May 2008

Counter Fraud Measures

Practical Steps for Loss Adjusters

A National Training Presentation by CILA Anti-Fraud Special Interest Group Members:

Summer 2008

May 20082

Is Insurance Fraud a Victimless Crime?

Fraud is estimated to cost each household £655 a year

*ABI submission to the Fraud Review 2006

The ABI Anti-Fraud Committee estimates the annual cost of General Insurance Fraud to be circa £2billion

*ABI Anti - Fraud Committee for General Insurance

The ABI estimate that 15% of household claims are fraudulent

* ABI 2006 publication “Tackling Fraud”

The ABI estimate that 10% of commercial property claims are exaggerated.

* ABI UK Commercial Insurance Fraud Study

May 20083

Why do Loss Adjusters need to demonstrate Fraud Awareness?

The fourth FSA requirement concerning financial crime requires those who are regulated to have an effective counter fraud policy.

This includes: All regulated staff, including their suppliers, to be “fraud

aware”And requires the regulated business to: Evidence deployment of their effective counter-fraud strategy

May 20084

What is Fraud Awareness & how do I keep up to date?

Whilst claims anomalies occur naturally, recognise that fraud can be present at any stage of handling a claim.

Awareness originates from a blend of personal experiences and knowledge of fraud.

The application of education and training about what is termed fraudulent conduct by claimants, third parties, suppliers, claims handlers and others

Include recognition of risk (fraud) indicators in reports and show how the issues were resolved

Check for guides on risk indicators & current fraud issues and trends at: ABI: http://www.abi.org.ukCILA: http://www.cila.co.ukIFIG: http://www.ifig.org/

May 20085

What Constitutes Fraudulent Behaviour?

Fraud Act 2006 Fraud itself is not defined. Frauds require evidence of one of the following styles of

behaviour:• By false representation (Section 2)• By failing to disclose information (Section 3)• By abusing a position of trust (Section 4)

Each action requires evidence of:• Dishonesty • Intent to make a gain or to cause a loss

(Came into effect 15/1/07 for England and Wales. Similar law in Scotland and Northern Ireland)

May 20086

ABI Fraud Definitions 2004

Two Categories Underwriting Fraud Claims Fraud

Proven Insurance Fraud Where the proven deliberate actions of a policyholder or third party

are clearly evidentSuspected Insurance Fraud

Where a handler having an actual suspicion of fraud challenges the applicant/claimant by letter, telephone call or instruction of an investigator etc, to clarify key information, provide additional information or documentation etc, and the applicant/claimant subsequently goes away

May 20087

Underwriting Fraud

Where a policyholder or applicant either misrepresents or deliberately fails to disclose material facts at policy inception (that would materially impact either the terms and conditions applied to a policy of insurance, or the issue/renewal decision itself ) for financial gain.

May 20088

Claims Fraud

3 broad categories:

Fictitious Losses, Incidents or injuries Claimed loss or incident did not occur. However, a policyholder or

3rd party falsely claims they did and deliberately presents a false set of circumstances and/or evidence for their financial gain.

Staged incidents Where a claim is received in respect of damage, loss or injury that

has been caused deliberately.

Material misrepresentation or exaggeration of loss or personal injury Where genuine losses or incidents occur and a policyholder or third

party deliberately misrepresents relevant material facts and/or exaggerates the true extent of damage sustained or material loss or personal injury received, above and beyond what they would be ordinarily entitled to, for financial gain.

May 20089

IDENTIFICATIONRESOLUTION

INVESTIGATION VALIDATION

The Counter

Fraud

Continuum

A Continuous Cycle

Prepared by Keoghs Solicitors

May 200810

Four Part Set

Identification Fraud Awareness Risk Indicators Referral for

Investigation?

Validation Non complex enquiries

to confirm what told by claimant to remove concerns

Referral for Investigation?

Investigation when concerns cannot be removed Research Anchoring issues with Customer Technical Review Investigation against Investigation

Plan

Resolution after Investigation Remove concerns and settle the

claim Process produces:

Drop out by claimantFraud Proven and Claim DeniedReferral to the police for

prosecution?

May 200811

Fraudsters

PROFESSIONAL & ORGANISED FRAUDS

10%

OPPORTUNIST FRAUDS

80%

AMATEURS, RECKLESS & CARELESS

10%

Focus for

Counter

Fraud

Measures

Insurance Fraud

Bureau Targets

May 200812

Good Service to retain Client’s Customers Counter Fraud

Measures to Protect Honest Policyholders

Treating Customers Fairly- The Right Balance

May 200813

Examples of Fraudulent Conduct

Fraud appears in different shapes and guises, including: The loss that did not happen The contrived loss The deliberate loss Genuine loss but exaggerated Genuine loss excluded but made to fit the policy A loss where the goods claimed for were not owned by the

claimant

May 200814

Presented at

Correct

Level?

Original

Documents

to Support

Claim?

Occurred

as Claimed?

Operation of

Insured

Peril?

Compliance

with

Policy

Terms?

Any Material

Misrep or

Non-Disc?

Full

Disclosure

At

Inception?

CONFIRM

EACH SEGMENT WITH

CUSTOMER BEFORE

PROCEEDING TO

SETTLEMENT

Claims Validation Process

May 200815

What do we do with Suspicious Claims?

Recognise the risk (fraud) indicators.

ABI definitions give an industry standard definition of fraudulent conduct and useful KPI’s to measure performance

Within own skill sets seek to resolve the issues with the customer (Use TCF process)If resolved :

Record concerns on the file and show how they were resolved and continue as normal

If Unresolved: Conduct appropriate Research

If Resolve concerns can return for normal handling If still unresolved

Refer to Technical Claims/Investigation Team Identify suitable Investigation Plan – agree same with Insurers and work

to it

May 200816

The Police investigate Crimes to identify a criminal

Loss Adjusters confirm Policy Liability for an insured loss

May 2008

Treat the Customer Fairly

“Spirit of TCF extends to weeding out fraudsters, i.e. it is incumbent upon organisations not to pay fraudulent policyholders in order to evidence that they are treating genuine policyholders fairly”

“In support of this, fraud is to be a key topical subject for 2008 and audit visits will focus upon establishing that firms have a clear anti-fraud culture”.

Andrew Bulley & Sarah Forsyth FSA Retail Firms Division

We have been warned!!!!!!

May 2008

Summary

• Fraud Awareness as part of a rounded counter-fraud package is good business practise and required by the FSA

• Know & follow your company counter fraud process• Treat the Customer Fairly• Using the ABI fraud definitions will lead to consistency of

interpretation• ABI Categories can be used as Counter Fraud KPI’s to measure

own performance as well as that of competitors• Benefits for Honest Policyholders