In this turbulent economic period, more travellers the world over have submitted fraudulent claims to their travel insurers as they look to recoup the cost of their holiday – through claiming for missing baggage to inventing medical complaints, or simply sneakily inflating a genuine claim. Research by the UK’s Direct Line Travel Insurance has estimated that nearly eight million people in the UK alone have made a claim on their insurance that was fraudulent in some way, with five per cent of those people fabricating their claim completely, and 15 per cent inflating the value of their claim. And that number is rising all the time. Add to that, those people prepared to attempt fraud around the world, and we’re looking at a scam that’s costing the industry millions.
“As financial pressures build, sadly for some, the inclination is to manage the cost of taking a holiday by recouping some of the expense with a claim on a travel insurance policy.”
Cath Williams, investigations services business development director for Cunningham Lindsey UK, told ITIJ: “There’s little doubt that travel fraud is a growing issue for insurers and we are seeing our volumes of referred claims increase accordingly.” All in all, fraud figures are quite shocking, and it’s worrying to think that the number of people deliberately trying to scam their insurers is growing.
A collaborative approach
It’s not all bad news. Despite some scary stats, travel insurance providers believe that nearly two-thirds of all fraudulent claims are now uncovered – and if the insurer presses charges against the claimant, a custodial sentence is a possibility in some countries, including in the UK.
So what are the processes that travel insurers use to detect fraudulent claims, and how effective are they? And what can be done to ensure that fraud detection is as rigorous as it possibly can be?
“There is no question that the travel insurance sector is facing tough times but the issue of fraud can still be effectively tackled to reduce the impact on our bottom lines.”
Let’s start with CEGA Group Services, a travel claims management and emergency assistance provider based in the UK, which won the title of Independent Fraud Investigation Team of the Year at the 2011 Insurance Fraud Awards. Its Special Investigation Unit (SIU) handles almost all of CEGA's fraud enquiries in-house, with global agents on the ground to help the team substantiate facts. The SIU reported that, compared to published industry data, its 2010 fraud savings accounted for more than twice the UK travel insurance sector average. “These positive results are testament to the success of [our] multi-pronged approach to fraud detection,” says Muir Robertson, CEGA's managing director. “Our success lies in complementing the skills of our SIU with those of our integrated medical assistance, cost containment and claims teams.”
Simon Cook, CEGA’s fraud and recoveries manager, adds that integration is key to detecting insurance fraud: “The most effective travel fraud detection draws on the joined-up skills of front-end claims, assistance and medical teams, and back-office specialist investigation staff. Having all these services under one roof maximises front-end fraud awareness, enables instant dialogue between specialist teams and results in early fraud detection.” He says that staff should receive regular training, giving them as much information as possible about potential and previous frauds to enable them to spot new ones as quickly as they can. “It’s crucial that first response units are trained to be fraud-aware and conversant with regularly refined fraud indicators; empowering them to do everything from identifying high-risk countries and irregular medical invoices to looking beyond a claimant’s respectable job title if a claim is suspicious. Exposure to fraud case studies is also an important part of our front-end staff training.”
The company also employs a series of investigative techniques when looking into a possible fraudulent claim, examining every single detail to assess its veracity. “Cognitive interviewing techniques, investigation by overseas agents and medical assessments may then all be used to assess the honesty of a suspicious claim,” explains Cook. “Every detail of a dubious claim should be checked; from the authenticity of a doctor’s bill issued on the other side of the world, to the validity of a witness statement in a foreign language.”
Pagett agrees that the efficiency and excellence of staff can be the most valuable tool an insurer has when trying to detect bogus claims. “With tight margins and low premiums it is a challenge for insurers to invest heavily in fraud detection systems, which by virtue of the nature of the crime do not always pay dividends,” he says. “The greatest deterrent is the intervention by an empowered and experienced claims handler with time to review each claim, speaking to the customer using conversational management techniques to identify inconsistencies in the story. That gut feeling a handler sometimes gets can be a better indicator of fraud than any data matching system.”
Pagett also thinks that the travel industry itself has unwittingly contributed towards making fraud detection harder. “Travel insurance has for a long time been a soft target for insurance fraudsters who recognise that the claims processes in travel insurance do not always match the level of validation we now see in other product lines,” he says. Williams agrees, and further adds: “The lessons we’ve learnt from tackling claims fraud in other business lines should be applied to the travel arena – we are not convinced that they are. The [insurance] industry’s counter fraud spotlight has, for a long time, been on motor and personal injury, and we strongly believe that this creates an area of opportunity for less honest individuals to quietly come in under the radar in other areas – travel is a prime example.”
So could some fraudulent claims have been an innocent mistake on behalf of some of these claimants? Perhaps they didn’t read the small print properly, or didn’t quite understand the terms of their policy? Andrew Pagett, counter fraud manager at Groupama Insurances, is sceptical: “It is somewhat naive to think that fraudulent claims are committed by individuals who do not fully understand the terms of the policy. In a significant number of cases, the individuals concerned know the terms and policy limits and tailor their claim accordingly.” The majority of fraudulent claims are conducted by individuals who either seize upon an opportunity to recoup some of their holiday cost, he says, or are just looking to make some money.
Williams of Cunningham Lindsey concurs. She says her company is witnessing a growing element of sophistication and organisation in the claims she manages, which she says points to the fact that claims are being tailored to fit and that policies are ‘being taken out with the sole intention of committing fraud’. She added: “It’s not just about lost/stolen baggage/money and exaggerated claims scenarios; completely bogus medical claims are increasingly prevalent, which again adds weight to the increase in organised and more sophisticated frauds being directed in the travel insurer marketplace.” Many people might think that slyly bumping up your travel insurance claim is a victimless crime, but of course eventually and inevitably it’s those law-abiding policyholders who don’t attempt a sneaky fraud who end up paying for it via increased premium costs.
Eyes on the prize
As financial pressures build, the increasing inclination has been to manage the cost of taking a holiday by recouping some of the expense with a claim on a travel insurance policy. A further challenge for travel insurers, then, emanates from the purchase of the policy, says Pagett, ‘as limited information is obtained due to the competitive nature of the business together with the ease (route to market) of acquiring a policy’. “If we do not ask adequate questions at the application stage or seek to better know the customer, we have little chance in discovering non disclosures or misrepresentation,” he says.
Mondial Assistance UK has demonstrated its strong commitment to tackling fraud by creating a department dedicated to dealing with the issue. That means that it has introduced its own procedures to reduce the risk of fraudulent claims being made and trained staff to help them identify the behaviour that could suggest fraud. One way they have done this is by bringing in a system of ‘flagging’ customer responses to some of the key questions asked as part of the claims process. One red or two amber flags will result in the customer being passed to the department manager for further investigation.
“This approach is helping us to provide a very high level of service to genuine claimants, whilst ensuring we take a robust approach to potential fraud,” says Mike Webb, chief executive officer of Mondial Assistance. “There is no question that the travel insurance sector is facing tough times, but the issue of fraud can still be effectively tackled to reduce the impact on our bottom lines – and therefore contain the costs that we will, inevitably, have to pass onto policyholders. Fraud is a major problem for travel insurance, as many people think cheating their travel insurer is a sport rather than a criminal offence, and believe that no one will suffer as a result of some stretching of the truth.”
“By enabling insurers and claims handlers to share data on a claimant’s history, this comprehensive database will maximise efficiency in travel fraud detection.”
Cunningham Lindsey, meanwhile, ensures that data washing against general and suspect claims data is a day-one action and continues throughout the life of the claim, which the company says is of ‘significant value’ for gathering additional information and lines of enquiry to follow. The company can match current claims data with other claims of interest, which is then added to by desktop profiling and research, thereby assessing the claim far more accurately at the outset.
Although travel insurers see fraud in medical and cancellation claims, one of their major areas of concern is personal possessions and baggage. Mondial estimates that up to half of all the claims it receives may be bogus to some degree. This is because claims may be inflated, sometimes in an effort to recoup the policy excess or holiday cost by adding an extra couple of items to a genuine claim, or by overstating the quality or value of the items concerned; but sometimes the claim may be entirely fictitious, whether it’s missing luggage or false medical treatment, and exacerbated by a rising number of websites that sell fake receipts. Another frequently suspicious situation is when a backpacker policyholder makes a claim in the last few days before their insurance expires: this is often a student trying to recoup the cost of their trip, and it has happened so often that it’s one of the flags for which insurers are now looking out.
However, says Pagett: “Validating the contents of a baggage loss is a major headache for insurers. When one of a number of luggage items goes missing, it is sometimes no coincidence that it is the one carrying the most expensive items. To support the loss, a fraudster will have prepared the grounds for the deception by gathering receipts and labels to present in support of the claim. As such, strict proof of ownership and a demand for receipts will only reduce the risk slightly. Some individuals have been known to take photographs wearing other people’s items as proof of ownership. And the scams we see involving foreign medical centres and practitioners suggests this issue is wider than the UK.” And it’s a year-round problem: “Travel fraud is constant, [although] more referrals [are] made to our SIU in the summer months, when more people are travelling,” says Cook.
Stepping up the game
The industry-wide Travel Claims Database Project in the UK is intended to help root out fraud, sharing information about claims to improve detection procedures. This has long been procedure in Australia, where the Insurance Reference Service was established in 1991 for exactly the same reasons; the US has a National Insurance Crime Bureau, which isn’t travel-specific but has a database accessible to its members. Both claim to be very successful – both as a fraud detection process, and as a deterrent to potential fraudsters.
Many of the bigger companies are now signed up to the UK’s project, and Mondial’s Mike Webb welcomes this as a positive step. “This initiative is a vital step for the travel insurance industry,” he says. “We are currently operating on incredibly tight margins which, in turn, could erode customer service. So it’s essential that the fraudsters who think the sector is easy-pickings are eliminated. If the entire industry could actually work together it would undoubtedly improve all of our results. In the meantime, we will continue to refine our own approach to combat fraud.”
The UK’s current project to share travel data across the insurance industry in a similar way to the Claims and Underwriting Exchange (CUE) home and motor offerings will bring a major step change in mitigating the risk of travel insurance fraud, says Andrew Pagett: “It will also enable insurers to spot emerging trends and hotspots that in isolation would not ordinarily be identified.” He has his fingers crossed that the entire travel industry will support the introduction of a fully operational database similar to the data sharing arrangements enjoyed by the rest of the insurance industry in the country.
“The most effective travel fraud detection draws on the joined-up skills of front-end claims, assistance and medical teams, and back-office specialist investigation staff.”
Simon Cook has similar thoughts: “Looking to the future, the biggest development in travel fraud detection [in the UK] is hopefully going to be the extension of CUE to include travel insurance. By enabling insurers and claims handlers to share data on a claimant’s history, this comprehensive database will maximise efficiency in travel fraud detection.”
Screening and triage of claims has never been so important, says Cath Williams at Cunningham Lindsey: “Access to rich sources of data is key to accurately profiling a claim and therefore the Travel Claims Database is urgently awaited. In the meanwhile, however, there is so much more that can be done, just be applying strong analytical and research skills at the outset.”