Insurance fraud varies in gravity, from organized crime such as staged accidents, called “crash for cash”, on the one hand, to the exaggeration of the value of genuine claims on the other. Honest policyholders ultimately foot the bill for fraudsters’ criminal or opportunistic behaviour, and fraud detection is taken very seriously in both Germany and the UK. The Association of British Insurers reports that in 2016 British insurers detected 125,000 dishonest insurance claims valued at GBP 1.3 bn. In terms of value 60% of these were motor claims.
Four entities focus on insurance fraud in the UK: the Insurance Fraud Bureau (IFB) deals with the prevention and detection of organized fraud; the Insurance Fraud Enforcement Department (IFED) is a police unit that is dedicated to prosecuting fraudsters; the Insurance Fraud Register runs a database in which British insurers record the details of known fraudsters, and finally MyLicence detects motor fraud at the underwriting stage.
In recent years insurance companies have come to realize they can make use of the data they already possess in their systems to combat serious and organized fraud. This involves pooling data that is stored in various departments, especially underwriting and policy administration. Only then is there a chance to gain an insight into a policyholder’s attitude towards insurance. By analyzing the data from a wide range of sources anomalous features of behaviour can be identified that have some degree of predictability. With this as input, sophisticated models can in theory be developed to identify potential elements of fraudulent behaviour at both the underwriting and claim stages.
Unfortunately, many policyholders regard cheating their insurers as a battle of wits rather than fraud, and so some UK insurers take a rather different approach for the retail market. Attempting to stem fraudulent claims by asking all claimants for more information is not only expensive, but can give honest policyholders the impression that their insurer simply does not want to pay claims. For this reason some UK insurers use various lie detecting devices, such as software that analyzes the stress level of claimants’ voices on the telephone. This can indicate whether something is being concealed, and prompt investigation. As well as achieving high fraud detection rates, such devices also save a good deal of time that is used to intensify efforts against serious fraud. Even though callers’…