Pulling off insurance fraud is harder than you may think, because of the sheer number of people standing between you and your payout. Sadly, claimants who attempt to defraud their insurance company not only put themselves in danger of criminal prosecution, they are also set off a chain reaction that results in increased premiums for others. This is caused by the high cost of measures insurers must take to clamp down on fraudsters.
Why do people commit fraud?
But why commit fraud in the first place? What drives people to go to these lengths? We refer to this phenomenon as ‘The Fraud Triangle’ and this behaviour is triggered by three factors:
• Pressure – A person commits fraud because they are under pressure; they can’t find a way out of a difficult situation they find themselves in. The result: they’re tempted to find illegal means to make money they don’t have.
• Opportunity – A person sees an opportunity to solve their financial problems illegally. The person may abuse their power or position, because they understand certain processes and how they can use this insider knowledge to make things work in their favour.
• Rationalisation – A person has a ‘valid’ reason or justification for committing the act of fraud. This behaviour is rooted in a sense of entitlement, or doing it for a ‘good cause’. The more pressure a person feels, the more they’ll rationalise that they’re in the right.
A typical example
John is under pressure to provide for his family. He knows he isn’t getting a salary increase, raise or promotion soon and needs more money. Then John has an idea: he realises that some of the items he’s had insured are actually worth quite a bit, and he sees an opportunity to make some quick money. John lodges an insurance claim for his wife’s ‘missing’ wedding ring and waits for his payout.
What John doesn’t realise is that now he needs to live his lie. Not only does he need to convince all roleplayers that this event took place (investigators, insurance company, police), it also affects his relationships: John will need to lie to his friends and family about this non-event. What if the ring resurfaces?
Economic crimes disrupting business
The nature of the short-term insurance industry makes it susceptible to a higher risk of fraud. And due to its pervasive nature, it is generally difficult to successfully detect both systemic and syndicated fraud.
The risk of fraud being committed increases during times of low domestic economic growth, high unemployment rates and rising household costs placing additional strain on disposable income. Much like the situation many South Africans are facing at present. Economic distress promotes economic crimes, which disrupts business.
The recently published ‘PWC Global Economic Crime and Fraud Survey’ revealed that 2017 had the highest levels of reported fraud and economic crime since 2001. According to the survey, it is believed that the increase in reported crimes is being driven by a heightened state of fraud awareness.
There is a silver lining however, greater awareness, combined with heightened scrutiny, means more fraud cases are spotted and can be dealt with more effectively. Old Mutual Insure also has a policy of Zero-Tolerance towards any fraudulent activities by either its employees or customers.
Typical fraud trends identified by Old Mutual Insure
The Old Mutual Insure Group reported 217 new financial crime-related incidents in the first quarter of 2018, with a financial exposure exceeding R10 million . This is relatively consistent with the number of new incidents recorded in Q1 2017.
The typical trends identified during this period are as follows:
• Syndicates are employing more sophisticated techniques making it difficult to filter through our existing fraud detection mechanisms, for example, Diagnostic Fraud Indicators and predictive analytics.
• Brokers and/or their employees backdating policies to accommodate claims, withholding material information on policy inception or providing a false account of the loss at claims stage.
• Multiple policies incepted with the main purpose of submitting fraudulent claims. The claims were all treated as fast track and the majority of the losses were for theft of clothing stolen from the washing line – some of the commonalities identified included same email addresses, contact details and subsequent investigations also revealed that risk addresses were false.
• Poor data capturing, specifically with regards to third-party claims.
By identifying these trends, and being more aware of tactics used to commit fraud or submit fraudulent claims, insurers can act on any suspicious activity more effectively and proactively work towards setting safeguards in place to prevent these events from happening.