Let us make one thing very clear at the very outset: insurance fraud, like any other fraud, is a crime. Before dealing with the specifics of insurance fraud itself, it would be worthwhile defining it and quoting a few facts and figures.
Putting it simply, insurance fraud is the deceitful misrepresentation of facts and can take various forms – from incomplete or incorrect information provided when a proposal form is completed, to submitting claims for events that never happened or exaggerating or inflating the value of claims for losses incurred from unfortunate events so that the claimant profits from such a transaction.
In general, insurance fraud is all about misleading your insurer and profiting from such deceit.
Since insurance inherently deals with the uncertainty of the future, prospective policyholders are requested to submit their application in the form of a proposal form before the insurer issues a quote.
The pricing of the eventual insurance policy, together with the terms with which the policy is issued, inclusive of any restrictions and/or exclusions, is a factor of the information submitted on the proposal form. Had the facts and information provided been any different, the insurer would have had the choice to either decline to offer insurance or, alternatively, price insurance cover adequately, based on the information provided.
In general, the higher the risk, the higher the premium is ex-pected to be. If the facts were twisted and misrepresented in such a way that a low risk proposal was presented to the insurer, a situation is created where a low premium is charged for a high risk.
Insurance fraud is estimated to represent up to 10 per cent of all claims expenditure in Europe
Claiming for benefits which are not due or inflating costs to such an extent that one profits from such claims best explains the high incidence of insurance fraud. Some of us attribute this to the ‘Mediterranean culture’ we form part of. Unfortunately though, insurance fraud is present everywhere: Europe and beyond.
Insurance Europe, the European Federation of National Insurance Associations, reckons that insurance fraud is estimated to represent up to 10 per cent of all claims expenditure in Europe. The Association of British Insurers (ABI) affirms that insurers are nowadays much more equipped in detecting and combating fraud, yet about £2 billion in fraud still remains ‘undetected’ each year.
While a few disgruntled policy holders may argue that this is a price insurers should pay, in reality, insurance fraud not only hurts insurers but policy holders too.
Fraud is a ‘hidden cost’ that eventually policy holders end up paying. Indifference, turning a blind eye or, at times, dabbling with some petty fraud, such as having a suitcase replaced after travelling, contributes towards the proliferation of insurance fraud. In fact, it aids and abets it.
In the face of such rising costs as a result of increased and more sophisticated insurance fraud, insurance companies are faced with a choice between raising insurance premiums or the more preferred approach of protecting honest policy holders and tackling such criminal action with the necessary resolve.
This involves investment in specialised training and in anti-fraud systems in order to have the right tools to detect and prevent fraudulent claims.
Policy holders ought to play their part as well. If one had to follow the approach taken by Ireland and the UK, not only do insurance companies work hand in hand with the police in making sure the fraudster is dealt with appropriately, but the public is encouraged to actively participate in this fight by reporting any alleged fraudulent behaviour.
Appropriately dubbed ‘cheat-lines’, the public is encouraged to use a free phone number and anonymously (confidentially) report any inappropriate behaviour. This advocates a completely different approach to turning a blind eye.
It requires a thorough understanding that cheating your insurance company is equivalent to cheating you, the policy holder, towards paying for that invisible cost that insurance fraud is.
Indifference is not the right approach that the public and, especially, policy holders should adopt when faced with such irregular behaviour.
The media has recently reported the news that insurance practitioners have been dreading for a long time: the possibility that the more sophisticated insurance fraud might actually come to our shores.
Such situations highlight the importance that insurance companies, although competitors in their own right, join forces in their fight at detecting and combating this hidden cost.
The exchange of information and knowledge is an important prerequisite for success.
Vigilance, though, is not confined to insurance companies, and better results could be achieved and fraud eradicated if honest customers feel the need not to carry such an invisible cost and act where and when required.
Adrian Galea is director general of the Malta Insurance Association.