How to combat insurance fraudsters

With the coronavirus pandemic sparking a sudden rise in fraud, as criminals and opportunists exploit the crisis, insurers are finding evermore sophisticated and collaborative ways to fight back


The coronavirus pandemic is the perfect storm for criminals. While businesses have become increasingly stretched trying to deal with the outbreak, they have dedicated less time and resources to investigating and preventing fraud.

Added to this, people who have lost their jobs or become economically disadvantaged because of the pandemic are becoming increasingly desperate. 

Enforced restrictions and delays in the criminal justice system, due to the virus, have merely compounded the problem, which is set to worsen once furlough and financial support schemes end.

“It’s an accepted fact that recession leads to an increase in insurance fraud,” says Catherine Burt, national head of counter fraud at DAC Beachcroft. “There is a very strong correlation between economic deprivation and crime, and fraud is no different.”

So it’s no surprise that global insurance fraud has almost doubled in 2020 as claims with an element of fraud leapt to 18 per cent, up from 10 per cent the previous year, according to FRISS, a fraud detection software provider.

In the UK alone, the Insurance Fraud Bureau has reported one insurance scam every minute during the pandemic. It’s a similar story in America, where insurance fraud increased 100 per cent last year to $100 billion, with more than 75 per cent of companies reporting a rise in fraud, BAE Systems Applied Intelligence research shows.

There is a very strong correlation between economic deprivation and crime, and fraud is no different

With more staff working from home, employers have found it increasingly difficult to verify accident or injury claims. And because of social distancing measures, adjusters have also been significantly restricted in their investigations.

So what can the insurance industry do to stop this surging tide of fraud? And what new technologies can they deploy during and beyond the pandemic?

A good starting point is to carry out a full risk assessment, prioritising key areas to focus on and drawing up a plan to tackle them. Rather than cutting back, at this time companies need to invest in and allocate resources to fighting fraud.

Additionally, insurers need to collaborate more by sharing data and insight between different departments, competitors and crime-fighting agencies to look for patterns of fraud. A prime example is the UK’s Insurance Fraud Intelligence Hub, launched in 2019, which enables members to view real-time data and compare it with their own intelligence, and the Insurance Fraud Register.

“The unprecedented nature of the COVID-19 pandemic means these are challenging times for insurers and their policyholders but, by working together and sharing intelligence, the insurance industry will guarantee it’s even more challenging for fraudsters,” says Allianz fraud manager James Burge. “Sharing intelligence will ensure we learn from each other and are able to close down any new rackets quickly and efficiently.”

Insurance companies also need to work more closely with governments and authorities to develop new legislation targeting fraud. A recent example of this is the whiplash insurance claim reforms, which come into force at the end of May.

“The whiplash reforms will change the fraud landscape,” says Aviva’s head of fraud Tom Gardiner. “Taking the cash and incentive off the table, the disproportionate compensation and fees associated with whiplash claims will significantly strike at the heart of fraudulent claims.”

Then there is publicly available data, such as on social media, which insurers can use to monitor a customer’s activity and behaviour. Mining this data can uncover vital evidence, for example, finding links between the different parties involved in organised crime.

Sharing intelligence will ensure we learn from each other and are able to close down any new rackets quickly and efficiently

“By deploying the proper analytical tools, you can extract and interrogate the data, and use algorithms to highlight these links,” says Zurich’s head of claims fraud Scott Clayton. “By joining all the dots, you can soon identify persistent and prolific offenders.”

Insurers are also increasingly adopting automated fraud detection technology to spot suspect claims. Artificial intelligence tools such as these can quickly adapt to new circumstances and constantly evolving and sophisticated fraud, as in the case of COVID-related scams.

“Machine learning helps to look at patterns of fraud in structured data,” says Nigel Cannings, chief technology officer at Intelligent Voice. “Using instances of previously known fraud and other available data, such as inception date, claim value, location and so on, models can be trained to help predict whether a claim might be fraudulent.”

Tracking devices and cameras are other crucial weapons in the fight against fraud. These enable insurers to gather invaluable data, for example telematics and dashcams in motor insurance. Drone technology and geospatial platforms, such as Google Earth, can also be used to assess flood damage where a property can’t easily be accessed.

Prevention tools, such as secure two-factor authentication and voice, image and fingerprint recognition, have a big part to play too. Captured data can be checked against a database of previously submitted claims to make sure there aren’t duplicate records.

“As we move towards the post-pandemic stage, we are seeing an increase in insurtech, with more innovation and startups than ever before,” says Dennis Toomey, global director of counter-fraud analytics at BAE Systems Applied Intelligence. “Implementing an enterprise-level solution with an open architecture, application programming interface-friendly platform that allows for integration of standalone technology solutions is best practice to future-proof investment.”

Education is another pivotal element. Insurers need to alert policyholders to the risks of fraud through awareness campaigns and hotlines to report offenders, while training their own staff to spot fraud and suspicious behaviour.

Similarly, as the first point of contact, brokers play a vital role in uncovering fraud. Along with claims handlers, they can look for tell-tale signs, for example if the policyholder is resistant to claims validation.

Insurers largely have a successful track record for prosecuting false claimants who perpetrate fraud. In December, two tricksters who sued a housing trust, alleging to have injured themselves by falling down an open manhole, were found guilty of contempt of court after the insurance company became suspicious and found neither man had suffered such injuries. 

So, as the pandemic unfolds, the insurance industry must be on high alert to catch an increasing number of opportunists and practised fraudsters.