There are a number of factors at play in the global economy right now that should prompt insurers to fear a heightened fraud risk in the months ahead. Inflation is rising, driven by food and fuel prices; cost-of-living pressures are squeezing household and business budgets alike. And many Western governments are beginning to question the long-term sustainability of domestic support packages, like subsidies or handouts offered during the pandemic or in response to the war in Ukraine.
In desperate times, some fraudsters will turn to desperate measures.
“We know from previous experience that when there is financial hardship, the volume of fraud increases, so we expect to see that happen as we face the latest challenge,” says Clare Lunn, Head of Fraud at UK-based insurance company Markerstudy. Lunn has over 20 years’ experience in the industry, including chairing the General Insurance Fraud Committee for over three years.
Nigel Cannings, CTO at Intelligent Voice, is an expert in insurance technology that can help revolutionise the industry – including detecting fraud. He concurs with Lunn about the nature of the threat we’re facing: “Unfortunately, in a recession, there is always an increase in fraud,” Cannings tells InsurTech Magazine. “There was a reported 17% increase in 2022, which was itself 11% above pre-pandemic levels. Surveys have shown that during a recession, people’s willingness to exaggerate claims does increase, although the number of people who view insurance fraud as a completely victimless crime does seem to be decreasing.
“Fraud increase in a recession, however, does not seem to be completely linked to insurance fraud claims, but also to an increase in online crime. With banks getting tougher on frauds like ‘card-not-present’ fraud (which decreased 6% in 2022 in the UK), it seems people may be falling victim to get-rich-quick schemes as a means of trying to escape from those economic woes. People are more likely to ignore warning signs in the hope of getting money quickly, when unfortunately these schemes are being promoted by fraudsters. Also, there is an increase in ‘ghost broking’ on social media, with fraudsters selling cheap-seeming insurance that is actually worthless.”
What scams should insurers be aware of?
It’s not just an uptick in fraud, prompted by the current economic doom-and-gloom, that insurers need to look out for: one trend on the rise is that of quote manipulation.
“Quote manipulation is a form of fraud where consumers deliberately misstate key facts as they shop online for insurance,” explains James Burton, VP Product Management for LexisNexis Risk Solutions Insurance in the UK & Ireland. “It is a significant and growing challenge. Our study found 21% of consumers think it is completely acceptable to manipulate the information they provide for a cheaper motor quote – up from 12% in 2018.
“Data enrichment can help validate information provided by the customer, offer more detail about the risk, and flag the probability of quote manipulation through solutions such as LexisNexis Quote Intelligence. This uniquely uses quote history data from across the motor insurance market. Insurance providers are then in a more informed position to query the data with the customer before the policy is incepted and help avoid policies being rendered void if deliberate misstatements are uncovered at claim.”
Nigel Cannings continues: “The most obvious and the most difficult claims to deal with are often those of an exaggerated claim following, say, a break in, with consumers adding items to the list to boost the financial claim. While this is in and of itself unsophisticated, it is quite difficult to detect. Accidental damage claims are also showing an increase during the current time of economic uncertainty. At the same time, criminals are always looking for more sophisticated ways in which to game the system.”
Governments and regulators are beginning to crack down on fraudulent behaviours, but criminals intent on gaming the system will always find a way to remain one step ahead. In the UK, for example, the government introduced reforms two years ago to stem the tide of motor vehicle whiplash claims. At the time, claiming for whiplash in a cash-for-crash scenario was a favourite of insurance fraudsters – and one of the most difficult claims to disprove. The measures introduced by the government included redefining whiplash, setting limits on compensation for whiplash injuries, and banning insurers outright from offering to settle whiplash claims without medical evidence. On the face of it, the reforms should have stamped out a chunk of insurance fraud – but in reality, the result is a mixed one.
Nigel Cannings says that cash-for-crash scams have just moved north of the border, to Scotland, where the reforms do not apply. “One insurer there has reported a 60% increase in personal injury claims related to cash-for-crash between 2021 and 2022,” he says.
And Clare Lunn from Markerstudy says some claimants are “finding ways to commoditise road traffic accidents, despite the whiplash reforms”. Still prevalent, she says, are phantom passenger claims, where people not in the vehicle were still claiming injury; professional enabler-led fraud, where additional treatment is being recommended to increase costs; and a shift away from exaggerating neck injuries to exaggerating injuries on other parts of the body, like the knees or the elbows. The fact that all of these techniques occur in just one line of insurance – auto claims – highlights how complex the fraud landscape is for insurers.
The emerging threat of claims farming
By Nigel Cannings, CTO at Intelligent Voice
Claims farming is a constant issue whereby illegitimate third parties will encourage unsuspecting consumers to make claims, for which they will receive an introduction fee. The methods used to contact people move with the changing communications landscape, with platforms like Instagram allowing for fraudsters to get in front of a much wider audience more quickly than before, when using more traditional cold-calling techniques.
Fraud moves with the times: during COVID-19, there was a decrease in personal injury and motor claims due to the restriction on movement. However, with a return to work and travel, combined with a significant lack of investment in infrastructure, we will see a rise in ‘slip and trip’ claims and personal injury claims relating to cyclists hitting potholes. This is exactly the type of claim that claims farmers love to see.
Will the nature of insurance scams change?
As consumers face increasing economic hardship, will the nature of insurance fraud change?
“We are expecting to see more opportunistic fraud,” explains Lunn. “This is both in terms of fraudsters looking to take advantage of customers experiencing hardship, but also with more fraudulent interactions from policyholders at both the policy inception stage as well as at claim stage as they are tempted to exaggerate a genuine incident.
“In terms of other fraudulent activities, I think it will be the case of being aware of ‘old favourites’ of the fraudsters, while also keeping our finger on the pulse to try and identify new and upcoming tricks.”
She warns there could be an increase in claims farming, where third parties encourage consumers to pursue claims for financial gain; or staged and induced claims events “as there is clearly still money to be made in personal injury claims”.
However, there is also a risk that consumers see these headline-grabbing statistics about attempted insurance fraud and dismiss it as scaremongering. “I think there is a general mistrust of insurers,” Lunn adds. “People always hear about the bad news stories and think insurers are actively looking for ways to get out of paying a claim; they don’t tend to hear that over 98% of claims are paid.”
What can insurers do to counter insurance fraud and fight back against stereotypes?
Nigel Cannings of Intelligent Voice shares his thoughts on how insurers can utilise technology to help improve their effectiveness in spotting and tackling fraud: “There are a number of ways in which technology can help. Recent advances in biometric technology have greatly enhanced the ability to detect multiple identity fraud, where the same caller makes repeated fraudulent claims using different identities.
“There has been a lot of noise in the press about ChatGPT recently, which has highlighted the effectiveness of Natural Language Processing technology to a wider audience. However, the underlying technology of Large Language Models has been used increasingly in the insurance space for some time now to improve the understanding of interactions between agents and claimants in the call centre – to assess emotion, sentiment, and deception. But this new focus on ChatGPT runs the risk of companies forgetting about issues such as data protection and security, as a lot of cloud NLP APIs do not necessarily give the type of GDPR and similar protections that can be given by specialist providers.”
Technologies like artificial intelligence (AI), machine learning (ML) models, voice-to-text, and optical character recognition (OCR) can all help insurers to monitor claims without intervening too heavily in the customer experience.
Ultimately, insurers can not afford to go too far and undo the progress they have made in improving digital journey flows. After all, consumers still expect a claims flow that is simple, seamless, and doesn’t automatically treat them like a criminal. Nevertheless, it is clear that the industry must be on guard right now in the face of both the volume and sophistication of fraud increasing.