First published in ITIJ 96, January 2009
Andy Juggins, vice president of travel for AIG UK, details some of the issues the company is facing as a result of the credit crunch
Faking their own deaths, claiming for accidents that didn’t happen, and claiming for holiday illnesses when they never went abroad are just some of the more outlandish things people do to try and defraud insurance companies. It’s easy to just shrug this off as ‘something that happens’, but the sad fact is that insurance fraud is not a victimless crime as sooner or later fraudulent claims lead to increased prices for everyone.
Unfortunately, there have already been reports of a rise in travel insurance fraud since the start of the global economic downturn; so what can insurers do to better protect themselves, and what are some of the clues that give fraudsters away?
A survey by the UK’s Association of British Insurers (ABI) found that seven per cent of people admitted to having made a fraudulent claim, and nearly half (48 per cent) would not rule out making such a claim in future. Forty per cent saw exaggerating an insurance claim as acceptable or borderline, with 29 per cent feeling the same about making up an insurance claim altogether. And when there’s a credit crunch, people are more stretched financially and are thus increasingly likely to see insurance companies as fair game – whether they want a new carpet or holiday spending money.
The ABI says that attempted insurance fraud is up 80 per cent as the economic outlook worsens. People routinely claim for valuables they have not lost, inflate the value of genuine claims and even trick doctors into issuing medical certificates so that they can cancel a booked holiday, when the real reason for cancellation is that they can no longer afford it. The ‘bad back’ is one such common ‘condition’ that is difficult to diagnose.
"The ABI says that attempted insurance fraud is up 80 per cent as the economic outlook worsens"
Holiday insurance is particularly affected by false claims, and it is interesting to look at cases of uncovered fraud to learn about the techniques people use to attempt to deceive insurers, and to uncover any patterns in such behaviour. Here are some examples of cases AIG Group has dealt with in recent times:
* A ghost mugging in the US
An insured traveller presented a claim for the accidental loss of vision in one eye due to a mugging that occurred outside a hotel whilst on holiday. The scene investigation revealed that the hotel had hidden security cameras covering the area where the mugging allegedly took place, yet the security tapes revealed that this incident never occurred. A subsequent medical examination was also arranged with a specialist, who determined that the vision loss was long-standing and due to a pre-existing disease.
* Photoshop fraud
Multiple insurers in the US paid numerous foreign medical reimbursement claims for a particular insured until the Special Investigating Units of several of the companies involved grew suspicious and launched an investigation that ultimately uncovered a fraud ring. An investigation into the claims determined the hospital bills and records were forgeries. Police authorities then obtained a court search and seizure warrant, which resulted in the discovery and confiscation of scanners and files of counterfeit receipts.
The perpetrators sought medical treatment for simple symptoms, such as a cold or backache, from target hospitals in order to obtain medical treatment records, receipts, and doctor’s comment forms. They then scanned these documents and counterfeited them by writing a false date and diagnosis onto them using Photoshop.
It was also determined that the perpetrator taught his methods to four others. As a result of this case, the authorities are creating a Travel Claims Index system to assist with future fraud identification.
* Latin American taxi death
A claim was presented for the death of a female passenger following a fatal taxi accident. A certified death certificate, autopsy and accident report was presented in support of the claim by the deceased’s brother. A routine investigation revealed the documentation was all forged. The daughter of the alleged deceased, upon questioning, finally admitted her mother was alive and living in another country.
* Death and disablement
Some attempts at fraud are particularly sinister. A woman claimed that her husband had died abroad in a road accident, but there wasn’t a single picture of her husband on view in her home. Enquiries at her workplace revealed that she had been suspended for dishonesty, and her husband sacked for the same offence. She then admitted that her husband was very much alive, that she had been pressured into making the claim, and that their marriage had been arranged for the purpose of committing immigration fraud.
* Plain and simple
Most attempts at fraud are more mundane. One claimant produced a receipt from a clinic for treatment for severe diarrhoea. Both the receipt and his flight documentation were found to be fraudulent. Despite the claim being refused, AIG UK received an identical claim soon afterwards.
Another claimant did better – until he ended up with a criminal record. He claimed four times within a 12-month period and was paid £100 for delayed baggage, and over £800 for stolen valuables. One cheque sent to him for £9.09 was altered to read £909; but although police started to investigate, the claimant had the cheek to start county court proceedings against us. However, AIG UK won the case, and the claimant was then charged, convicted and given a 12-month community order on top of having to pay compensation.
Deal or no deal?
Sadly, exploitation of insurance for financial gain is not limited to individuals. Overseas clinics will sometimes inflate the cost of a claim by providing treatment that is unnecessary or even dangerous. For example, over-use of imaging and laboratory services may not only add unnecessarily to costs, but can also put the patient at risk. For example, abdominal scans, in extreme cases, can expose the patient to a risk of developing cancer. Furthermore, in some countries, doctors or clinics can be bribed to prepare false documents – even death certificates.
The difficulties of validating incidents and documentation in foreign locations are a challenge to the travel insurer. Higher costs incurred lead, in due course, to higher prices for the consumer, but an insurer with a global reach can more easily follow-up and investigate cases locally.
This said, the vast majority of travel insurance claims are genuine; but it is important for everyone to act in concert to stop the dishonest few. As an example, if a customer asks a travel agent for help with a suspicious claim, the agent can alert the insurer confidentially. The same applies to tour operators’ front-line staff overseas, at the time an alleged incident happens.
"The current failure to share data currently undermines the travel insurance industry’s ability to identify organised and cross-insurer fraud"
Reducing fraud allows everyone to concentrate more on providing excellent customer service to all travellers and genuine travel insurance claimants. Fraud costs UK insurance companies £1.5 billion a year, and whilst the true impact of fraud on the cost of travel insurance claims is unclear, travel is seen as a significant contributor to insurers’ fraud bill.
Going forward, the travel insurance industry hopes to tighten up procedures and share data between companies on suspected fraudsters, as it does in the car, home and personal injury sectors. The current failure to share data currently undermines the travel insurance industry’s ability to identify organised and cross-insurer fraud. Thus, travel insurance fraudsters enjoy relative mobility when it comes to targeting different insurers and repeating their actions without fear of being readily detected in the claims life cycle.
But, whilst the drive to bring travel insurance in line with data sharing elsewhere in the industry continues, new and smarter tactics to detect and deter fraud are necessary. The challenge is to balance smart fraud detection, with excellent customer service for genuine claimants. Traditional claims handling practices and their reliance on written communications delay and cause stress when settling genuine claims. Equally, fraudsters relish the safety of written exchanges with insurers. So, in the majority of cases where fraud features, even for complex claims, direct and early verbal dialogue is an effective approach to fraud management. Fraudsters don’t welcome direct verbal dialogue and can be put off quickly by the idea that someone may call or want to talk to them. And, whilst some scenarios will positively call for a meeting with the claimant, the majority can be effectively and decisively handled using telephone-based conversation management models.
"direct and early verbal dialogue is an effective approach to fraud management"
Although the level of fraud within travel insurance claims is seen as significant, there is a view that it is not cost effective to tackle lower value frauds, as the typical average financial value of a baggage claim is relatively low. But, apart from the small but frequent damage to loss ratios caused by lower value claims, why should travel insurers or other members of the travel industry allow fraudsters to succeed continue without challenge?