The true cost of fraudulent payments
Inflation rates are high, interest rates are rising and the cost-of-living crisis isn’t going away. And with it, the increase in fraudulent payments. Zurich reported in 2021 that the cost-of-living crisis fuelled a 25% rise in insurance fraud, with the Insurance Fraud Bureau (IFB) finding one in five 18-to-25-year-olds would ‘likely’ commit an act of insurance fraud if they were struggling financially.
Now, the City of London’s Police Insurance Fraud Enforcement Department (IFED) has warned against a rise in cases of opportunistic insurance fraud, with financial difficulties driving a surge in cases between February and March 2023.
Insurance companies are dealing with rising insurance fraud claims – and in this uncertain economy, efficiencies have never been more important. One area where insurance companies can introduce those efficiencies and combat fraud is in their payment processes.
Why the cost of collecting payments goes beyond fees
Businesses that do not process payments efficiently are likely to be wasting their time and resources. And every insurance company should be asking themselves one simple question: does our current payment solution help or hinder our growth?
Sure, there are the direct costs of collecting payments, like transaction or currency exchange fees, but there are also less obvious, indirect costs -- such as the time spent on manual processes or chasing late payments. These must also be considered when you calculate the true cost.
Why fraudulent payments cost companies money
First, there’s the direct cost of fraud; that is, the revenue you lose to fraud. And then there’s the indirect cost of fraud or the amount of time and money you devote trying to manage and recover fraudulent payments. As we highlighted in our recently-released Cost of Collecting Payments report, businesses spend on average 3% of total revenue and over one month of every year dealing with fraud. This breaks down to 3 hours and 17 minutes each working week!
Just think about what you could do with an extra month each year. To put that into perspective, you could cycle from Lands’ End to John O’ Groats – and back again! And with insurance fraud on the rise and today’s economic environment, businesses cannot afford to waste a thing. Addressing how to reduce the time and cost associated with this challenge should be a top priority for every insurance company.
What insurers should consider when it comes to fraudulent payments
The payment method you use matters. Some methods, such as debit and credit cards, are more susceptible to fraud than others.
UK Finance reported last year that overall fraud losses on UK-issued cards totalled £556.3m (US$729.2m) in 2022 – a 6% rise from 2021. But the good news? A large proportion of this fraud is preventable with a robust payment strategy.
Can insurers prevent fraudulent payments?
Through the use of automation, insurance companies can level up against fraud and use tools to automatically identify, prevent, and monitor potential fraudulent payments – and even recover funds.
For example, Capital on Tap, a credit card and expense management platform built for small businesses, recently spoke about how it has been able to retrieve £34,000 of chargebacks using our platform. This allowed them to fight back against fraud and retrieve revenue that would otherwise have been lost to chargebacks and disputes.
At a time when efficiency and saving money are paramount, re-evaluating your payment strategy could be the secret to safeguarding revenue now and in the future. After all, protection against a possible eventuality is the definition of insurance.
About the author
Pat Phelan is the Chief Customer Officer and Managing Director, UK & Ireland at GoCardless, responsible for the go-to-market strategy and execution in the fintech’s largest market. With over 20 years of experience in tech and customer-focused roles, Pat joined GoCardless in 2019 after serving as Chief Customer Officer at Brandwatch, with prior roles at Bazaarvoice & Taleo (acquired by Oracle).
