Fighting insurance fraud

Posted: 29 October 2020

The scale of the fraud problem facing the insurance industry is clear in the most recent annual figures from the Association of British Insurers (ABI). These revealed that 107,000 fraudulent insurance claims were discovered in 2019, costing £1.2bn.1 Whilst these are sobering statistics, the positive news is the high rate of detection, increasingly driven by insurers’ own tools and technologies. 

Certain triggers may be enough to raise suspicions of fraudulent activity for insurance companies. These could include inconsistent reports of an event, a history of similar incidents, or the absence of a contemporaneous report of accident or injury. Of course, these may be innocent in nature but it’s the job of the claims validation team (CVT) and/or fraud investigation team to investigate all information thoroughly. Intelligence, data mining and claims analysis all help to identify trends and links between claims and highlight anything which looks amiss. 

Machine learning and Artificial Intelligence (AI) are increasingly being used to speed up manual, complex analysis of claims. Until recently, their use was more widespread in personal lines but we’re now seeing application in commercial lines. AI and machine learning make use of algorithms to cross-reference huge amounts of data points at speed, identifying anomalous patterns and trends. It’s hoped that digital detection will result in lower costs to insurers which in turn could be passed on to customers in the form of lower premiums.

Over time anti-fraud infrastructure has developed significantly with the setting up of various counter fraud initiatives. One such example is the Insurance Fraud Bureau (IFB), established in 2006 as an industry response to organised fraud. Today, over 98% of the general insurance market holds IFB membership. 

The Insurance Fraud Bureau (IFB) was established in 2006 as an industry response to organised fraud. 

Further, many insurers work closely with law enforcement, including the Insurance Fraud Enforcement Department (IFED) – a specialist police unit dedicated to tackling fraud which is funded by the ABI and Lloyds of London members. 

Data sharing is key in fighting fraud with many insurers collaborating to share information.  In 2019, the IFB launched the counter fraud intelligence sharing platform ‘IFiHub’, which 11 market-leading insurers signed up to, including Allianz. By providing a holistic view of suspicious individuals or companies, IFiHub enables trend analysis across all types of insurance fraud at a national and local level.

Cars in traffice queue

It’s hoped the Whiplash Reforms, now scheduled for implementation in April 2021, will assist in reducing the volume of fraudulent whiplash claims, through raising the small claims limit on road traffic accident injury compensation and introducing a fixed tariff of damages that a court can award for pain and loss of amenity. However, there are concerns that insurers could see a surge in motor claims in the run up to the reforms. 

Fraudsters are innovative and adaptable, but the insurance industry can be confident it has the tools and techniques necessary in order to stay a step ahead of the criminals in the fight against fraud.

Keith Gregory

Fraud Specialist

Allianz Insurance plc

1 Association of British Insurers. Detected Insurance Fraud – new data shows that every five minutes a fraudulent claim is discovered. 07.09.2020

This article is part of the BIBA Broker Guide to the Insurance Fraud Landscape (October 2020).