What is insurance fraud and what are its consequences?

What is insurance fraud?

In simple terms, insurance fraud is the act of knowingly and deliberately making a false insurance claim, or deliberately embellishing details in an otherwise genuine claim. It is a serious criminal offence and ranges from seemingly small acts of deception such as failing to disclose a claims history when applying for cover, through to serious organised criminal acts of staging insurable events or falsely claiming for losses that never occurred.

The issue of insurance fraud is one that, sadly, appears to be on the rise. Aviva, one of the leading insurers in the UK, reported a 13% rise in insurance claims tainted by fraud in 2021. Indeed, just last year alone, Aviva uncovered over 11,000 fraudulent claims, collectively worth over £122 million.

Investigating insurance fraud

Given that in the UK it is estimated that there is a staggering £2.1 billion of undetected insurance fraud committed every year, it is no surprise that a great deal of effort and resources are put into detecting and preventing fraud across the industry.

The Insurance Fraud Bureau

One of the principal organisations leading the fight against insurance fraud is the Insurance Fraud Bureau (IFB), which is a not-for-profit company founded in 2006 to lead the insurance industry’s collective action against fraudsters. While the IFB is not a government department, it does work extensively with law enforcement agencies and industry regulators to help identify cases of fraud and those committing them.

As well as helping identify fraud, the Bureau also has a remit to educate and inform the public about the consequences of insurance fraud. Indeed, the IFB has recently launched an awareness campaign titled ‘Don’t Chance Fraud’ to highlight the pitfalls of committing insurance fraud, even at a small scale.

Special investigators

There are times when an insurer suspects that an individual or business may be attempting to commit fraud, either by being knowingly dishonest and obscuring facts when purchasing their policy, or by deliberately making a false claim. In these instances, the insurer may hire a special investigator (otherwise known as a fraud investigator or insurance investigator) to dig deeper into the case.

This individual will be a licensed private investigator, trained in techniques to uncover the truth about whether a claim or policy purchase is legitimate. They will invite the suspected fraudster to an interview to probe for inconsistencies in their claim or insurance history and report these back to the insurer.

Based on the findings of the special investigator, an insurer may choose to take certain actions:

• If the fraud was related to non-disclosure of important facts or past claims when purchasing the policy, the insurer may ‘avoid the policy’. This is different to cancelling the policy, as instead it voids the policy entirely as if it never existed and no claims can be backdated to the period before the policy was avoided.
• If the fraud was a deliberate and knowing attempt to falsify a claim, then the insurer may refer the case to the Insurance Fraud Enforcement Department.

The Insurance Fraud Enforcement Department (IFED)

Set up in 2012, the IFED is a department within the City of London Police entirely dedicated to combatting insurance fraud. Even though it is an arm of the police force, the department is funded by the Association of British Insurers (ABI) and has a remit to investigate insurance fraud and bring charges against suspected fraudsters in England and Wales. It will accept referrals of cases from insurers and organisations like the Insurance Fraud Bureau, and aims to work closely with Regional Organised Crime Units (ROCUs) around the UK to target organised fraud networks.

Since its inception, the IFED has:

• Arrested and interviewed more than 2,700 suspects
• Secured more than 1,000 fraud convictions and cautions
• Recovered assets worth close to £3 million

The consequences of insurance fraud

Being added to the Insurance Fraud Register

While the Insurance Fraud Bureau does not have any powers itself to prosecute, or fine insurance fraudsters, it does have a powerful weapon in its armoury, the Insurance Fraud Register (IFR). This is an industry-wide database of known insurance fraudsters that is run by the IFB on behalf of the Association of British Insurers (ABI) which sponsors the register on behalf of its members.

The register is utilised by roughly 80% of the insurance market and is used by insurers when making underwriting decisions and assessing claims. The identities of fraudsters are uploaded onto the register by insurers and the consequences of being on the IFR can be severe. Individuals or organisations on the register may:

• Have special terms applied to their policies
• Be declined from being covered
• Be declined from having their policy renewed

Worryingly, in these uncertain economic times, as a cost of living crisis engulfs the population and businesses struggle to turn a profit, the Insurance Fraud Bureau has identified a major rise in instances of people and businesses being added to the register in the year to June 2022, up 17% compared to the previous 12 months. There are now around 100 new names added to the register each week.

Some of the top reasons for people or businesses to be added to the register, according to the IFB, include:

• Making a claim for ‘lost’ items which are actually still in the possession of the owner
• Exaggerating injury or property damage
• Submitting fake documents for no-claims discounts when taking out a policy

Higher premiums for honest customers

One of the main consequences of insurance fraud is that the costs are passed onto honest policy holders, pushing up the cost of their premiums. The IFR team estimate that fraud adds roughly an extra £50 to every insurance policy in the UK, meaning that honest policy holders are forced to subsidise the dishonest actions of fraudsters.

Examples of insurance fraud

Let’s look at three real-life examples of insurance fraud identified by Superscript to show how varied the act of fraud can be.

1. A change of date

In this first example, a Superscript policy holder was a hair stylist who had been booked through a popular mobile beauty service platform to work at an event during Fashion Week. Unfortunately, during the course of their work the stylist accidentally spilled root touch-up liquid on a cream coloured suede blazer belonging to one of the models.

Despite being dry cleaned, the stain couldn't be removed and therefore the blazer needed to be replaced. The stylist reached out to booking platform to let them know that her current business insurance didn't cover her for third-party property damage. Inturn, the platform suggested that she arrange insurance with Superscript in future as we offer this cover.

The stylist took out a policy with Superscript that same day and submitted the claim for the costs of replacing the jacket a few days later, explaining to us that the spillage had happened that same day. However, we had been privy to the email exchange between the booking platform and the stylist, clearly showing that the incident happened well before the start of her policy with Superscript.

How is this fraud?

Whilst the damage to the jacket was genuine, the date given for when the damage happened was not. The date had been changed deliberately to attempt to have the incident covered by a policy taken out after it happened. The stylist had knowingly and intentionally misled their insurer and the claim was therefore fraudulent.

2. The missing phone

A Superscript policy holder submitted a claim detailing that he had been travelling by car to visit a friend. As he was leaving, during their goodbyes, he placed his phone on the roof of his car and sadly drove home, forgetting his phone.

So far, so plausible.

Given that the phone was lost rather than simply damaged, we requested proof that the phone had since been blocked by his mobile phone provider as part of assessing his claim. The policy holder did provide a letter, however;

• The named party on the letter was different to the policy holder making the claim
• The date on the letter pre-dated the claim itself
• The date that the phone was reported as lost pre-dated the policy by almost two months

As we suspected this claim might have been fraudulent, we requested the policy holder’s permission to speak to their phone network, EE, to confirm and verify the information in the letter. Somewhat confirming our suspicions, the claimant has not (to date) responded to our request and has since stopped paying for their policy, leading it to be cancelled.

How is this fraud?

The different name on the letter from EE incidentally led our claims manager to discover another, suspiciously identical claim, which is always a red flag in a case such as this. Also, we considered that the dates on the letter from EE pre-dated the claim, the date of the event in question was before the start of the policy and the policy holder refused to allow us to communicate with EE. It was therefore our heavy suspicion that the policy holder was making a knowingly and deliberately fraudulent claim.

3. The serial claimer

A photographer and videographer who had a policy with Superscript sought to make a claim for a pre-2010 Apple laptop which had been accidentally knocked off the side by a client during editing.

That particular policy provided 'new-for-old' in respect of electronic items and the policy holder provided a report from the Apple Store confirming that the laptop had been damaged beyond repair. However, the policy holder could not provide any proof of purchase or any confirmation about the original specifications of the machine. Somewhat suspiciously, they also did not wish to go back to Apple to obtain this.

As such, we contacted Apple and explained about the broken machine. They in turn explained what the best possible specifications would be for a laptop of that age and confirmed what model would be a suitable replacement. The policy holder refused to accept this replacement.

The unwillingness of the policy holder to provide proof of purchase led to a further review of the file which revealed that they had claimed for (and received payment for) a stolen Macbook Pro in 2021, 2020, and 2019. Queries were then raised as to why they were now claiming for such an outdated machine when they had evidently purchased a much newer model. No further contact was made by the claimant after this point.

How is this fraud?

A claim made for an out-dated electronic device (with no proof of purchase) by a policy holder who clearly has a much newer machine having made multiple claims in previous years was enough to raise suspicion of fraud. The policy holder immediately breaking off contact once being made aware of the issues further reinforced the suspicion that this claim was not legitimate, but was instead knowingly and deliberately attempting to defraud the insurer.

How to be sure you're not accidentally committing fraud

The serious consequences of committing insurance fraud outlined in this article are very real and can have a seriously damaging effect on your and your business' financial future. However, there's no real reason to be scared of being caught out by accident as a genuine and honest business.

Insurers are not here to try and catch honest people out and our claims managers are here to help you receive payment for your claim as smoothly and quickly as possible. In fact, the vast majority of claims are paid out promptly, and you can always get in touch with us in advance if you are unsure as to whether or not your claim is legitimate. Enquiring about whether or not you have a claim to make is not fraudulent.

Read more about how our claims process works here at Superscript.

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