Fraud costs the insurance industry billions of pounds a year and costs honest policyholders dear, adding around £50 a year to the average household bill according to the Association of British Insurers (ABI).
Despite the efforts by insurers to identify and restrict fraudulent activity, it is a growing problem and I’m not referring to organised criminals who operate “crash for cash” scams and the like. A recent survey by one of the industry’s trade magazines showed that 64% of respondents believe that it has become socially acceptable to submit fraudulent claims while a staggering 81% believe that most people think it is acceptable to exaggerate insurance claims.
Exaggerated claims account for around 80% of insurance fraud. The most common type of fraud in the household insurance market is believed to be exaggerating the value of a claim after a burglary, by “upping” a claim for higher-value goods than were stolen or making completely false claims for non-existent items.
The government has weighed in, setting up a taskforce aimed at radically cutting insurance fraud by coming up with proposals to tackle claimants who believe insurance fraud is “fair game” and a legitimate way to make some money. The group is also reviewing the extent to which existing practices of those involved in the claims process are failing to deter fraud in addition to identifying where the legal or regulatory framework needs to be strengthened.
Made up of members from industry and consumer bodies as well as the Insurance Fraud Bureau and Financial Ombudsman Service, the taskforce has just issued an interim report.
One perhaps not so startling conclusion is that the perception of insurance fraud being acceptable is being driven by the negative view the public has of the industry. However it also believes that consumers take the view that corruption is now widespread through society and so they would be foolish to be honest when the chances of being caught are low.
The taskforce aims to build on consumer understanding of insurance fraud and reinvent the way the industry communicates with its customers. At the same time, it plans to review whether the courts have sufficient powers to deal with cases relating to spurious claims, and whether the legal process adequately supports full investigation of claims. A final report with recommendations will be produced by the end of the year.
Insurers are increasingly taking a zero tolerance approach and it’s clear that this taskforce is intent on stamping out fraud.
I’ve no doubt that the vast majority of an intermediary’s clients are honest, but it might be worth highlighting the actions being proposed and reminding clients that being creative on an insurance application form or bumping up a claim could cost more than being honest. Insurance fraud is a crime under the Fraud Act and if someone is found guilty they could find themselves with a criminal record, out of pocket and barred from buying insurance. Fraud just isn’t worth it.