Preventing and detecting travel insurance fraud

Countering fraud in a pandemic

Global lockdowns have made it very difficult to investigate cases of fraud on the ground and, as such, many cases have had to be investigated by telephone or over email. As Tommy Hansen, Senior Consultant, Special Investigations Unit at the Danish insurance trade association Forsikring & Pension explains, this can lead to mistakes or misunderstandings, ‘sometimes to the detriment of a claimant, but more often to the insurance company involved’.

Working remotely and, specifically, the restricted the ability of investigators to visit medical facilities to validate information provided, was a key early challenge to investigating suspected fraud, agrees Carman. Sedgwick, however, has since used its bespoke remote site visit technology to quickly resolve claims.

And, as if lockdowns weren’t challenging enough to navigate by themselves, the constantly fluctuating rules and regulations around them, and the sudden way in which they often change, have only made tackling fraud an even harder task in recent times, adds Simon Cook, Head of Specialist Investigation Services for Charles Taylor Technical Services in the UK. To mitigate this, his company has a network of international offices and investigators that have ensured access to real-time knowledge of local situations and enabled the company to effectively carry out global investigations on the ground.

Another particular challenge Cook points out, though, has been differentiating between supplier-inflated and fraudulent costs in the context of Covid claims for extended accommodation. “It’s been especially important to treat customers fairly in these cases and to use the expertise of our investigators to achieve the right resolutions,” he said.

Despite the pandemic hampering some operational activity, insurance companies and fraud investigators have continued to work hard on their investigations. The Insurance Fraud Enforcement Department (IFED) in the UK, part of the City of London Police, for example, recently carried out investigations that, despite significant court delays, led to prison sentences for two UK-based travel insurance fraudsters.

Travel resumption and fraud

Although fraudulent activity has significantly reduced overall during the last 18 months, what fraud detection and prevention specialists now have front of mind is emerging fraud trends as global travel channels open up again. Naturally, most insurers expect levels of fraudulent claims to pick up as travel increases, but they are also preparing for a new breeding ground for fraud and specific types of scams directly related to the pandemic.

“When furlough schemes end in the UK, we could, for instance, see a rise in opportunistic fraud, where policyholders attempt to cover some or all of the cost of holidays via false medical or personal possession claims,” commented Cook. “Or travellers may plan to prolong holiday stays with false Covid symptoms, confirmed by fake tests.” He further suggests that there may also be an ‘influx of false cancellation claims in the wake of lost jobs or financial problems, where the real ‘non-covered’ reason for cancellation is substituted with an alternative ‘covered’ reason’.

“We may well see individuals committing fraud who wouldn’t normally do so,” surmised Cook. “As Covid restrictions ease and the world releases a pent-up demand for travel, investigation providers need to be proactive.”

Begue of Europ Assistance is in agreement that ‘statistics show a direct correlation between a decrease in economic input and an increase in fraudulent activity’. He added, though, that “It will not be the typical increase that we’ve seen during other economic downturns, as fraudsters have become so sophisticated, they believe they’re invisible. Ultimately, the real impact could be in terms of undetected insurance fraud which, by nature, is impossible to determine.”

The downturn in the economy and the consumer behaviour that typically stems from that is something that insurers and claims management companies started preparing for early in the pandemic, says Carman. Although there has been no evidence yet of adverse consumer behaviour, he says a close eye is being kept on what happens with government support, ‘as that will be a key factor in the way the UK economy behaves in the coming months’.

The fear is that with the withdrawal of governmental support such as the furlough scheme, resultant job losses will lead to a spike in fraudulent travel insurance claims. “We predict an increase in genuine redundancy-associated cancellation claims, but also in policies taken out after the event and the associated non-disclosure of redundancy or potential for redundancy,” said Carman.

In the context of the increased costs of holidays in the current climate, there would seem to be a perfect storm brewing for the emergence of new opportunistic fraudsters. “As demand for travel increases, we anticipate a marked increase in fictitious theft, damage and lost baggage claims as holidaymakers attempt to claw back the increased costs of travelling in a post-pandemic world,” Carman added.

member companies have almost all employed more staff dedicated to detecting and investigating fraud in recent months, while many have also stepped up the training of claims handlers

But not everyone envisages a spike in fraudulent travel insurance claims as travel resumes. Although agreeing that it’s likely insurers will see more cases of travel insurance fraud occurring as travel begins to normalise, Rob Morton, Head of Corporate Communications for Shift Technology in the US, thinks it’s unlikely the industry will see the kind of spikes in fraudulent activity seen at the start of the pandemic when lockdowns were first put in place. “In the early days of travel restrictions, we certainly saw people who had travel cancelled attempting fraud as a means to ‘make up’ the cost of their trips,” he told ITIJ. “Today, we’re more likely to see fraud rates that map closely to increasing travel rates.”

This sentiment is echoed by Hansen, who suspects ‘a slight increase in fraud attempts initially’ before things ‘settle around the same level as pre-Covid’. However, he also says that his association’s member companies have almost all employed more staff dedicated to detecting and investigating fraud in recent months, while many have also stepped up the training of claims handlers. Extensive fraud awareness training among front-line staff is also something Charles Taylor has focused on, while further carrying out a range of risk assessments for potential Covid claims to mitigate related risks.

Not all insurers and claims management companies have been as proactive, however, leading UK-based fraud specialist Gary Sommerford of Larus Consulting to say he believes ‘the main challenges are yet to come’.

“There has been very little travel and health insurance activity, which has led to some fraud teams having faced a reduction in numbers, significantly in some cases,” he told ITIJ.  “Fraud awareness levels may have also reduced across businesses. The challenge will be ensuring that, as we return to some kind of normality, operations are able to resume the same level of counter-fraud capability as it did pre-Covid.” If this does not happen, he says businesses may find themselves ‘behind the drag curve and exposed to financial losses’.

Travel fraud incoming

Aiming to get ahead of this curve, insurers are anticipating specific fraud trends. In Canada, for example, TuGo has already become aware of forged vaccine passports allowing travellers to purchase insurance that would not normally be available to them. Mike Starko, the company’s Chief Claims Officer, commented: “As trip cancellation insurance adapts to Covid-related risks, there will be opportunities for further fraud related to cancelled and interrupted trips.”

Domestically, in Canada, the company is also seeing continued fraud related to car rental damage, which Starko expects to persist. This continuation of established fraud trends is something others are witnessing too. Morton goes as far as to say he thinks it’s unlikely the industry will start to see brand new fraud schemes as a result of travel restrictions easing: “More likely is that we’ll see what we’ve seen in the past – inflating the value of lost or damaged luggage and attempts to purchase policies and apply losses post impacted travel.”

This is a sentiment echoed by Hansen, who adds, however, that countries that have not previously witnessed such sickness scams as were recently prevalent in the UK may start to see this type of organised racket emerging. He also points out that common fraudulent activity committed by medical providers will likely continue, citing attempts to pad bills and exploit minor medical issues by billing for unnecessary X-rays or scans, the administration of harmless but unnecessary saline solutions, and unnecessary overnight stays for observation.

“We have examples where clinics will hide alcohol tests or not take them in real accident cases, because they know that there will be no coverage if the patient has too much blood alcohol,” he said. “This will not change.”

Such medical provider fraud is something Sedgwick also expects to increase. “We’re aware of several medical facilities that have faced insolvency as a result of global travel restrictions and we’re prepared [should they] seek to recoup their losses when they’re able to,” stated Carman.

Insurance industry collaboration to share fraud trends

Being aware of fraud trends and anticipating emerging risks is something at which most insurers are adept, but all agree that collaborative efforts are the only way to stay one step ahead of fraudsters. Unfortunately, concerns around anti-trust laws and General Data Protection Regulations make data sharing difficult and create barriers to industry-wide counter-fraud efforts. These problems, however, are not insurmountable.

IFED’s work with international entities is a good example of successful cross-border travel insurance fraud detection. In one of the recent cases mentioned earlier, IFED worked with officers in the US, who made checks at a Florida hospital to confirm that the claimant had never been treated at the named establishment and thus proved his claim to be fraudulent.

“Some criminals see international borders as a hindrance for police investigations but, as demonstrated here, this is certainly not the case,” commented Detective Inspector Tom Hill, for IFED.

In fact, points out Hansen, many of the insurance-fraud-fighting community are now members of international associations such as the International Association of Special Investigation Units, so ‘there is very good collaboration across borders’. Although language barriers do exist, and there are many differences between countries when it comes to industry-specific terms, small steps towards enhanced collaboration are constant.

“More progress will be made, when we perhaps start to share more anonymised data on types of claims across the borders,” added Hansen, “allowing us to lay down baselines from which to evaluate certain types of fraud from their patterns alone.”

Europ Assistance recognises that ‘there is no competitive advantage in fighting fraud individually’. “Fraudsters, noted Begue, “will try to take advantage of the disconnect of different entities – usually at the same time or carried out in a phased manner. That is why it’s key to set a robust collaboration and partnership framework.”

In the meantime, insurers are stepping up their individual fraud-detection capabilities, with some exciting developments being seen across the industry, and working on pushing out the message to would-be fraudsters that insurance crime doesn’t pay. Although fraud has evolved over the period that we’ve been living with Covid, insurers and claims managers have also pivoted to stay far enough in front to be confident that they are best placed to meet the challenges of what comes next, head on.