Combatting Fraud in the Insurance Industry

As part of the battle against money laundering and terrorist financing, strict regulations are imposed on the Irish Banking sector by the Central Bank of Ireland (CBI). Every customer wishing to open an account or take out a loan is required to provide, at a minimum, photographic identification, a utility bill and documentation showing their PPS number. Customers can’t avail of any products without providing this information. Better known as Know Your Customer (KYC), the CBI can impose fines and or sanctions on any bank in breach of this requirement.

How does money laundering affect the insurance industry?

At first glance money laundering may not seem a major concern for the insurance industry. However, without controls in place, insurance companies may unintentionally be providing safe passage for drug smugglers, traffickers, burglary gangs and other organised crime attempting to launder funds through fraudulent insurance claims. Can we be that confident that we are not providing insurance for any of these individuals?

Impact on the customer

It has been well documented that every motor insurance customer is paying €50 extra on their premium to pay for fraudulent claims. As the level of personal injury awards has steadily increased in Ireland, making a fraudulent claim now presents greater potential profits than ever before. A lack of convictions for committing insurance fraud has made the insurance industry a prime target, with the rewards appearing to greatly outweigh the risk of getting caught.

We need to understand that an accident is no longer seen as an unfortunate occurrence. It is now seen as an opportunity!

Balancing efficiency and control

As a number of insurers look to introduce quicker solutions for handling claims, is it important to consider the potential consequences. Faster processing of claims may increase the risk of missing anomalies and play into the fraudster’s hands.

Achieving a balance between an efficient customer experience and appropriate fraud prevention controls is a major challenge for the insurance industry. There are a number of legislative and regulatory changes that could significantly benefit insurance companies and our customers. 

  • Learning from our UK neighbours: The UK have set up a separate police force called the Insurance Fraud Enforcement Department, also known as IFED, a specialist police unit dedicated to tackling insurance fraud. Could this model be implanted in Ireland?
  • Reviewing our data protection laws: Ireland has strict data protection laws governing the sharing of information which are designed to protect consumers. However, the sharing of data between insurers would have positive effects on combatting fraud.
  • Review court awards: Court awards in Ireland are currently much higher than some of our more prudent European neighbors. The Government needs to address the high level of awards handed down by the courts to make them less attractive to fraudsters.
  • A common regulated approach to applications: Is it time to regulate insurance companies in the same way as banks are regulated? A standard regulated approach to insurance applications would eliminate concerns that any one insurer could gain an advantage by taking a lower risk based approach. I believe it would provide a greater level of confidence and comfort that our new customers are who they say they are.

Tackling Application Fraud - What can we do?

In 2015 RSA implemented an Application Fraud department with the purpose of stopping the fraudster at the door. Application Fraud is when a policyholder misrepresents or fails to disclose material facts in order to lower their insurance premium. This can include non-disclosure of claims history, points on a driving licence, or providing an incorrect date of birth among other examples.

Our objective is to reduce the number of fraudulent claims and to stop re-offenders from coming in the back door through a different channel.

We have completed detailed data analytics exercises in order to understand the problems we face. This has resulted in the phased implementation of new fraud prevention processes and controls including:

  • The collection of the driving licence in all channels
  • A system to alert us to new business cases that we will want to investigate prior to onboarding
  • A reporting structure to assist in identifying individuals with multiple policies
  • Continuous trend analysis e.g. increase in claims cases outside the acceptable average
  • EDI quality check sheet
  • Utilisation of Motor IIDS – NCD & penalty points data
  • Data enrichment solutions
  • Reporting to identify unusually high cancellation rates for a particular broker
  • Broker fraud CPD sessions

What can you do?

The fight against insurance fraud requires a collaborative approach between all stakeholders.

  • Trust your instincts - If something doesn’t look or sound right it probably isn’t
  • Report your suspicions about a possible fraud to us and/or to the relevant bodies as soon as possible
  • Get as much as information as possible
  • Educate your customers to be aware of fraud and to report it, but make sure not to tip off the wrong person

Remember – the vast majority of our customers are genuine so we need to ensure we do not become too restrictive in our approach to be safe.