New data from SSP reveals that motor insurance fraud in the broker channel costs the industry a potential £1.42 billion in lost premiums due to customers deliberately manipulating their risk data when looking for a quote. This misrepresentation reduces the premium paid by a whopping 46% on average, with customers typically saving themselves almost £295 each by manipulating personal information such as their occupation, where they keep their car overnight, or the number of motoring convictions they have.
This is the first time that the amount lost in premiums has been accurately measured and reveals the extent to which fraud is damaging the insurance industry – with knock-on costs for customers as well. In addition to the lost premium, SSP estimates that the exposure to claims cost in respect of those customers who are misrepresenting at application stage could be as much as £1.36bn, with those that lie at application stage considered across the industry as more likely to make a claim.
With over 1.3 million potential cases of application fraud in the broker channel in 2013 according to SSP’s data, it is clear that insurance fraud has risen sharply, highlighting the need for improved detection. Another recent study showed that insurance fraud has risen sharply since the onset of recession and by 77% between Q4 2012 and Q4 2013 alone.
SSP handles over 3 million quote requests a day across the industry, giving it unique and unrivalled visibility of the market and consumer behaviours through its industry leading ‘SSP Hub’ solution, and has identified that 35% of converted policies typically contain one or more application fraud indicators. The problem is worst in around 5% of converted policies, which have the most significant number of potentially serious inaccuracies and contribute disproportionately more to overall losses in premiums.
Altering basic details on insurance applications can result in dramatic differences in premium costs.
Examples discovered by SSP:
SSP is today launching its new Intelligent Quotes Hub’ (IQH), a next generation centralised dynamic risk rating, pricing and data platform that offers improved pricing precision, unrivalled rating capabilities, allows time to market to be drastically reduced through insurer self-service and enables innovative uses of novel data as well as incorporating the most effective pre-inception counter-fraud solution on the market. SSP’s counter-fraud solution within IQH deals with complexities such as slight changes in names and addresses in order to accurately link data to create a holistic ‘single customer view’ allowing customer activities and behaviour across the whole market to be captured and monitored in real-time.
SSP’s counter-fraud solution is highly flexible and can be configured to express an individual insurer’s tolerance to application fraud. With IQH and its embedded counter-fraud capability integrated with SSP’s ecommerce and mainstream broking platforms as well the SSP Select Insurance platform, SSP has a rating and fraud detection solution suite covering every stage of the business process, from consumer through to underwriting, policy and claims management.
The SSP counter-fraud solution also has the capability to aid in the identification of potential ‘ghost broking’ activity by analysing and alerting activity generated from specific computing devices.
The unrivalled power and insight provided by the SSP counter-fraud solution creates the opportunity for significant value to be realised by both insurers and brokers. By being able to home in on the ‘worst of the worst’ customers, who are paying substantially inaccurate premiums as well as presenting a heightened claim exposure, there is an opportunity to materially improve insurer underwriting results and of course this improvement will be equally reflected positively in broker agency performance.
Adrian Coupland, the Head of Data Strategy at SSP said: “The cost of fraud at claims stage has long been recognised but until now, lost premiums have been hard to pin down. Failures to declare motoring convictions, the usage of a vehicle for business purposes or a misrepresentation of where a car is kept overnight are regularly not picked up until a claim is made, if at all. This means that a significant number of insurance premiums are priced incorrectly creating huge losses to the industry.
“In addition, research has shown that consumers who lie on their insurance application are 66% more likely to make a claim on their insurance so the true cost of application fraud goes well beyond the initial loss of premium.”