Insurers are expert in risk but so are fraudsters

Fraud is now the most prolific criminal offence in the UK. Yet while many insurers have built products to protect their customers against the effects of fraud, they often fail to implement the controls needed to give adequate protection from falling foul to fraud risk themselves! This has not gone unnoticed by fraudsters. The control weaknesses coupled with the perceived balance sheets and cash sloshing around in many insurance businesses, it’s little wonder that fraudsters gravitate to the insurance industry.

Internal risks
The internal risk of fraud is made harder for the insurance sector as they are vulnerable to attack from all angles: internal fraud by staff; policyholder fraud and claims fraud; intermediary fraud and other frauds by contractors and professionals.

It is vital therefore that strategies, policies, processes and controls are reviewed on a regular basis.  This will help ensure that emerging fraud threats are both anticipated and mitigated before they wreak havoc. Having a robust anti-fraud culture and good governance is pivotal. Groups should make fraud risk assessments from the group perspective, ensuring that policies, procedures and controls work throughout the whole of organisation (and not just at HQ) and the numerous third parties involved in carrying out an insurance transaction. Reinsurers should aim to reduce exposure to fraud  from ceding insurers and reinsurance intermediaries by undertaking robust due diligence and cascading their policies through the various counterparties.   

Technology
Fraudsters evolve quickly and are harnessing and exploiting emerging technologies. The insurance industry is more susceptible than many others given the sector’s propensity to adopt technologies such as blockchain, predictive analytics and channel shifting into mobile adoption. For all the savings and efficiencies these bring, they will be a target for fraudsters. So, whilst devices such as GPS and activity trackers can be used to price products more competitively, they also hold a massive amount of data and intelligence that could help facilitate fraud. It’s also a huge challenge to get the right balance between automation efficiencies and the ‘I can’t put my finger on it, but it just doesn’t feel right’ that only human intervention can bring.

What next
Insurers are expert in risk; so are fraudsters. They will look at the size of the prize and balance this with the chances of getting caught, and more importantly, what will happen to them if they are caught. However, whilst some are smart, most are lazy and will seek the point of least resistance. Ensuring you have the right culture, policies, procedures and controls in place, combined with robust prevention and detection will reduce the risk; pursuing sanctions will feed into deterrence. Fraud will never go away, so work on how you can reduce the risk and displace the fraudsters, sending them elsewhere.

How we can help
Moore Stephens offers a range of services designed to help you create and embed a strong anti-fraud/corruption culture and build deterrence/prevention and detection strategies and processes through awareness, training, policies and controls.

Unfortunately, there will always be a need for investigations - these should be conducted professionally and cost-effectively. We are able to conduct such investigations, gathering evidence to a standard that can be used in criminal, civil, disciplinary and regulatory proceedings.

 

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