3rd June 2021: Blogpost: What is going on with insurance Fraud, and what you can do?
We are all tired of the narrative of rising insurance costs and even suspicious of whether exaggerated claims are the real reason for the pressure on insurance premiums. In this 5 min read, we investigate what is going on with fraud, and what WE can do to tackle it.
When we look at this issues of insurance fraud, most people would say, "Well how does this affect ME?" Does a normal policy holder of an everyday insurance policy need to grapple with this issue? Do we care if insurance companies make less profits, don't they have deep pockets? The answer is YES we need to care, as the insurance market must remain healthy, competitive and free from the malign actions of fraud rings and the more benign frauds to keep insurance costs low and have a functioning society!
Fraud is defined as “the deliberate & dishonest withholding or misrepresentation of material information to gain financial advantage”
Why has fraud increased?
Occurrences of insurance fraud have increased during recessions due to economic factors, like unemployment rates, financial stress, greed and the fact that fundamentally in Ireland we have an easy claims environment where there is no downside to making that claim. There is low risk (garda unlikely to prosecute you) and high reward (refer to the huge personal injuries compensations awarded by the Irish Courts).
What fraud typically occurs:
Fraud can happen in two major ways: Completely False Claims or Exaggerated Claims.
FALSE Claim Examples:
Arson: A business has lost some major contracts to competitors and has built up debts and sees no route to escape. They set fire to their building or stock and collect a claim payment.
Crash for Cash: An orchestrated car accident, where the passengers of the vehicle are in collusion with the policy holder to set up the accident and claim for personal injuries for the benefit of both the passenger and policy holder. Tailgating would be another example.
Orchestrated Slips & Trips: A patron visiting a restaurant, splashes water on the floor of the bathroom, setting up a scenario that looks like the restaurant have poor housekeeping levels. They claim that they slipped on the water and submit a claim looking for damages. There is no CCTV in toilet to show otherwise due to GDPR.
Fronting: A phenomenon in motor insurance, where the insurer is told that one person is the main driver of a vehicle and someone else is. Normally a much younger driver. Or even saying that you have 5 vehicles on your motor fleet when you in fact have 6.
Buying Cover After the Fact: It is always suspicious when a policy holder might seek urgent cover and has no regard to the cost. A recent case showed a man had Third party cover but wrote off a high value vehicle after driving it through flood waters. He increased his cover to Comprehensive and then claimed 4 days later for the write off. He was convicted in the Circuit Criminal Court.
Claiming for made up property : Sometimes you hear cases of loss of property where perhaps a real incident has taken place and claims are submitted for items that they never owned with falsified invoices. A recent case was tried in Dublin Circuit court where a householder submitted false invoices for €12,000 of goods he never had in his possession!
EXAGGERATED Claim Examples:
Exaggerated injuries: One of the most common frauds is to maintain you are a lot worse than you are after a real injury. A common example is whiplash, as it cannot be unproven, but happens with all injuries and psychological injuries. The harder it is to disprove the easier it is to commit fraud.
Misrepresentation of information, can sometimes be deemed as insurance fraud as well, it doesn’t always need to be relating to claims.
Obscuring the cause / Claiming for more than is fair : In property claims you see a lot of claims where it is unclear why the damage happened, ie storm damage and actually it was a combination of the rain but also poorly maintained property. Additionally it is not uncommon for property owners to say “We need to replace everything, claim the larger amount, and then not do those repairs pocketing the difference.
Why should we care? What are the consequences ?
The cost of insurance fraud in Ireland to the insurance industry is estimated at €200 million every year. "So what?" you might say, but you as a consumer of insurance pays a portion of that. Insurers say €50 of your motor premium goes to pay for fraud! While strides are being made to counter insurance fraud, the consequences for those involved in it, are minor if any at all. The consequences to the honest policy holder is a very real thing. The cost of fraud is added to every insurance premium that is paid in Ireland.
In addition to direct consumer costs, fraud cases add to the cost of insurance and make the real claims cost inflated, making Ireland a less attractive market for insurers to do business, and if we have fewer insurers we have less competition. This is very clear in the leisure & hospitality sector at present, and in Professional indemnity insurance, both areas cannot get enough insurance capacity and premiums have rocketed.
What can be done & what part do you play?
We need real consequences for people and systemic change in society and the courts to counter fraud. Imposed Fines / Penalties and a meaningful threat of conviction is step one, the gardai fraud unit is totally underfunded and they have never gotten the specific insurance fraud unit off the ground. There are calls to publicise the names of claimants at the moment, in a name and shame type of situation that would deter false claimants, however this is so complex and of course people have a right to privacy. “Insurance Confidential” was set up for member of public to report suspected fraud which has been a help. Insurance companies themselves are employing sophisticated fraud detection techniques including “Insurance link” which allows companies to cross reference claims and a “Fraud Forum” where insurers can share techniques and tools to combat fraud or share info on trends.
Everyone can do their part by reporting suspected fraud to the relevant authorities and understanding and condemning the fact that fraud is immoral and criminal. The main change must come from the top, the government must grasp the nettle and help ensure there is enforcement and funding for gardai.
Insurance fraud is a huge societal problem that affects us all, but if all concerned parties work together to counter and eliminate it as much as we can, there is hope that the benefits to consumers will accrue with time.