Fraud: one step forward, two steps back

A 16% drop in attempted insurance fraud at the application stage is not to be sniffed at. It is particularly positive in light of continuing tough economic conditions where policyholders are more likely to try to obtain cheaper insurance by omitting a few details here and there.

The figure also compares favourably to the overall 3% drop for financial services that data services provider Experian discovered in its fraud index for the second quarter of the year. The insurance industry should also count itself lucky that it is not in the banking business – application fraud for savings accounts went up by 109%.

However, the industry shouldn’t let this encouraging news make it complacent. While the percentage drop looks impressive, the raw numbers seem less so.

Experian found that 10 out of every 10,000 applications for insurance products were fraudulent in the second quarter of 2012, compared with 12 out of 10,000 in the same period last year. So, a fair amount of work remains to be done.

Further, this figure relates only to application fraud – just one of the fraud types to which the industry is exposed. Insurers have been concerned about rising application fraud, particularly because of the growth in insurance purchases through price comparison sites and other online means, which make it easier to tweak details to get a cheaper deal.

However, claims fraud remains a huge and difficult-to-detect problem. It seems policyholders are constantly finding new ways of squeezing a bit extra out of insurers.

It should also be remembered that Experian released a report in July this year titled ‘Insurers continue to count the cost of soaring fraud’. The report stated that insurance fraud topped £2.1bn in 2011, up 23% on the previous year.

Of course, rising fraud numbers can also mean that detection is improving, so it’s not all bad news. Small victories may have been won, but the war on insurance fraud rages on.