Posted on Jun 29, 2012 by Sergio Ulloa
Today, fraudulent claims pose greater costs to the insurance industry than ever before. Unfortunately, these costs will only continue to rise unless the sector begins to utilize the mountains of data within its access to curb consumer fraud. After all, it is the policyholders who pay through hikes in premium prices. As a result, retaining loyal customers while managing unnecessary costs remains the most difficult challenge for insurers.
In the United Kingdom alone, consumer fraud costs the insurance industry EURO2 billion (USD3.13 billion) annually, which roughly amounts to EURO44 (USD 55) added to each policyholder's annual bill.
The extra premium costs originate primarily from the motor sector, and continue to increase despite insurers attempts to regulate them amidst modern compensation culture, according to a report by the financial services and investment media company Clear Path Analysis.
Clear Path Analysis' report also placed stress upon EU insurers to maintain clientele confidence, and to solve the issues of "reducing operational overheads" and "instigating smarter technologies to identify and reduce risk." Failure to address these problems, coupled with poor customer focus due to disjointed resource and information databases could very well compel clients to change insurers.
The Association of British Insurers (ABI) revealed that within the motor sector, roughly 1,200 whiplash claims are fabricated daily, constituting the largest proportion of excess payment, leading to increased premiums and reducing consumer confidence.
Now, EU insurers are attempting to develop ways to both reduce the amount of fake claims and comply with Solvency II requirements. Nevertheless, fake claimant methods are becoming increasingly effective, forcing claims-management departments to respond quicker to address customer concerns.
Jamie Hutton, Head of Insurance Practice at Detica NetReveal, a world renowned financial loss and crime prevention solution, shared her advice on the path insurers should take to curb fraud. Hutton noted that insurers need to tap into the vast amounts of data its businesses keep, and turn that information into "actionable intelligence". Next, they need to shift focus from simply detecting fraud to also preventing it. Through analysis of the data held, insurers would be able to piece together patterns and better calculate risk for claims and policies, and therefore learn more about the clients they serve, while distinguishing the loyal customer base from the frauds.
In a recent example, the Supreme Court dismissed an appeal by insurer Zurich UK to discard a claim in its entirety because parts of it were fraudulent. Shaun Summers, the claimant, sustained significant injuries while working on a forklift truck for Fairclough Homes, and exaggerated a claim to 'entitle' himself to EURO838,000 (USD1.05 million) compensation from Zurich.
Although multiple components of Summers' claim were false and "guilty of a serious abuse of process", the Supreme Court could not deny his entire request because it declared such an action not "proportional or just" to the injuries he did receive, dismissing Zurich's appeal.
If the opposite occurred and Zurich's appeal was passed, it would have set a positive beginning for future insurers to reject liability claims on the basis that parts of the claims are false. The court's verdict was no reason for despair, however, as the Supreme Court unanimously confirmed its power to dismiss fraudulent claims in exceptional situations, but declined to do so in this case.
More importantly, Summers ended up receving only EURO88,716.76 in damages once it was revealed that his claim was blown out of proportion, most of which would pay for his multiple legal fees.
Regarding the ruling, Zurich UK Chief Claims Officer Tony Emms, shared that his firm was disappointed with the final verdict of the case, yet content that the Supreme Court at least, sided with his legal perspective. Emms went on to affirm that Zurich will not rest in the battle against insurance fraud, and that fraudsters should now think twice before trying to scam insurers after the Court advocated its support for sending those convicted to jail.
As is evident, insurers are beginning to get a grip on the resources available to them, and take stronger stances to curb the plague that is insurance fraud. With more innovative security measures to be taken, and more insurance companies to join the effort, fraudsters are sure to be deterred from fabricating liability claims in the near future.
Insurance Companies Mentioned
Zurich Insurance Group
Zurich is a leading global insurance group, with 60,000 employees in over 170 countries. Its goal is to help its customers, ranging from individuals to international corporations, understand and protect themselves from risk. Zurich offers a wide range of insurance products, solutions and advisory services.