Fraud is such a pervasive crime with each industry susceptible to different types of fraud schemes and few more so than Insurance companies, particularly due to the advent of online policies.
In this second guest blog, Jill Battley CFE, a Director of TrustID with extensive investigative fraud experience, shares a summary of a genuine fraud case in the insurance sector, exploring the background, the risks, the result and what steps could be taken to prevent it.
The Importance of Being “Ernest”
Mr Ernest Brown applies for an online policy, answers all the questions, passes the relevant checks and is issued with a policy of insurance for his motor vehicle. Standard stuff and it’s all good, providing Ernest is being earnest with his insurer, he is who he says he is, and he has provided the correct information. It’s good for the Insurer, as they now have a new customer. It’s good for Ernest as he has found a competitively priced premium and is now insured to drive.
But what if Ernest is not being earnest with his new Insurer? What if he doesn’t provide accurate and honest information in good faith to his Insurer to allow them to correctly quantify their risk? Indeed, what if Ernest is not actually Mr Brown, but is in fact Mr Fraudster who has found an exploit in the insurer’s online system and now, armed with his Motor Insurance Policy, has the means to perpetrate all kinds of fraud.
So, what does Mr Ernest Brown AKA Mr Fraudster do next? Well, he rings his insurer to give some corroboration to a fabricated claim. “Hello? Yes, I’m sorry but I need to report an accident. Totally my fault. I pulled out of the junction and did not see the other car coming”. And then he’s gone, never to be heard of again, because he never even existed, leaving Insurers to face an admission of liability and the follow up claims.
Could that get any worse for the Insurer? Indeed, it could, as Mr Fraudster is part of an Organised Crime Group that secures as many false policies as possible before the exploits are spotted. Different members of the group form the cast of the fraud, such as playing the part of the driver that admits liability, the Third Party, witnesses, etc. Other members bank the cheques and launder the proceeds into a different account. This loophole becomes a veritable feeding frenzy for fraud rings as they share this opportunity with their criminal colleagues who then try and replicate the process themselves.
Of course, Insurers do have various forms of legal recourse to avoid these claims if fraud can be proven.
Some Insurers collate information online of the applicants and use software to filter hundreds of policies which help to highlight clusters or fraud rings; despite policyholders claiming to live at addresses hundreds of miles apart from those that they have incepted before and after them, the information locks them together and becomes a fraud indicator.
Since the fraudulent policies are being created online by one or two people sitting in a bedsit, further analysis of the fraud clusters shows that every question relating to age, driving history, endorsements, vehicle value, storage, have been answered in the same way. The fraudsters have pre-prepared packs with the details they need to quickly enter information into the application system and a checklist of how to answer the questions to pass the online checks and become insured. They are so efficient that they can complete an online policy and become insured in under 17 minutes before moving on to the next one.
What can be done?
We understand that a fine balance exists with online proposals; the need to keep a genuine prospective policyholder engaged offset against the need to avoid exploits and vulnerability to fraud.
But since all fraud is the outcome of three elements - motivation, opportunity, and reward - preventative measures are the first line of defence in minimizing fraud risk opportunities for any organisation. In the case of insurance fraud, a great first step is to gather evidence that the online applicant exists.
And a smart place to start is with photographic identification issued by a government source, primarily passport and driving licence. If this can be validated before the policy is accepted, it makes it so much harder for fraudsters to obtain a policy with fake ID. This check eases the process for the genuine applicant and closes the door on Mr Fraudster.
Trust ID provide a range of ID scanning solutions from Cloud based validation, to desktop and mobile systems to check the validity of photographic ID. And having worked in the sector for many years, I’m a strong believer that simple cost effective prevention solution is preferable to an expensive stable door!
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