Fraud Prevention in the Insurance Industry

1
Fraud Prevention in the Insurance Industry

• Observations on Current Practices
• John Eves BA MBS FCCAFCILA
• Managing Director, Thornton Partners

2
FRAUD

• Three functional distinctions.
• Insurance definition refers to fiction or
  exaggeration.
• Fidelity guarantee i.e. specific cover for
  employee misappropriation or fraud.
• Transaction Fraud Stewardship aspect.

3
A Loss Adjusters Perspective

• We are the Response Team i.e. reactors.
• Our actions governed by problem presented.
• Investigative Strategy governed by problem
  presented.
• This may/may not be relevant to you.

4
Outer Frontier Notes

• Lie detection equipment e.g. Halifax voice
  modulation changes.
• Artifical Intelligence/Data mining.
• Predictive Patterns.
• Conversation Management.

5
In Reality - At the Coal Face

• Fraudsters exploit simple weaknesses.
• Dont look for the complex.
• Look for the blindingly obvious.
• Traditional alerts, followed up by dilligent
  work.
• Answer lies in best practise systems.

6
General Comment

• Fraudster will always use customer service or
  company protocols against you

7
System Problem v- People Problem

• 95 of Errant behaviour is provoked by system,
  not people.
• Our experience is that fraudsters exploit system
  weaknesses, rather than set out to create them.
• Opportunities present themselves to fraudsters.

8
Prevention/Detection Framework

• Mission/vision of the organisation.
• Manifestation of that in actual behaviour.
• Percolation.
• Character of working environment i.e. supportive,
  fearful, turbulent.

9
Best Practice Procedures

• Contracts of Employment Provisions Re
• Procedures
• I.T. Usage
• Internet Usage
• Photographs
• General PC Access
• Pin number/Password Usage, maintenance and change
  routines.
• Firewalling.

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Best Practise Procedures contd

• Alerts/whistle blowing immunity.
• Regulator, statutory or SLA provisions.
• Professional indemnity exposure.
• Monitoring routines.

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Techniques

• Q.C. Routines.
• Clean processess waste free.
• Intelligent interviewing.
• Mind mapping.
• Registers.
• Information/Database sharing
• Note watch Data Protection Act.

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Old Reliables

• Independent verification.
• Division of duties.
• Avoidance of collusion.
• Internal audit/anti-fraud.
• Fraud lines.

13
Balancing Act between

• Service
• Cost
• Life cycle
• Expectation

14
What are the pressure points

• Examples are
• Quantum
• Circumstances
• Policy issues

15
Fraud Risk Evaluation

• Traditionally static indicators. This is where
  the market is really at.
• In time, risk evaluation will look more at
  behavioural aspect.
• The interaction of the two will hopefully evolve
  in to a more holistic approach.

16
Detection v- Prevention

• In reality the big savings in societal cost is in
  prevention.
• Remove the oppourtunities.
• Exercise good governance.

17
Reputational Aspect in the UK

• Reducing financial crime is one of the FSAs
  statutory objectives.

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What is Fraud?

• Theft by deception
• Fraudulent claim (no claim)
• Fraudulent device (loss suffered but facts
  embellished)

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ABI Definition

• The intentional deception of one party by another
  for the purposes of gaining an advantage or
  benefit that were the true facts known, would not
  be available

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Examples

• It didnt happen
• Set up/contrive
• Deliberate
• Genuine but overstated
• Genuine loss excluded under the policy but made
  to fit
• Not owned or no insurable interest

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Types of Fraudsters

• Oppourtunistic
• Repeat offenders
• Organised

22
Identification

• Method
• Means
• Motive

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Tools

• Databases (watch Data Protection Act compliance)
• Reasonableness checks e.g. age, size, dates,
  description
• Personal interview
• Allow people tell their story
• Public Awareness

24
Things to bear in mind

• Exaggeration v- Fraud
• All stakeholders have a role to play
• Insurance industry is not the law we gather
  facts
• IIF Statement of Practice
• Have referral systems and protocols in place
• Interviewing techniques

25
Indicators

• Inception
• Previous covers
• Undisclosed Claims
• Recent increases in SI
• Circumstances
• Documentation
• Attitude

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Last Word

• For the Insurance Industry, we are really about
  
  
  
  
  
• Effective Validation