Steve Gaywood: Cost of living crisis sees insurance customers ‘game the system’ and turn to fraud

Financially stressed customers feeling the pressure of the UK’s cost of living crisis may be tempted to “game the system” and commit insurance fraud to recoup costs – however this will only lead to “a false economy” that will “end up costing the policyholder far more than if they had been honest from the start”, according to Steve Gaywood, head of counter fraud at home and car insurer Policy Expert.

A June 2022 article published by the Office for National Statistics (ONS) – entitled Worries about the rising costs of living, Great Britain: April to May 2022 – found that 77% of surveyed adults over the age of 16 felt very or somewhat worried about the rising costs of living, while 88% confirmed that their living costs had definitely increased.

Around 68% of respondents who were worried about rising living costs and who had seen their living costs increase noted that they were now spending less on non-essential goods and services.

Half (50%) of surveyed adults that were worried about the rising cost of living added that they felt these fears nearly every day.

As a result of this widespread financial strain and stress, Gaywood believes that insurance customers could turn to fraud as a solution, seeking to “cut corners” to preserve their monies.

He told Insurance Times: “When it comes to motor insurance, application fraud might seem like a relatively minor misdemeanour compared to submitting an erroneous claim, but it remains a criminal offence and one that increases the premiums for genuine policyholders.

“With the cost of living crisis continuing to bite, it is a sign of the pressure on household budgets that people might identify insurance as something they can cut corners with compared to putting food on the table.

“However, trying to game the system is a false economy as, once the fraud is inevitably uncovered, it will end up costing the policyholder far more than if they had been honest from the start.”

Huge problems on the horizon

Alongside the fraud threats posed by the cost of living crisis, Gaywood identified ghost broking as an ongoing “huge problem”, in particular “where young and vulnerable customers – who are more likely to have costly crashes – are targeted with policies that aren’t worth the paper they are written on”.

He also circled “the continued rise in use of e-scooters” as a fraud risk that is “likely to cause a headache for insurers given the legal grey area they operate within and the ease with which accidents can be staged or contrived”.

This view is supported by Insurance Times’ Fraud Charter roundtable attendees. At the last meeting in May 2022, senior fraud professionals confirmed that staged e-scooter accidents were “already happening”.

For example, the Motor Insurers’ Bureau’s anti-fraud claims integrity controller John Reynolds said the organisation was increasingly seeing “questionable [personal injury] claims on e-scooters.”

Laura Horrocks, director and head of fraud technology and intelligence at Sedgwick, also agreed that crash for cash scams were moving further into micromobility. She said: “E-scooters will replace moped activity because it will be very easy to get an injury, [for example,] a broken wrist.”

Although e-scooters being used as part of the government’s nationwide trials are permitted on public roads, rules around the use and insurance requirements for privately owned e-scooters have yet to be determined, meaning they currently cannot be ridden in public places.

This contrast between public and private e-scooter usage has caused confusion among some consumers, providing a potential gap for fraudsters to exploit.

Eliminating fraud, not passing the buck

For Gaywood, Policy Expert has many tools that it utilises in a bid to minimise fraud.

Firstly, this includes the firm being a member of not-for-profit organisation the Insurance Fraud Bureau (IFB). Gaywood became affiliated with the IFB when it launched in 2006, while Policy Expert - which is owned by QMetric Group - became a member in May 2021. 

“The importance of our Insurance Fraud Bureau membership has never been greater,” Gaywood said.

“By continuing to work in tandem with the IFB and other insurers, we can enhance efforts to stop more fraud in its tracks instead of moving it on to [an] insurer with weaker controls – an unfortunate reality that still exists in our industry in 2022.”

The company also reviews “false positives” and uses “proprietary algorithms to spot erroneous activity”.

Gaywood explained: “At Policy Expert, we dedicate significant resources to tackling fraud, including constantly reviewing false positives to ensure our customer experience remains seamless.

“As an industry, the general insurance sector spends hundreds of millions of pounds tackling fraud and there is still more that can be done to catch criminals.

“We use a range of proprietary algorithms to spot erroneous activity, but this is only as effective as the experts using and analysing the data - we are proud of the depth of expertise within our counter fraud team.

“We are committed to ongoing investment in a variety of counter fraud measures at Policy Expert, to ensure that honest customers are not hit in the pocket [by] the actions of those who try to bend the rules.”