to fight ghost broking?
• Are industries involved in fraud working together to share data?
• Does the insurance industry have enough intelligence to fight fraud?
• Delegate feedback

The agenda

1. Are the deterrents and penalties for insurance fraud strong enough?

Fraud Charter members heard the inner-workings of a fraud ring from notorious UK conman Tony Sales.

Sales was jailed for 12 months after he was caught defrauding retailers out of an estimated £30m through fake credit cards, store cards and personal finance schemes. He now works to help firms tackle their vulnerabilities.

“The fatal flaw is that all loss prevention is run by decent, hard-working people,” he said.

When asked whether anything could have deterred him from pursuing a career in fraud, he said: longer prison sentences.
“I thought: ‘One day I’m going to get caught’, but what’s the worst that can happen – a maximum of three years?

“If someone gets caught selling 2kg of cocaine they’re going to get 20 years. The rewards are far greater as a fraudster, with fewer penalties.”

2. What can insurers learn about fraud from banking and finance?

One of the main problems with the insurance industry’s approach to tackling fraud is too much focus on claims rather than application fraud, according to Fico principal consultant Martin Warwick.

“A tough-on-fraud stance usually means you’ll upset some of your customers … But if you can stop fraud coming in the door, most of it migrates elsewhere,” he said. “The banking world has been doing real-time, first-party fraud detection since 2009, which drove out £170m of fraud in that first year alone.”

Focusing on claims rather than application fraud means that once a customer is in the door, they are likely to be cross-sold other products, adding to a web of fraud.

LV= head of financial crime Sue Jones said: “Speaking to banks is so important –- they have data highly indicative of insurance fraud taking place.”

3. What is being done to fight ghost broking?

Rising insurance premiums, police crack-downs on uninsured drivers and the trend towards consumers buying online has led to a boom in ghost brokers - illegal insurance intermediaries.

Insurance Fraud Bureau (IFB) director Ben Fletcher said the problem has been increasing over the past 18 months, but inroads were being made. “Two years ago, we didn’t have any [ghost broking] investigations; now it’s about 20% of our portfolio,” he said.

He said the IFB is working with Biba and brokers and has developed an application fraud model to stamp out the problem. “We recognise we need to engage better with brokers … There are 3,000 in the UK and they may have information of interest to us.”

The IFB has also teamed up with the Insurance Fraud Enforcement Department and the ABI to raise awareness about ghost broking.

4. Are industries involved in fraud working together to share data?

Insurers, lawyers, loss adjusters, brokers, technology providers and the government are all fighting fraud, but there is a growing call for greater cross-industry collaboration.

Keoghs director of fraud rings Ruth Needham said: “It’s quite disappointing that lawyers might know something about Mr Smith, but an insurer has not got that same information.”

Autonet Insurance head of compliance Mike Smith said the broking community did not share data at all. “We haven’t got together and worked out how we can share data to help fight fraud,” he said.

But Fico insurance fraud manager Russ Schrieber said insurers need to sort out their own internal systems first. “I’ve seen insurers that are not sharing data between multiple lines of business,” he said, “so even internally they can’t get a complete picture to identify reoffending fraudsters.”

5. Does the insurance industry have enough intelligence to fight fraud?

Having access to vast amounts of data is one thing; having intelligence about what is happening on the street is another thing altogether, Fraud Charter members agreed.

Zurich claims fraud and investigations manager Scott Clayton said: “I’m convinced some of the biggest fraud rings are so sophisticated that there’s no data on them at all.”

GAB Robins counter-fraud and investigation manager Neil Daniel agreed. “Do we have the intelligence to know whether we’re even tackling the top tier of fraud?”

The IFB said it had made progress gaining intelligence to make arrests. But Keoghs director of fraud rings Ruth Needham said even if the police are given tip-offs, the insurance industry can’t force them to follow up. “We’ve had incredibly good intelligence and gone to the police, then a murder happens, so our case gets pushed back,” she said.