Judging by the latest figures from the City of London Police’s Insurance Fraud Enforcement Department (IFED), it seems that ghosts are for life rather than just Halloween – or at least ghost brokers are. Since the department was established in 2012, it has carried out 86 investigations into ghost brokers, with a total value in excess of £11.5m ($14.5m).
However, IFED officers believe the true number of victims of ghost brokers is much higher, which highlights just how much of a problem insurance fraud is within the industry. It's not just ghost brokers who are getting in on the act either, as consumers are also looking to manipulate their application data to achieve a cheaper premium.
SSP data showed that even in a soft market, more than a third of converted policies had at least one potential indicator of application fraud, costing the industry nearly £2.8bn ($3.5bn) in lost premiums and the additional claims exposure. Now, as the market hardens, we are seeing a shift in premiums, with the latest AA British Insurance Premium Index demonstrating a 16.3 per cent year-on-year increase in the average premium paid by motorists shopping around for the best comprehensive quote.
It’s not just premiums that are shifting – the ways in which customers play their data are changing too. With mobile devices such as smartphones using GPS tracking, the location of any individual is no longer secret, and consumers may have already been caught out by the heightened governance around NCD. As a result, fraudsters are increasingly targeting criteria like vehicle usage and occupation, which are more difficult for insurers to substantiate, and are taking full advantage of the fact that there are no databases where vehicle usage can be validated.
According to SSP’s research, millennials (under the age of 35) were three times more likely than baby boomers (over the age of 55) to have a motor insurance policy where some of their personal details were inaccurate – whether deliberately or by mistake – so the next generation of insurance customers looks set to continue this trend.
All of this highlights just how much of a complex situation the insurance industry is facing when it comes to fraud prevention. Traditional thinking has demanded a holistic approach to identifying and controlling insurance fraud, which can seem too resource-intensive amidst all the other demands on an insurance business.
Perhaps it is hardly surprising then that, according to the Insurance Fraud Survey 2015, only 22 per cent of insurers feel they are dealing with application fraud successfully. Moreover, SSP research showed that almost three-quarters (74 per cent) of brokers said application fraud is not a priority for their business over the next 12 months.
Yet, by adopting a different model where they take small steps to tackle insurance fraud, insurers and brokers can reap the benefits while still focusing on their day-to-day activities. This is where a test and learn approach comes into its own. By taking steps to understand where the problems lie within their business, formulating hypotheses to boost their fraud defences in those areas and then analysing the impact, insurance providers can tackle the growing trends of ghost broking and consumer risk data manipulation in a cost-effective way.
But there is still the question of where to start. A good first step is something quite fundamental, watch lists. Insurers and brokers often find that when they void policies due to suspected fraud, the guilty party simply reuses the same details to take out a new policy. With watch lists in place, insurance providers are alerted when proven or suspected fraudsters, ghost brokers and fraud rings that they have previously blacklisted try to return.
Insurance providers can use names, addresses, email addresses, computing devices and phone numbers to identify risks they don’t want to write, and decline those risks when they attempt to open a new account. As these lists can be configured, insurers can test and learn to see what works for them and then audit the watch lists accordingly.
Once they have a solution in place to tackle the fraudsters who have come to their attention, insurance providers can adopt further functionality to identify the individuals who are not known fraudsters, but who are manipulating their risk data to achieve the cheapest premiums.
Even just by adding watch list capabilities, insurers will steal a march on their competitors who are so overwhelmed by the complexity of fraud prevention that they have yet to take the blinkers off.
And all without the risk and time-consuming nature of trying to do everything at once with an all-or-nothing approach.
By Adrian Coupland – Managing Director, Distribution and Data, SSP