As long as insurance has existed, there has been insurance fraud, and this is an issue that insurers will always have to contend with.

According to the Coalition Against Insurance Fraud, in the US alone insurance fraud costs consumers and businesses US$308.6 billion every year, and aside from the financial loss associated with fraud there are serious governmental, industry and environmental ramifications.

Although the concept of fraud itself is by no means new, fraudsters and their methods are continually evolving and, in line with this, so are insurers’ means of protection. “Combatting fraud is a key priority for the insurance industry, and insurers spend around £200 million per year to this end,” said Mark Allen, Head of Fraud and Financial Crime, and Jonathan Purvis, Senior Policy Adviser for General Insurance, from the Association of British Insurers (ABI). Fraud will always be a topical subject and one that insurers must remain alert to, keeping a keen eye on the ever-changing landscape to ensure that detection and mitigation are as effective as possible.

Advances in technology have equipped fraudsters with new methods and, so too, have enabled insurers to employ novel solutions to fight back. However, these solutions must be employed in conjunction with strong foundational countermeasures in the form of internal controls, processes and procedures such as extensive training, specialist attention and regularly maintained and managed IT systems.

An all-seeing eye

First and foremost, acute awareness and vigilance are essential and this can be established through thorough training. “Our claim handlers and call agents are the first line of defence, and they benefit from ongoing fraud training and awareness programmes,” Richard Cliffe, Counter Fraud Manager at Collinson, told ITIJ. “We’ve carefully crafted a dedicated fraud page on our SharePoint where we share updates, training material and a library of useful tools to help detect and investigate suspicious claims.”

For staff at Collinson, resources include case studies visualising the fake documents that the fraudsters have provided. Importantly, this vigilance, awareness and knowledge must extend throughout the whole organisation in order to be effective. “Everyone in an organisation from top down needs to be fraud savvy and know how they can protect the business,” Cliffe underlined.

Unwavering attention to detail is key when processing claims to spot falsified documents. This is particularly challenging given the sophisticated tools available to fraudsters. “Insurers are seeing increasing use of technology or artificial intelligence (AI) to generate forged or altered documents and manipulate images to support fraudulent claims,” said Allen and Purvis. “For example, fake medical reports in support of travel or health insurance claims demonstrate high degrees of sophistication which make detection challenging.”

Bo Bawara, Managing Director of Robin Assist, said that it has become increasingly important to recognise scenarios that are prone to fraud, so an additional layer of scrutiny is applied before finalising a claim: “Combatting this type of fraud requires attention to the details of the story giving rise to the claim and recognising when there are inconsistencies, or simply when the supporting document is too easily falsified.”

Cornerstones of counter fraud

Another crucial asset in mitigating fraud is strong collaboration between stakeholders within and outside of the insurance industry to create a united front against fraudulent activities. “Hands down we would lose this fight without our industry partners and collaboration,” said the Coalition.

Indeed, a single organisation cannot fight fraud alone, and by working with law enforcement agencies and regulatory bodies, insurance companies can elevate their strategies. ITIJ also spoke with Sandra Krasny, Head of Insurance – Risk and Fraud at software company INFORM, who agreed about the crucial role of partnership in tackling fraud and pointed out that this includes data sharing to remain on top of developments: “Fostering strong collaboration and information sharing within the industry, as well as with law enforcement agencies, helps in staying ahead of evolving fraud schemes,” she noted.

Allen and Purvis highlighted that insurers can strengthen their defences through involvement with industry initiatives. “Although there is no silver bullet, collaboration is an essential solid line of defence against fraudsters. Collectively, the industry has invested in several game-changing initiatives that have delivered a sea change in the way that insurance fraud is tackled. These include [in the UK] the Insurance Fraud Bureau (IFB) and the Insurance Fraud Enforcement Department (IFED), which continue to evolve and today remain cornerstones of the industry’s counter-fraud strategy. It’s vital that insurers continue to support these cross-industry collaborative initiatives.”

The ABI is working with the British government on the development of a UK Fraud Strategy to make the sector better equipped to deal with insurance fraud. “We are closely involved in the governance arrangements to ensure the Strategy tackles the key threats and is outcomes focused,” said Allen and Purvis. “Of particular note, we’re working with the Home Office to develop an insurance sector fraud charter, comprising a series of industry and government commitments to make the UK even more resilient to insurance fraud.”

Another important partnership is that between Aviva and the IFED, which is part of the City of London Police. “In 2023, this partnership secured the first serious crime prevention order against a convicted fraudster,” revealed Pete Ward, Head of Claims Counter Fraud at Aviva. “The order lasts for four years and carries a custodial sentence of up to five years if breached. It places restrictions on the offender which are specifically designed to stop them from continuing to commit insurance fraud. It is a quantum leap in deterrence and sends a clear message of intent to opportunistic and, more importantly, professional fraudsters. Aviva is proud of this achievement and the opportunity it now offers the rest of the industry.”

Developments in opportunistic fraud

Opportunistic insurance fraud, whereby a claim is exaggerated for financial gain, is prolific. According to the IFB, opportunistic fraud makes up 85% of travel insurance fraud cases. In the context of the rising cost of living and the powerful impacts of the Covid-19 pandemic, this is only increasing. “The aftermath of Covid-19, the conflict in Ukraine and the credit crunch have fuelled the rise in fraud, in particular opportunistic fraud, where an individual adjusts or misreports their identity or circumstances,” Cliffe commented. “The myth that it’s acceptable to inflate a claim couldn’t be further from the truth – it’s fraud! According to a joint survey carried out in July 2023 by LexisNexis and the Insurance Post, opportunistic claims fraud experienced the most substantial growth over the previous year, rising by almost 70%.”

Ward has also observed this worrying trend. “There is a direct correlation between the increased cost of living and the volume of opportunistic fraud that has been detected over the last 18 months. This increase in opportunistic fraud runs across all lines of business, including travel,” he observed.

Allen and Purvis have also been privy to this uptick: “As people have struggled with financial hardship, insurers have seen an increased incidence of opportunistic fraud across many product lines, motivated by a sense of desperation rather than greed.”

Sophisticated and insidious

Whatever the motivation, opportunistic fraud is just as illegal and damaging to the industry and policyholders alike as organised fraud. “On the other side of the spectrum are the more sophisticated, highly organised fraudsters who are well funded and are using this opportunity to further evolve and refine their strategies,” asserted Cliffe. He explained that as the travel industry has recovered in the aftermath of the pandemic, these fraudsters have exploited opportunities. “Due to the Covid restrictions that were in place, overseas travel was decimated, so customers couldn’t make claims, which resulted in fraudsters having to look outside of the travel/medical assistance space. Now that the travel industry is well on the way to recovery, we’re seeing the fraudsters returning and targeting travel and medical assistance providers. What I’ve seen over the last quarter is a surge in fraud on travel insurance claims, in particular for medical expenses.”

These types of fraudsters can be particularly challenging to deal with due to the advanced methods that they employ. “Unfortunately, individuals who are involved in this type of criminal behaviour leverage technology, falsifying key documents using open-source methods online,” stated Rashid Ausaf, Global Head of Anti-Fraud Operations and the Centre of Excellence at Allianz Partners. “We have also begun to notice that many of these individuals tend to defraud with claims that are relatively small in value, based on the misconception that insurers will not ask for much evidence or pay detailed attention to the documents submitted by the insured.”

It feels like a never-ending battle with fraudsters forever identifying new gaps that they can take advantage of. “Purposeful fraudsters are increasingly mobile and sophisticated,” said Allen and Purvis. “As insurers tighten controls in one area, fraudsters will look to exploit opportunities in another, where they perceive controls may not be as well developed.”

Slipping between the gaps

With the powerful trifecta of awareness, training and collaboration, insurers are well positioned to detect fraud and, according to the ABI in 2022, UK insurers detected 72,600 fraudulent insurance claims amounting to £1.1 billion. However, this doesn’t account for undetected fraud, with perpetrators slipping between the gaps.

Many of these gaps are created by developments in technology, as Krasny pointed out: “Fraudsters exploit system gaps that frequently emerge from rapid technological advancements and operational changes. One significant source of these gaps is outdated or siloed data systems, which fail to provide a cohesive view across an organisation, creating vulnerabilities for fraud. To address these issues, insurers need to focus on modernising their technology infrastructure and adopting integrated data platforms that facilitate real-time data sharing and analysis across various departments. This integration enhances the ability to detect discrepancies and patterns indicative of fraudulent activities.”

Bawara also believes there is a need for better data quality and data validation. “Incomplete or inaccurate data collected at the time of enrolment can make it difficult to systematically validate data received when a claim is filed. This leads to an inability to see inconsistencies and therefore miss red flags. With no trigger to alert the claims examiner, and to avoid slowing the claims process, suspicious scenarios are missed or not thoroughly investigated, allowing a fraudster to slip through.” This is where real-time data can be extremely useful.

Proactive intervention

Using real-time data, insurers are privy to live information that can speed up decision-making and enable action to be taken without delay. Cliffe said that this is a prominent area of focus for insurers. “The requirement for real-time data is at the top of our agenda and this is a continual evolution which needs reviewing and tweaking on an ongoing basis,” he remarked.

Krasny agreed that this is one of the most crucial aspects in mitigating fraud, especially in the insurance sector. “It enables insurers to detect and address suspicious activities swiftly, often before any financial loss occurs,” he asserted. “By integrating real-time data streams from both internal and external sources, insurers can identify and analyse emerging fraudulent patterns instantly. This capability is essential for proactive intervention, allowing companies to halt fraudulent activities early in the process and prevent potential losses.”

Ausaf pointed out that this is especially pertinent in the context of digitisation: “It’s critical, given the higher and larger penetration of digital channels, helping to detect organised fraud by observing patterns at the application stage. In addition to the impact on the insurance industry itself, fraud affects consumers. Indeed, in the US, the Coalition Against Insurance Fraud found that 78% of consumers were concerned about insurance fraud, while the FBI estimates that fraud costs the average family between $400 and $700 a year in premiums. The countermeasures insurers employ aren’t just for the industry; they are for the consumers who form the backbone of the sector. “Protecting customers from both internal and external fraud is a duty insurers place as a priority,” said the Coalition.

By communicating the repercussions of fraud, the industry is keen to deter potential fraudsters. “We believe that by publicising the reality of the penalties for fraud and, just as importantly, how insurers work with each other and the police to detect and prosecute fraudsters, we can help deter others from committing fraud,” stated Ward.

The industry takes a proactive approach to fighting this pervasive issue. Indeed, the insurance fraud detection market was projected to be worth $7.9 billion by 2024, according to MarketsandMarkets. The fight may be long, but insurers will not relent and are committed to working together to combat fraud. “The insurance industry cannot tackle fraud alone,” Allen and Purvis concluded. “We are therefore supportive of the government’s partnership approach to harness the capabilities, skills and resources of the public and private sector to drive out the scammers and make society more resilient to fraud.”

Cornerstones of counter fraud

Another crucial asset in mitigating fraud is strong collaboration between stakeholders within and outside of the insurance industry to create a united front against fraudulent activities. “Hands down we would lose this fight without our industry partners and collaboration,” said the Coalition.

Although the concept of fraud itself is by no means new, fraudsters and their methods are continually evolving

Indeed, a single organisation cannot fight fraud alone, and by working with law enforcement agencies and regulatory bodies, insurance companies can elevate their strategies. ITIJ also spoke with Sandra Krasny, Head of Insurance – Risk and Fraud at software company INFORM, who agreed about the crucial role of partnership in tackling fraud and pointed out that this includes data sharing to remain on top of developments: “Fostering strong collaboration and information sharing within the industry, as well as with law enforcement agencies, helps in staying ahead of evolving fraud schemes,” she noted.

Allen and Purvis highlighted that insurers can strengthen their defences through involvement with industry initiatives. “Although there is no silver bullet, collaboration is an essential solid line of defence against fraudsters. Collectively, the industry has invested in several game-changing initiatives that have delivered a sea change in the way that insurance fraud is tackled. These include [in the UK] the Insurance Fraud Bureau (IFB) and the Insurance Fraud Enforcement Department (IFED), which continue to evolve and today remain cornerstones of the industry’s counter-fraud strategy. It’s vital that insurers continue to support these cross-industry collaborative initiatives.”

The ABI is working with the British government on the development of a UK Fraud Strategy to make the sector better equipped to deal with insurance fraud. “We are closely involved in the governance arrangements to ensure the Strategy tackles the key threats and is outcomes focused,” said Allen and Purvis. “Of particular note, we’re working with the Home Office to develop an insurance sector fraud charter, comprising a series of industry and government commitments to make the UK even more resilient to insurance fraud.”

Another important partnership is that between Aviva and the IFED, which is part of the City of London Police. “In 2023, this partnership secured the first serious crime prevention order against a convicted fraudster,” revealed Pete Ward, Head of Claims Counter Fraud at Aviva. “The order lasts for four years and carries a custodial sentence of up to five years if breached. It places restrictions on the offender which are specifically designed to stop them from continuing to commit insurance fraud. It is a quantum leap in deterrence and sends a clear message of intent to opportunistic and, more importantly, professional fraudsters. Aviva is proud of this achievement and the opportunity it now offers the rest of the industry.”

Developments in opportunistic fraud

Opportunistic insurance fraud, whereby a claim is exaggerated for financial gain, is prolific. According to the IFB, opportunistic fraud makes up 85% of travel insurance fraud cases. In the context of the rising cost of living and the powerful impacts of the Covid-19 pandemic, this is only increasing. “The aftermath of Covid-19, the conflict in Ukraine and the credit crunch have fuelled the rise in fraud, in particular opportunistic fraud, where an individual adjusts or misreports their identity or circumstances,” Cliffe commented. “The myth that it’s acceptable to inflate a claim couldn’t be further from the truth – it’s fraud! According to a joint survey carried out in July 2023 by LexisNexis and the Insurance Post, opportunistic claims fraud experienced the most substantial growth over the previous year, rising by almost 70%.”

Ward has also observed this worrying trend. “There is a direct correlation between the increased cost of living and the volume of opportunistic fraud that has been detected over the last 18 months. This increase in opportunistic fraud runs across all lines of business, including travel,” he observed.

Allen and Purvis have also been privy to this uptick: “As people have struggled with financial hardship, insurers have seen an increased incidence of opportunistic fraud across many product lines, motivated by a sense of desperation rather than greed.”

Sophisticated and insidious

Whatever the motivation, opportunistic fraud is just as illegal and damaging to the industry and policyholders alike as organised fraud. “On the other side of the spectrum are the more sophisticated, highly organised fraudsters who are well funded and are using this opportunity to further evolve and refine their strategies,” asserted Cliffe. He explained that as the travel industry has recovered in the aftermath of the pandemic, these fraudsters have exploited opportunities. “Due to the Covid restrictions that were in place, overseas travel was decimated, so customers couldn’t make claims, which resulted in fraudsters having to look outside of the travel/medical assistance space. Now that the travel industry is well on the way to recovery, we’re seeing the fraudsters returning and targeting travel and medical assistance providers. What I’ve seen over the last quarter is a surge in fraud on travel insurance claims, in particular for medical expenses.”

These types of fraudsters can be particularly challenging to deal with due to the advanced methods that they employ. “Unfortunately, individuals who are involved in this type of criminal behaviour leverage technology, falsifying key documents using open-source methods online,” stated Rashid Ausaf, Global Head of Anti-Fraud Operations and the Centre of Excellence at Allianz Partners. “We have also begun to notice that many of these individuals tend to defraud with claims that are relatively small in value, based on the misconception that insurers will not ask for much evidence or pay detailed attention to the documents submitted by the insured.”

It feels like a never-ending battle with fraudsters forever identifying new gaps that they can take advantage of. “Purposeful fraudsters are increasingly mobile and sophisticated,” said Allen and Purvis. “As insurers tighten controls in one area, fraudsters will look to exploit opportunities in another, where they perceive controls may not be as well developed.”

Slipping between the gaps

With the powerful trifecta of awareness, training and collaboration, insurers are well positioned to detect fraud and, according to the ABI in 2022, UK insurers detected 72,600 fraudulent insurance claims amounting to £1.1 billion. However, this doesn’t account for undetected fraud, with perpetrators slipping between the gaps.

There is no silver bullet, but collaboration is an essential solid line of defence against fraudsters

Many of these gaps are created by developments in technology, as Krasny pointed out: “Fraudsters exploit system gaps that frequently emerge from rapid technological advancements and operational changes. One significant source of these gaps is outdated or siloed data systems, which fail to provide a cohesive view across an organisation, creating vulnerabilities for fraud. To address these issues, insurers need to focus on modernising their technology infrastructure and adopting integrated data platforms that facilitate real-time data sharing and analysis across various departments. This integration enhances the ability to detect discrepancies and patterns indicative of fraudulent activities.”

Bawara also believes there is a need for better data quality and data validation. “Incomplete or inaccurate data collected at the time of enrolment can make it difficult to systematically validate data received when a claim is filed. This leads to an inability to see inconsistencies and therefore miss red flags. With no trigger to alert the claims examiner, and to avoid slowing the claims process, suspicious scenarios are missed or not thoroughly investigated, allowing a fraudster to slip through.” This is where real-time data can be extremely useful.

Proactive intervention

Using real-time data, insurers are privy to live information that can speed up decision-making and enable action to be taken without delay. Cliffe said that this is a prominent area of focus for insurers. “The requirement for real-time data is at the top of our agenda and this is a continual evolution which needs reviewing and tweaking on an ongoing basis,” he remarked.

Krasny agreed that this is one of the most crucial aspects in mitigating fraud, especially in the insurance sector. “It enables insurers to detect and address suspicious activities swiftly, often before any financial loss occurs,” he asserted. “By integrating real-time data streams from both internal and external sources, insurers can identify and analyse emerging fraudulent patterns instantly. This capability is essential for proactive intervention, allowing companies to halt fraudulent activities early in the process and prevent potential losses.”

Ausaf pointed out that this is especially pertinent in the context of digitisation: “It’s critical, given the higher and larger penetration of digital channels, helping to detect organised fraud by observing patterns at the application stage. In addition to the impact on the insurance industry itself, fraud affects consumers. Indeed, in the US, the Coalition Against Insurance Fraud found that 78% of consumers were concerned about insurance fraud, while the FBI estimates that fraud costs the average family between $400 and $700 a year in premiums. The countermeasures insurers employ aren’t just for the industry; they are for the consumers who form the backbone of the sector. “Protecting customers from both internal and external fraud is a duty insurers place as a priority,” said the Coalition.

By communicating the repercussions of fraud, the industry is keen to deter potential fraudsters. “We believe that by publicising the reality of the penalties for fraud and, just as importantly, how insurers work with each other and the police to detect and prosecute fraudsters, we can help deter others from committing fraud,” stated Ward.

The industry takes a proactive approach to fighting this pervasive issue. Indeed, the insurance fraud detection market was projected to be worth $7.9 billion by 2024, according to MarketsandMarkets. The fight may be long, but insurers will not relent and are committed to working together to combat fraud. “The insurance industry cannot tackle fraud alone,” Allen and Purvis concluded. “We are therefore supportive of the government’s partnership approach to harness the capabilities, skills and resources of the public and private sector to drive out the scammers and make society more resilient to fraud.”