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Looking Ahead: Fraud

29 March 2021
We outline the challenges we expect the imminent whiplash reforms to present within the industry, consider the potential for fraud within the sector arising from the COVID-19 pandemic and highlight the increasing incidence of financial crime.

COVID-19 and Whiplash Reforms – Both Big Risks

Two big themes emerge as challenges in the fraud environment for 2021 and the future - COVID-19 and the financial fallout from that, as well as the Whiplash Reforms.

Having initially been tabled to be introduced last year, the reforms are now due to come into force in 2021.

Whilst lowering the overall costs of claims, the new measures of the Whiplash Reforms could present a challenging fraud environment with unregulated claims farmers processing claims in the background, hiding behind the new litigant in person portal, which will make it easier for fraudsters to avoid detection, for example, by constantly changing the names of key attractors such as credit hire companies. Additionally, there will often be no solicitors which means two things - no gatekeeper to obvious fraud at all, meaning the real rogues organising fraud can send the claims in with abandon, and less ability to screen data for known solicitor risks. So suddenly much of the usual pattern and matching data may be missing.

Added to this is the further automation of claims that the new system will bring, with less hands-on involvement and a more process-driven environment.

It is essential that insurers develop new approaches. Using data will be key, and changing what works now, as that may not necessarily work in the future. Predictive analytics, route to market and the latest data analysis need to be properly leveraged in the new environment. But tools also have to be developed and quickly, to take the data from the portal and 'grab' from the claims conveyor the highest risk claims for more careful analysis in this new highly automated environment.

First party fraud increasing

First party fraud is on the rise and will continue as the economy reels from COVID-19. After the 2008 financial crash, fraud increased substantially in the following year, and a similar rise is expected now. Not only are we seeing an increase in vehicle thefts and first party home claims fraud but we are seeing some more specific patterns. We are seeing more cash-bought vehicles allegedly being stolen in laundering escapades, and GAP insurance fraud is becoming a big issue which the market is just getting to grips with. For example, GAP is being utilised in stolen vehicle frauds and staged accidents. 2021 may be the year when GAP insurers and General Insurers start sharing more data which must be a goal for the common good.

Pet fraud continues to be an issue- both at the claims level and the supplier level with inflation of fees.

Surprisingly, 'old school' staged making a comeback in motor

Another indicator that criminals are under financial pressure is that 'old school' staged and induced accidents unexpectedly started to make a comeback in mid-2020. There are some new people trying their hand, but we have also seen a large number of these claims connected to previous networks, groups and families who had toned down their fraud over the past five years but are suddenly back. Often aided and abetted by 'Pop Up' enablers and 'clean' associates, probably to subvert data fraud matching, the overall controlling entities are people who have connections to organisations we have dealt with in the past. Again intelligence and data is the key to detecting this. It seems many of these experienced entities are back for the long game, and probably thinking up schemes now how to best exploit the new litigant in person portal, Official Injury Claim.

But the trend to be less reliant on personal injury and 'layer' the claim continues unabated

Fraudsters were already moving to ever more sophisticated practices other than outright staged accidents and whilst we have seen the unexpected comeback in the basic staged claims, these other practices also continue apace. We have seen the fraudsters moving away from whiplash being the centre of the claim for the past five years. They are more concerned with claims inflation of the 'bent metal', credit hire and 'layering' the claim than the personal injury claim itself. In all types of claim, they are concerned with layered, unnecessary and fraudulent rehab. Vehicle damage is often grossly exaggerated and made worse, supported by fraudulent and sometimes 'Pop Up' engineers. As the money is further squeezed from claims, layering will be ever more common.

Is it really ghost broking?

Ghost broking has increased as a problem, but we are also seeing an increasing use of false identities to incept policies in order to stage accidents. This practice seems here to stay and is because the fraudsters have worked out that insurers may just pay claims if they cannot trace the policyholder, often putting it down to ghost broking and sometimes these claims never see an insurer's fraud teams. It is important to note that insurers can implement various technical 'frustration' tactics to prevent claims in these situations, and all insurers should be aware of this and ensure a process is in place so that these claims make it to their fraud teams.

COVID-19- a huge fraud opportunity

And then we move onto claims caused by COVID-19 itself. This is a huge concern in the market.

We already know how the claims farmers have decimated the motor market and are moving into domestic property via loss assessors. We expect the same in COVID-19 disease claims. The market for them is almost unlimited, and the ability to farm and encourage fraudulent claims in this area will be massive. DWF have been monitoring the COVID-19 disease claims 'market' since the start of the pandemic, and have seen the websites gearing up to encourage claims, and even some of our commercial clients have had farmers outside their premises. The layering opportunities are also huge, with 'rehab' and even scans at substantial cost potentially being added onto the most mundane of alleged COVID-19 disease claims. The claims have already started to trickle in, but we expect this to ramp up significantly over the next few years.

With this in mind, DWF have developed a data solution to help insurers ask the right questions and identify the riskier COVID-19 claims at the outset with live analytics, data matching and risk identifiers.

But the fraud opportunities are not only in disease claims. The insurance market has to think outside the box- for example, we have seen substantial fraud in events cancellation claims, and even business interruption claims are being farmed- sometimes by entities with no instructions to act.

We expect COVID-19 related fraud to continue long beyond the pandemic itself with first party SME fraud a particular risk- the smaller businesses that are struggling may be tempted to invent or exaggerate any type of claim to recover funds or find a good exit strategy.

Financial crime

Fraud will increase substantially across all areas, with consumers the target of phishing attacks, authorised push payment fraud, as well as online scams. We have already seen an increase in some of our life and commercial insurance clients having increased potential liabilities caused by fraudsters hijacking their customers' accounts and diverting money.

A particular area of vulnerability and seen as 'easy pickings' for the fraudster is income protection fraud. Again, with no real databases and cross-industry liaison, we have seen numerous claims, sometimes from serial claimants across different clients. We have even seen these claims combined with outright staged EL accidents, and it is essential the industry look at this area more closely- with a failing business it is all too easy for an SME owner or employee to fake an income protection claim in order to solve their problems.

Read our full report 'Looking Ahead in the Insurance Sector'.

Further Reading