Fraud on the rise as credit crunch bites

The number of potentially fraudulent claims being investigated has increased significantly since the start of the credit crunch, and the trend is likely to continue, according to loss adjuster Cunningham Lindsey.

In personal lines, the number of enquiries into high-risk claims has increased by 10% since January 2008; in commercial lines high-risk claims have increased by by 15%, with a 35% increase in creditor insurance insurance.

The credit crunch is a key contributory factor to this increase, however it is not the sole reason, according to Chris Aplin, special investigations (SI) product and client development director at Cunningham Lindsey.

“The marketplace is generally getting better at recognising if a claim is high risk and this is an additional reason for the rise in investigations. With the crackdown by the FSA and the formation of the Insurance Fraud Bureau to tackle the problem, there is also an increasingly strong regulatory drive to identify potentially false claims,” said Aplin.

The term high-risk claim is difficult to define but it can be explained, in principle, as a claim that doesn’t 'add up', that is statistically unusual or has indicators of concern, says Aplin.

Aplin: “The industry needs to continue with its coordinated response to fighting fraud and to continue investment in developing screening and investigation methods. Most incidents have a financial motive, particularly with people’s outgoings rising, the temptation is stronger to commit fraud and therefore the industry needs to be aware of what to look out for in a claim.

“Any staff handling claims need to be aware of the current situation and be able to spot the signs of a high-risk claim, and businesses must have effective processes in place to follow this through.”

The rise in the number of creditor insurance claims investigated is higher than in personal lines and commercial, said Asplin. “This difference could be due to the fact that creditor was typically the most profitable aspect of an insurer’s business and it was therefore deemed unnecessary to investigate any claims. In the current economic climate, this is changing.

“The slight difference between the increase in commercial lines and personal lines claims investigations suggests that there is more motivation to commit fraud in the former, with claims tending to offer high return.

“In terms of personal lines, we predict that fraud will manifest itself in the same way as before the credit crunch, but we will see the proportion of high-risk claims rise further.”