Fraud thrives in a crisis – Why the insurance community needs to stay vigilant
Lloyds of London closed its underwriting room for 24 hours on Friday 13 March, forcing underwriters and insurers to work remotely in a stress test of its emergency trading protocol. This was a first of kind occurrence, but as events continue to unfold across the world, we can expect the current COVID-19 crisis to impact insurers in a number of ways.
The insurance community is bracing itself for a rise in the direct cost of claims – ranging from life insurance, to event cancellations and travel insurance – with, for example, the postponement of the Tokyo 2020 Olympics as one of the largest events for the sector to deal with.
Nick Wildgoose, formerly responsible for supply chain at Zurich Insurance, told experts on a recent podcast that the 2011 Thailand floods and the Japanese tsunami led to an approximate £300bn impact on the world economy. This begs the question, what scale of impact should we expect now?
Alongside the sad and vast expense of legitimate claims, it is an unfortunate fact that in times of economic hardship, people have a history of taking any opportunity to exploit financial institutions for ill-gotten gain. Having worked with insurers for 27 years, this is something that I’ve seen before, and insurance fraud (which is an offence punishable by law) is one of the areas likely to be high on the target list in the COVID-19 landscape.
Here are a few of lessons learned from past experiences:
- According to the Association of British Insurers (ABI), the recession of 2008 saw a total of 107,200 false insurance claims worth £730 million. This was a 17% increase compared to the previous year, when fraudulent claims totalled £560 million.
- Similar patterns were spotted elsewhere in the world - the *Florida Division of Insurance Fraud cited a 21% increase in referrals FY 2008/2009, compared to FY 2007/2008. With incomes reducing, the types of fraud in which increases were noted included vehicle insurance fraud, mortgage fraud and workers’ compensation premium fraud, alongside increases in related arson for profit occurrences.
- And at the time, a shocking fifth of people said they would not rule out making a fraudulent claim in the future.
So what can we learn from these experiences? We might not see a peak in fraudulent activity immediately, but the sector should prepare for an increase in claims and policy applications as the knock-on economic impacts of our current situation take hold.
Let’s take the example of a small business that has to temporarily stop operations. It’s possible that this firm’s business interruption insurance isn’t covered if a loss occurs as a result of a viral outbreak like Covid-19. But if the insurance coverage is misunderstood by the firm’s owners, and they are in fact relying on their policy, it’s easy to see how they might be pushed to misrepresent the facts.
In my experience, the insurance industry is extremely empathetic and has a history of looking for ways to help customers whenever possible. Customers should therefore make sure they know and understand their policy language, and work with their insurance company if they suffer a loss.
Furthermore, in an era where customer excellence is key, the insurers must also ensure they are identifying all suspicious claims, whilst paying the genuine ones quickly. Many insurance carriers are using advanced analytics and technology like NetReveal to do this. This enables investigators to segregate the suspicious, non-meritorious claims and allow the straight through processing or fast tracking of the meritorious.
Remember – fraud is not victimless. Explore NetReveal® Fraud Detection and Prevention Solutions to find out more about how BAE Systems is using the latest technology to help to protect insurers and their customers from the increasing threat of fraud and financial crime.
(Editor's Note: The article was written by Dennis Toomey; original article here. Reposted with permission.)