Cost of fraud set to ‘snowball’ in 2023

The poor state of the global economy at the end of 2022 was no secret - but as 2023 gets underway, Brits face continued predictions of a recession.

A report by Allianz Trade – published on 2 January 2023 – estimated that the UK economy would follow global trends and sink into a recession during 2023.

The trade credit insurer highlighted myriad factors contributing to this prediction, including tighter financing conditions, higher inflation, increased energy bills and poor consumer confidence.

One potential result of this perfect storm of difficult economic conditions is an increase in opportunistic fraud, which means that the insurance industry will need to stay alert.

Speaking at Insurance Times’ Fraud Charter roundtable event in December 2022, sponsored by Carpenters Group, senior fraud experts warned that “fraud is going to snowball in 2023”.

Attendees predicted that the frequency and value of fraudulent claims could increase as turbulent financial times continue to impact consumers.

Donna Scully, director at Carpenters Group, told delegates: “Opportunistic fraud, which is what we’d expect in this space where individuals are not quite able to manage [financially], was up 14% in 2021 and we don’t yet have the stats for 2022.

“That was in motor and home claims. For 2023, this is definitely something that has to be top of the agenda.”

Prior data

Predictions that consumers will turn towards opportunistic fraud in increasing numbers as the UK economy deteriorates are not based on simple conjecture.

Mark Allen, chief fraud and financial crime manager at the ABI, told Insurance Times: “What we know is that every time there has been an economic recession over the past 40 years, that has been followed by an increase in fraudulent claims - our own detected fraud statistics at the ABI bear that out.”

Ben Fletcher, director of financial crime at LV=, echoed this view. He explained: “There is never a direct comparison, but the jump in fraud the industry saw in 2008 [and] 2009 was a 30% jump by volume and a 33% jump by value – and it feels worse [now] that it did in 2008.”

Fletcher said that this rise in fraud could be partially attributed to an increase in one point of the “fraud triangle”.

He explained: “The basic fraud triangle methodology says that in order to commit fraud, you have to have an opportunity, a motive and be able to rationalise it. The ability for people to rationalise fraud is going to be a very different scenario in 2023 than it has been for the last few years.”

Fraud vectors

An increase in opportunistic fraud – where consumers take advantage of a legitimate situation to inflate or fabricate insurance claims – can already be seen across a number of vectors.

For example, David Royal, policy and claims fraud manager at Aviva, said the insurer was “definitely seeing some steady growth in opportunistic fraud in the personal property and household space – particularly accidental loss claims [for] mobiles and laptops”.

Royal added that escape of water and windstorm claims had also spiked over the last four months of 2022, alongside growth in household theft claims.

Fletcher continued that LV= had seen “persistent and consistent growth in most of the opportunistic fraud types”. He added: “We’ve also seen it in application fraud and quote manipulation continues to trend in that space as well – so the early indications are there.”

Laura Horrocks, head of fraud technology and intelligence at Sedgwick, noted that her firm had “seen the same in terms of the volume of opportunistic fraud and certainly in accidental damage”.

She explained: “Recently – more over the past eight weeks or so – we’ve seen lots of losses and thefts abroad.

“People are taking the opportunity while they are out of the country to suddenly ‘lose’ a diamond ring or a Rolex watch that they had with them.

“So, not only [has] the volume of individual claims increased, but we’re seeing individual claims over £10,000 – and it’s so difficult to challenge whether someone has lost a ring or not, especially when we know that they’ve owned the item.”

While opportunistic fraud has, therefore, reportedly increased in personal lines, Horrocks added that she had concerns about struggling businesses turning to fraud too.

She said: “In pubs and restaurants, in particular, the cost of living means that people aren’t going out and haven’t got as much disposable income – [these businesses are] already trying to recover after Covid and the increased energy bills that they’re having to pay, so some of these places were on the brink anyway.

“December is going to be masked slightly because there’s natural, additional business over the Christmas period, but in January, we are going to see a significant spike in escape of water claims in those commercial spaces.”