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What is Insurance Fraud?

Dec 23, 2021

Fraud costs the insurance industry over £1billion a year and insurers are estimated to spend over £200million a year on identifying fraud. Not only that, but insurance fraud pushes up the cost of insurance for honest buyers as well. So, it is something which the industry takes extremely seriously.

But do you know what insurance fraud is? And that you could be committing it simply by withholding basic information when you get your insurance quote?

Here we look at what is insurance fraud and the different types of fraud that can be committed – from the opportunistic offender right through to fraud committed by organised, sophisticated gangs

What is insurance fraud?

A general definition states that fraud can be ‘broadly defined as the deliberate use of deception or dishonesty to disadvantage or cause loss (usually financial) to another person or party.’

Action Fraud define insurance fraud as happening ‘when false claims are made to insurance companies.’

What are the different types of insurance fraud?

There are many ways in which people can commit insurance fraud. Whilst insurance fraud is most commonly associated with motor insurance, insurance fraud can be committed across any type of insurance policy.

Insurance fraud can be committed consciously with the sole aim being to profit from engineering an insurance claim. Or it can be opportunistic, arising from a genuine insurance event but where the individual takes advantage of the event to further benefit themselves

Underwriting fraud

This is where fraud happens at the point of taking out an insurance policy, or on application. The applicant may misrepresent information about themselves or fail to disclose material facts. The aim is to benefit financially.

A simple example of this could be that you state that you park your vehicle on your driveway at night. When in fact, you park it on the road.

Underwriting fraud also includes ‘fronting’ which is a type of motor insurance fraud. ‘Fronting’ is the term given whereby a policy is taken out and an individual declares they are the main driver, when in fact this will be another individual. This is done to obtain a more favourable policy price. For example, a parent may take out a policy, state they are the main driver when in fact a younger, less experienced driver who would typically attract a higher premium will in fact be the main driver.

Claims fraud

This type of fraud happens at the claims phase. A claim is made for a loss or incident which never actually took place. The loss, injury or incident being claimed for is entirely made up.

For example, under a home insurance policy, you fake theft of a watch or an item of jewellery and then falsely claim for the loss.

Staged incidents

This happens whereby a loss, damage or injury has been created deliberately to generate a claim.

A good example of a staged incident is crash for cash schemes. Crash for cash is the term given to staged car accidents. They are typically run by fraudsters with the aim of profiteering from fraudulent insurance claims.

Misrepresentation or exaggeration

In this type of insurance fraud, the loss, injury, or incident did occur. But the individual uses it as an opportunity to profit by exaggerating or misrepresenting the facts linked to loss, injury, or damage in order to increase the claims payment.

For example, you may have purchased an item for £3,000 several years ago. But when it comes to claim you tell your insurer that the item cost £5,000.

What are the penalties for committing insurance fraud?

Make no mistake, committing insurance fraud is a crime. And if caught, you will face penalties.

These can range from:

  • being convicted of a criminal offence
  • facing imprisonment
  • an impact on future job prospects
  • your insurance being invalid if you do come to claim
  • difficulty obtaining insurance in the future

Here are some examples of types of insurance fraud which have been investigated and the penalties given.

And this example shows how extended family members of crash for cash fraudster’s were ordered to pay back damages of £300,000 to an insurer following a trial which stretched over 2 years.

The ABI have also put together a myth buster about insurance fraud which is certainly worth a read, highlighting just how seriously this crime is taken.

How does the insurance industry tackle insurance fraud?

Insurance fraud is taken extremely seriously across the insurance industry. Insurers have sophisticated systems in place to detect potential fraud. A recent report from the ABI showed that in 2020 fraud detection rates rose compared to 2019, highlighting the continued action that insurers are taking against fraud.

ABI data from 2020 shows that insurance fraud costs the industry over £1billion a year, with a new scam detected every 5 minutes. That is 300 scams a day. And over 2,000 dishonest applications are detected every day. This just highlight’s the scale of the effort the industry puts into fighting insurance fraud.

The Insurance Fraud Bureau (IFB) was set up in 2006 with the aim of leading the insurance industry’s collective fight against organised fraud. They support the insurance industry by providing intelligence, data, reports, and information all aimed at detecting and fighting fraud.

The IFB also hosts Cheatline, allowing anyone to confidentially report suspected cases of insurance fraud.

The Insurance Fraud Enforcement Department (IFED) was also set up in 2012 and is a specialist unit within the City of London Police who focus on insurance fraud. With a national remit, investigating insurance fraud throughout England and Wales, this is just another example of the fight against insurance fraud.

Insurance fraud will not go unnoticed. It is vital that you give your insurer or insurance broker the most accurate and up to date information when it comes to any insurance quotation. If any of your details change during the course of the policy, it will again be important to update your insurer or broker so that these can be reflected in your circumstances and policy details. You can contact our teams at Anthony Jones at any point to update any of your details or ask any questions you may have about your insurance cover.

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