Insurers 'struggle to keep up with fraud trends'

The fraud industry has continued to grow at such a pace that insurers are struggling to keep up with effective fraud management techniques, according to a report from commercial law firm Beachcroft.

The report, ‘Beating Insurance Fraud’, claims that despite improvements in detecting fraud, approaches can still be inconsistent and too narrow in their focus.

The report found that insurers have too many constraints in tackling fraud, while commercial fraud increases and fraudsters committing more sophisticated and elaborate schemes.

A key barrier to effective insurance fraud management was found to be an over emphasis on the claims function, and minimal resource attached to the other functions that can prevent potential fraudsters from buying a policy in the first place.

Other barriers were a ‘silo mentality’ which hampers intelligence sharing, incompatible data systems and data protection, and a lack of visible leaders and overall ownership.

The report also makes some key recommendations to insurers, the wider industry, and Government for improvement on managing insurance fraud.

Lorraine Carolan, head of the claims validation team at Beachcroft, said: “What a fraud management strategy looks like in practice can vary greatly from one organisation to another and sometimes the strategy even varies within the same organisation. Pressure on insurers to place an over emphasis on the claims function is particularly hampering the industry.

“This focus on claims stops insurers looking at fraud as a wider business issue and will continue to hold the industry back from looking at how to prevent fraud in the first place, and how to look at other serious internal and external risks, such as employee fraud. Some companies do embed resource in every part of the supply chain but there is a need for this approach to be more pervasive.”

Ben Daniels, partner and head of civil fraud and asset recovery at Beachcroft added, “A significant and simple change to the way that fraud is managed within an insurance company would be to develop one single fraud entity – a ‘Fraud Hub’.

“Many insurers adhere to this approach, but too many still don’t. This entity enables the organisation to ring fence the crucial task of intelligence collection, management, and distribution so that those involved are allowed to focus purely on all types of fraud encountered by the organisation.

“In addition, the complex and central issue of data sharing should be taken on by Government. I would welcome the introduction of legislation that sets out common standards for the entire financial services industry and ensures that everyone has intelligence on fraudsters operating right across all sectors of financial services. Such a precedent exists in Canada and the UK could learn a great deal from the Canadian approach.”

Scott Clayton, claims fraud and investigations manager at Zurich, said:: “Insurers have made huge advances in fraud prevention over the last ten years but it is an ongoing challenge to keep up with advances in claims. We are always looking at new ways and techniques, because that is exactly what the fraudsters are doing.”

Some of the recommended changes that insurers should consider were:

* Develop a single ‘fraud hub’ and dedicated fraud intelligence unit

* Incentivise to promote effective fraud management

* Factor fraud risk into product pricing models

* Improve working relations with the police and legal authorities

* Agree what constitutes zero tolerance

In addition to this:

Government needs to legislate to promote a single insurance fraud database:

The wider industry needs to involve the Insurance Fraud Bureau (IFB) more directly as guardians of a single database and engage the wider financial services sector in data sharing, and engage the wider financial services sector in data sharing.