Briefing: Can insurance fraud prevention be measured?

By Editor Katie Scott

Fraud is very often considered to be the bane of the insurance industry, bumping up genuine policyholder premiums and generally causing headaches for insurers and brokers.

However, successfully proving that implemented fraud prevention tactics have actually paid dividends can also be tricky, according to Jeffrey Skelton, insurance managing director for UK and Ireland at LexisNexis Risk Solutions, who I caught up with this month when Skelton visited London from his home in Nottingham.

Chatting about the Official Injury Claim (OIC) portal’s lofty ambition to slash whiplash injury claims fraud, Skelton told me: “Fraud is impossible to prove that you’ve prevented it.

“If you are selling fraud solutions or you make a change in regulation, you say: ‘yeah, we’ve stopped fraud’. [But] how do you know? You can’t make a connection to what you didn’t do. It’s really, really hard. Soft tissue injuries are the easiest to claim and the hardest to disprove.”

In his opinion, fraud prevention measures can – in some cases – simply work to “move the fraud to a different type of behaviour”.

“Are we stopping fraud or is it moving around the marketplace?” he asked.

“I don’t think you’ll ever have a foolproof way of stopping fraud because insurance companies are targets. They’re viewed as a big pot of money,” Skelton continued. “Where there’s a big pot of money, there’s an opportunity to steal.”

Source of income

Let’s face it – post-pandemic inflation has not helped the situation around fraud either.

A research briefing published by the House of Commons on 14 April 2022, titled Rising cost of living in the UK, found that consumer prices – based on the Consumer Prices Index (CPI) – were 7% higher in March 2022 compared to March 2021.

The briefing noted that inflation is set to peak at around 9% by the end of this year, while domestic electricity and gas prices have increased by 19% and 28% respectively between March 2021 and March 2022.

The Office for Budget Responsibility, quoted within the briefing, had little optimism either. It predicted that post-tax household incomes started to fall back in Q2 this year, however it believes these will not recover until Q3 2024.

This landscape provides fertile ground for insurance fraud – particularly application fraud, a seemingly victimless crime in the eye of the potential policyholder.

Skelton agreed that “detection of fraud is going to have to get better” across the industry because an economic backdrop such as the one the UK is facing today makes fraud an increasingly attractive “source of income”.

“We have found a bunch of attributes that are clear indicators of manipulation, [such as new email addresses], and it ties back to increased costs. People are smart when it comes to managing their personal lives – they will sort out the best way to get what they need, just like fraud always finds a way in,” Skelton said.

“As soon as one insurance company tightens up its fraud measures, [fraudsters] just go to another insurance company. They figure out the rules and then they play those rules. Water runs downhill. You can’t stop that from happening.

“Fraud rings will become more prevalent. Personal injury lawyers will be hopping right into the mix of that.”

Proof is in the pudding?

In a bid to address Skelton’s point about fraud prevention being difficult to measure, I turned to Insurance Times’ annual Claims Excellence Awards backlog.

One popular category featured every year is Fraud Solution of the Year – our upcoming 2022 event has an impressive six finalists shortlisted for this award, while 2021’s winner was law firm Horwich Farrelly.

An important part of the entry process – and something the judges always look at – is whether firms have the data and metrics to prove that their solution is successful in tackling fraud.

Horwich Farrelly’s entry, for example, centred around its online counter-fraud platform Holt, which aims to automatically assess whether insurers should challenge claims.

The firm’s submitted metrics, clocked up since Holt’s launch in 2019, include the following:

• Triaged over 6,500 claims.
• Saved £6m, with expected savings of £18m.
• Increased fraud identification for all insurers and by as much as 500% for one large insurer.
• Reduced litigation rates for all insurers and by as much as 50% for most.
• Reduced claim processing time from around 30 minutes to 30 seconds.
• Removed litigation leakage, with one insurer seeing a reduction in leakage from 23% to nil.

Another 2021 finalist, SBS, entered its artificial intelligence bot into the Fraud Solution of the Year category. This proposition aims to identify claims fraud and exaggeration.

SBS detailed its success metrics as:

• Claim fraud identification increased to 11.3%.
• Withdrawal rates increased by 24%.
• Genuine claimant Net Promoter Score >80.

Although these entries both put some numbers against the firms’ fraud prevention claims, the only common factor between the data seems to be fraud identification. And to Skelton’s point, if fraud remains unidentified, how do we know if it is, in fact, being solved and prevented?

This year’s Claims Excellence Awards are on 26 May 2022 – let’s see how this year’s finalists demonstrate their solutions’ success. Against the UK’s post-pandemic, inflation-ridden landscape, fraud identification must be an industry-wide priority as fraud rings look to make easy cash from a sector trying to support insureds in genuine distress.