Earlier this week the City of London Police’s Insurance Fraud Enforcement Department (IFED) exposed the attempt at a fraudulent claim by a footballer who purchased an insurance policy minutes after his vehicle crashed into three parked cars. The 25-year-old sportsman, who has played internationally, was given a 12-month community order to do 60 hours of unpaid work and instructed to pay over £3,500 to the owners of the parked vehicles.
It’s hardly the first claim of its kind seen by the IFED, which recently celebrated a decade in operation, nor indeed is it the most egregious. What the case does, however, is shine a spotlight on a serious crime that has marked implications for every stakeholder across the insurance ecosystem. A report from the Association of British Insurers (ABI) revealed that the value of the average fraudulent insurance claim hit £12,000 in 2020, with 96,000 fraudulent claims detected that year.
Despite the statistics, thought leadership and media attention generated by these fraudulent acts, there remain several key misconceptions about what insurance fraud actually is and how it impacts the economic homeostasis of a country.
Perhaps the most pressing of these is the lingering idea that insurance fraudsters are not actually criminals, and that insurance fraud does not harm anyone. In a feature published in Insurance Business UK, a founding partner of Edmonds Marshall McMahon, the first and only specialist private prosecution law firm in the UK, corroborated this concern and highlighted that this kind of fraud is often seen as a victimless crime as “people down on their luck can see it as attacking a faceless corporation”.
But as emphasised by the ABI, the seriousness of this crime is reflected in the severe consequences that apprehended fraudsters can face – these are not limited to punitive fines and potential imprisonment but include impacts on future job prospects and the ability to obtain insurance and other financial services.
Insurance fraud does not consign itself to the remit of the individual, it is often used to fund the nefarious activities of criminal gangs linked to organised crime such as drug dealing, human trafficking or terrorism. It was with this in mind that Detective Chief Inspector (DCI) Edelle Michaels, who was appointed head of the IFED in July 2020, highlighted the need for the task force to identify more proactive opportunities to fight insurance fraud.
“A lot of our investigations tend to be very reactive but there are opportunities to be proactive and do some covert work to maybe target the main players rather than the low-hanging fruit,” she said, “and, as a result, disrupt those organised crime groups that are obviously prevalent in this sector.”
As to the assertion that insurance fraud does not harm anybody, one only needs to consider the resources that insurance companies have dedicated to investigating suspected fraud activity. The time, energy and finances it takes to differentiate a fraudulent claim from an honest one would be much better spent on creating a more positive claims experience for honest customers. In addition, scam-for-cash techniques in the automotive space can put the lives of innocent people at stake.
The resources dedicated to insurance fraud also leads to higher premiums for honest customers. In 2020, Allianz UK revealed it had saved £65.2 million due to fraud detecting techniques while Sedgwick’s claims fraud strategy resulted in £35.2 million in savings.
According to the Insurance Fraud Bureau, currently one insurance scam takes place each minute in the UK costing the economy over £3 billion a year. But, critical as they are, the bottom-line financials associated with insurance fraud are not the last word in the matter. Insurance fraud is a reputational hazard for the insurance industry which shakes trust in the ability of the market to differentiate honest customers from opportunistic criminals. It’s a criminal activity that harms countless individuals and it cannot be left only to insurance companies to mitigate. Every entity in the insurance ecosystem has a part to play – and it’s time for everybody to hit their mark.