08 Sep 2005

A syndicate of major insurers, the ABI, and insurance industry partners have conducted a major investigation into the scale and nature of commercial insurance fraud.

Too little is known about commercial insurance fraud. To plug this gap, the syndicate asked MORI to survey people responsible for insurance in 1,100 companies. Three hundred employees from a range of occupations were also interviewed.

The headline facts and figures:

The survey, combined with insurers’ claims data, shows the cost of commercial insurance claims fraud is £550 million each year. This figure is high and shows commercial insurance claims fraud at around the same relative cost as personal lines claims fraud. It represents 5% of total insurance premiums. This figure is made up of fraudulent claims by businesses against insurers and fraudulent claims against businesses by employees paid ultimately by the company’s insurance policy.

The most costly frauds are those which are either entirely bogus or staged. Invented or staged claims are relatively low in volume, but higher in cost, because the costs of the claims are generally higher.

Whatever the type of fraud, the cost ultimately falls on businesses in the form of higher premiums.

How commercial insurance fraud is perpetrated:

Businesses and employees revealed how they went about committing commercial insurance fraud:

Businesses exaggerating genuine claims:

The majority of fraudulent claims arise from the exaggeration of genuine incidents.

• People working in smaller firms are five times as likely to see insurance fraud as acceptable.
• 15% of sole traders feel it is acceptable to exaggerate a property insurance claim, compared with 3% for firms employing more than 500 people.
• The better news is that only 8% of businesses believe exaggerating an insurance claim is acceptable. Businesses providing false or incomplete information to insurers: Other ways of committing fraud include inventing a claim or providing false information on an application for insurance.
• 6% of companies are aware of instances of withholding or providing false information on an application. However this figure rises to 40% of the largest companies.

False or exaggerated claims made against businesses by members of the public, employees or suppliers:

The survey also showed how insurance fraud arises because customers, suppliers and employees make claims against companies that are passed on to insurers. For example, in the last two years:

Businesses revealed:

• 9% of businesses received a false personal injury claim from a member of the public.
• 2% had a false compensation claim made by an employee.
• 13% reported that they had received incorrect supplier invoices and 10% had been invoiced for work not done. 
• Larger firms are most likely to be a target for these fraudulent claims. 64% of companies employing more than 500 staff reported at least one fraudulent personal injury claim made by a member of the public. 
• 56% of firms with 500 staff has experienced an employee claim for injury/illness allegedly caused in the workplace that was not. This falls to 12% for firms with under 100 employees.

Employees revealed:

• 22% of employees thought it would be easy to exaggerate a genuine illness suffered in the workplace to gain compensation from the employer. A further 17% thought it would be easy to invent a similar claim against their employer.

Why do businesses and employees commit commercial insurance fraud?

Businesses revealed:

• 18% admitted they committed commercial insurance fraud for personal gain.
• 34% believed that policies may not cover all the costs involved.
• 31% just wanted to claw back the money they’d paid in premiums.

Employees revealed:

• They committed commercial insurance fraud either from a wish to ‘cover up’ negligence in order to avoid punishment, to make money or to get back at their employer because of a previously bad relationship.

The Insurance Industry’s Determination To Tackle Commercial Insurance Fraud, So Protecting Honest Customers

The findings of the MORI research published today, 8 September highlight why the insurance industry continues to treat tackling insurance fraud as a priority.

Insurers take fraud very seriously, and are determined to reduce it. It damages confidence in the industry and has a significant impact on honest customers. The report based on analysis of the survey shows that commercial insurance fraud adds approximately 5% onto the cost of a premium for the average business.

Insurers are already taking action to combat fraud:

• Sharing data on fraudsters – the industry is building on its anti-fraud databases so that fraudulent activity can be detected across companies, product lines and regions. With this new tool, fraudulent addresses and the fraudsters themselves can be detected. 
• The ABI and our members is working to ensure there are no soft targets for fraudsters. Building on the expertise of large companies, the ABI is facilitating the spread of good practice throughout the sector, through a series of information sharing seminars. These will highlight emerging trends, the latest anti-fraud techniques and risks common to most insurers. 
• The ABI is benchmarking its members’ fraud performance, with figures on fraud savings helping to shed light on the scale and impact of fraud, and the methodologies for fraud prevention which yield the best results.

But more needs to be done, and the MORI findings highlight where more action is needed. The ABI will take the MORI conclusions forward by:

• Improving dialogue with industry partners and service providers. The MORI research reveals that the way insurers interact with service providers (such as repair engineers and health professionals) can leave them vulnerable to fraud. The ABI will explore the possibility for codes of practice with these sectors, and will work with other trade associations to provide a forum for problems and possible solutions. 
• The ABI will work with its members to explore how fraud can be “designed out” of insurance products. 
• The ABI will be working with the DTI to explore how data could be shared across industry and government to combat the minority of persistently dishonest businesses. 
• The ABI calls on government, as a consequence of the growing evidence for the high cost of fraud, to give fraud a higher priority in police objectives. Police and the crown prosecution service need more resources to tackle fraud, and need anti-fraud measures to feature in their key performance indicators.

Commercial Insurance Fraud Syndicate Members

Association of British Insurers.The ABI is the trade association for Britain’s insurance industry. Its more than 400 member companies provide over 94% of the insurance business in the UK. It represents insurance companies to the Government, and to the regulatory and other agencies, and is an influential voice on public policy and financial services issues. ABI member companies hold more than a fifth of all investments traded on the London Stock Exchange, on behalf of millions of pensioners and savers.

Capita Insurance Servicesis the UK's leading provider of business support services for insurance offering professional services, operational solutions and strategic partnerships for insurers, brokers, affinities, corporates, government and the London market. Ranked No.1 in the Insurance Services market in three consecutive years and with over 41.2% market share (source: HI Europe 2004), it manages in excess of £12bn insurers’ liability, employing nearly 5,000 staff across an integrated network of UK business centres. Capita Insurance Services extended its end-to-end fraud management capability in November 2004. With its acquisition of Brownsword and in strategic partnership with Digilog, it was awarded an exclusive ten-year license to use Digilog’s Advanced Validation Solutions (AVS) incorporating Voice Risk Analysis (VRA) software, on a preferred supplier basis in outsourced solutions in the UK and Ireland. The company now uniquely combines the UK’s founding specialists in fraud investigation together with the managed application of voice risk analysis technology to create an unrivalled offering in fraud prevention, detection and management.

Cunningham Lindsey UKspecialises in providing expert claims management and loss adjusting services, coupled with numerous specialist products such as project management services, risk management, and subsidence, to name a few. The company's leading capabilities and cost-effective business model support industry requirements for compliance and corporate governance, whilst securing the highest level of customer retention and satisfaction. Long-term investment in IT, alongside detailed and transparent processes, allows the business to design and deliver innovative services that generate competitive advantage in support of the customer's goals. Cunningham Lindsey UK has comprehensive fraud detection systems in place, including those designed specifically for commercial claims. Fraud Management Services include Screening, Special Investigations, Investigative Telephone Interviewing and Forensic Investigation.

Davies Arnold Cooperis a commercial law firm with offices in the UK, Spain and Mexico providing advice in relation to specialist areas of law including insurance, re-insurance, fraud, health and safety, competition law, construction, planning, product liability and property. The firm is particularly known for its expertise in helping clients to resolve disputes. With over 150 fee earners, of whom 38 are equity partners, the solicitors employ more than 300 people. As a legal market leader in the insurance and re-insurance markets the firm opened an office in Madrid in 1989. DAC is now recognised as the leading insurance specialist in Spain where it advises most of the domestic and international insurance companies. Our success in Spain, where we now offer clients a full legal advice service, led us to open an office in Mexico City in 2003. Visit the website at www.dac.co.uk

NIG  Established for over 100 years, NIG is one of the UK’s leading insurance companies that sells its products exclusively through brokers, insuring nearly two million policyholders. NIG is a leading insurer of small to medium sized businesses and private customers throughout the UK and is part of The Royal Bank of Scotland Group. Visit www.nig-uk.com for further details.

Royal & SunAllianceis one of the world's largest multinational quoted insurance groups focusing on all major classes of general insurance. Royal & SunAlliance currently transacts business in some 130 countries – looking after 20 million customers – and the group employs around 32,000 people worldwide. Within the UK, Royal & SunAlliance is one of the country's leading commercial and personal lines insurers, covering the insurance and risk management needs of a significant number of FTSE 100 companies. It has a full multi-distribution capability, writing business through brokers and corporate partners, direct and online.

Zurich Financial Servicesis an insurance-based financial services provider with a global network that focuses its activities on its key markets in North America and Europe. Founded in 1872, Zurich is headquartered in Zurich, Switzerland. Zurich has offices in more than 50 countries and employs about 57,000 people.

Notes to Editor

The research
The syndicate commissioned MORI to undertake the research in 2005. MORI conducted 1,102 telephone interviews with individuals responsible for insurance (or equivalent in smaller companies).

Quotas on size of company and industry sector were used to ensure sub-samples could be examined with more statistical certainty. MORI interviewed respondents from businesses in Great Britain (GB) in 7 key sectors:

• Agriculture / Mining / Utilities
• Manufacturing
• Construction
• Public Sector
• Wholesale / Distribution
• Retails / Motor Trade / Leisure
• Business Services / Property / Financial Services