Expectations are that when the Civil Liability Act comes into force next year, the behaviour of fraudulent injury claims will shift and evolve. Unfortunately, history shows that fraudsters are quick to adapt and will almost certainly find new and imaginative ways to carry out insurance fraud.
However, the industry continues to make significant progress in combatting fraud. Advances in data analytics and information sharing are informing insurers fraud strategies, helping second guess fraudsters and anticipate the likely impact of legislative changes like the Civil Liability Act.
Actions to combat insurance fraud have helped stabilise the problem, but it continues to be a burden on consumers, who ultimately pay the price for the actions of criminals. In 2018, according to the ABI data, insurers detected 469,000 instances of claims fraud and policy application fraud equating to just over 9,000 frauds detected every week. The number of fraudulent claims fell by 6% against 2017 numbers to 98,000 reflecting the industry’s collaborative work in detecting and deterring fraud but detected dishonest policy applications rose by 5% to 371,000 instances. Motor insurance scams remain the most common and costly making up 56% of all reported fraudulent claims and of these 80% of the claims involve personal injury.
No business is immune from fraud. Fraud exposes business to financial, regulatory and reputational harm. It also pushes up premiums. But at QBE we are pushing back. Our Special Investigation Unit combines the full range of expertise required to protect our customers and our own business from the consequences and impact of fraud. Since the unit was established in 2010 it has identified over 50,000 instances of potential fraud, successfully challenged 14,500 fraudulent claims saving considerable sums of money in the process and contributed to convictions of organised fraudsters. We have also helped customers protect themselves by sharing intelligence and promoting fraud awareness.
The Civil Liability Act, which will overhaul the system for compensating low value personal injury claims, is part of the ongoing fight against fraud. The move from general damages to a tariff system under the Act should result in substantial savings from lower awards and legal costs.
However, fraudsters will almost certainly change tack to maximise their opportunity to financially gain from their illicit activities. The insurance industry has witnessed shifts in the way personal injury claims fraud occurs in response to previous efforts to clamp down on this and in recent times, fraudsters have focused on different jurisdictions such as Scotland, as well as targeted other lines of business.
As with previous reform, the Civil Liability Act will have unintended consequences. The tariff damages will significantly reduce the compensation for certain injury types, and we expect an increase in multisite injuries and longer prognoses through exaggeration of symptoms to maximise the damages that can be claimed. We also anticipate an increase in the volume and value of fraudulent non-liability claims, for example, exaggerated credit hire, vehicle damage and credit repairs claims.
If insurers do not step up, the net result could be no substantive change to the overall cost of fraudulent claims, despite the best intentions of the Act.
Recent years have seen advances in insurer fraud prevention capabilities and collaboration. The founding of the Insurance Fraud Bureau (IFB) in 2006 kick-started industry-wide data sharing on insurance fraud, a valuable tool that continues to develop to this day. The IFB has since opened up its membership and data sharing to insurance brokers and insurance company affiliates with a move towards real-time sharing of counter fraud intelligence via their Insurance Fraud Intelligence Hub (IFiHUB), an important step in combatting insurance fraud.
Collaboration will become increasingly important to successfully combating fraud, and this will mean working more with organisations outside the insurance industry. The industry already funds the City of London Insurance Fraud Enforcement Department (IFED), a specialist police unit dedicated to tackling insurance fraud.
We are now seeing exciting opportunities to share data with government agencies. QBE, in collaboration with the Cabinet Office, has built an award-winning IT solution to access National Fraud Initiative (NFI) data. The initiative is the first by an insurer to use this public sector data for fraud prevention purposes.
Combatting fraud will increasingly be a battle fought with data and intelligence. Technology is already automating fraud detection, providing a better service experience for customers while at the same time reducing the number of fraudulent claims. Machine learning and predictive analytics will soon change how we think about insurance fraud, with less reliance on the ‘gut’ feelings of claims handlers in favour of a more data-led fraud identification and insights.
QBE, which has an in-house team of data scientists, has been developing just these kinds of technology solutions. This year will see a real step-up in our anti-fraud capabilities with the rollout of a custom-built predictive analytics tool and text mining capabilities. We are now at a point where all relevant data will be in one place, in a harmonised searchable format.
When it comes to tackling insurance fraud, individual insurer’s own fraud prevention and identification capabilities are just as important as changes in legislation and data sharing. Insurers that are weak in this area are likely to be targeted by fraudsters, and could allow fraud to persist in the insurance industry despite the best efforts of others.
The key to combatting insurance fraud in the future will be through having high quality data captured in a reliable and timely fashion allowing more efficient and sophisticated insights that can inform a more fluid fraud detection approach. A holistic method to this across all insurance products will give us greater traction on the ever-displacing fraudster who operates between product lines and fraud types to exploit new laws and insurance processes.
More often than not, fraudsters are one step ahead of insurers, but the gap is closing as we become more advanced with our data analytics and our detection techniques. As part of this data revolution, while the onus is on insurers to create the mechanism and understanding of how to use the data, the reliance on how we capture the data is integral. Brokers, underwriters, claims adjusters and our customers are often the people at the first point of data capture, and it is paramount that we all work together to ensure we are helping one another to achieve our greater capability goals.
Legislative reform alone cannot eliminate fraud, but collaboration and better fraud prevention tools through enriched data capture will make it harder for criminals, potentially driving fraudsters out of the insurance industry.