When was the last time you had to make a claim on one of your insurance policies? Did you ever think, hmm – perhaps I could get a little more than I’m technically entitled to? Perhaps a friend, colleague or family member did, and told you about the time they managed to get a little back off those mean old insurers?
This kind of “minor” insurance fraud will usually result in an insurer simply declining a claim – if, of course, it is detected. While there are no hard figures around the prevalence of insurance fraud in New Zealand, the Insurance Council recently estimated the annual cost as approximately $614 million, based on global figures.
The Council says this cost is not insignificant, and may well contribute towards rising premiums for other policyholders – a possibility which drove the launch of its own fraud bureau to tackle the issue and collect some statistics in the process.
At a press conference in Wellington, ICNZ chief executive Tim Grafton outlined some of the most common patterns of insurance fraud, and the potential impact if customers could be made aware of its consequences.
“Insurers have been used to experiencing fraud for decades and decades, and there are always some tell-tale signs,” Grafton explained.
“When the latest mobile phone comes out, the number of people who suddenly have thefts and breakages of phones goes up. There is a mass of information that insurers have around common patterns – claim exaggeration, the adding on of a lost or stolen item, something that conveniently appears on Trade Me after a claim is made. These patterns are well-known to insurers, and at the hard end – when arsons occur – diligent insurance fraud investigations are undertaken.
“We want people to be aware not to go down that street, and our role is to get that message out.”
Grafton says there are a number of things which may motivate a policyholder to make a fraudulent claim, and the majority of them come down to disgruntlement with the insurer. Part of the newly-established Insurance Fraud Bureau’s (IFB) role will be to offer education on the impact of fraud, and to dispel its perception as a “victimless crime” which only slightly affects already-profitable insurers.
“I have no doubt that there is an issue around a minority of people who feel they are entitled to exaggerate their claims,” Grafton said. “The motivations can be varied – people may think they’ve been paying premiums for many years, and it’s about time they got some payback. They may have had a claim declined in the past, so they’ll try and put in another one.”
Insurance & Financial Services Ombudsman (IFSO) Karen Stevens says that of the fraudulent claims that come through her office, the majority of them will be in the motor vehicle, contents and travel spaces. She says the life and health space tends to see fewer instances of fraud – possibly due to the heavy involvement of doctors, who regularly review each claimant’s situation.
“Where you get more blatant fraud is with travel policies, where people claim for items they say have been lost, but they’ve got no proof,” Stevens said.
“We’ve had a couple of cases where we’ve asked for evidence of lost jewellery and they’ll provide internet wishlists, for example. We get contents claims where people say things have been stolen, but the receipts are not actual invoices.”
Stevens says that insurers do not tend to pursue claimants for fraud in such circumstances – they’ll simply decline, or stop paying. However, when it comes to premiums, she says both “soft” and “hard” fraud have the potential to affect premiums for other policyholders, and so claimants should stop to think twice before attempting to put in a fraudulent claim.
“We had one person claiming for a new laptop after spilling coffee, but when a technical expert looked at it, he discovered it hadn’t been used for a year,” she explained. “While some of that kind of thing is on a reasonably minor level, people should think first before trying to do something like that. That’s the flip side of the coin – from people being genuinely disappointed when claims aren’t paid, to people actively trying to mislead or deceive an organisation into paying something they’re not entitled to.
“On a common sense basis, if insurers have to pay a bunch of claims that aren’t genuine, that probably affects everyone else who pays premiums.”
When it comes to reducing fraudulent claims costs, Tim Grafton says that this does have the potential to positively impact premiums – however, given the myriad of factors that go into determining premium in the first place, this is far from a certainty.
“If we could extinguish this trend overnight, would premiums come down?” Grafton asked.
“I have no doubt it would have that effect. But at the moment, we don’t know how effective we’re going to be in terms of reducing the estimate of costs, and there are a whole lot of other factors that go into determining how premiums are set.
“What we’re doing is sending the signal that insurance fraud is not a victimless crime, you are cheating other people.”