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Lloyd’s Warns of Increases in Fraudulent Claims

Fraud is a fact of life for the insurance industry – part of the game so to speak. While some claims, as Lloyd’s notes in an article on its web site, may cause people to smile, the amount of money they cost the industry “is no laughing matter.”

The current economic crisis has exacerbated the problem. Lloyd’s points out that “it is a well-known fact that the incidence of fraud – including general insurance fraud – climbs during a recession or economic downturn. This is a burden for insurers and customers alike as it can lead to higher premiums.”

The article cites a recent survey from the Association of British Insurers, which found that an average of 335 fraudulent claims, worth £2.3 million, are filed in the UK every day.  Fraud is most prevalent in home insurance claims, with around 170 false claims found each day.

Incidents of fraud aren’t by any means limited to the UK. It’s become an “international condition,” as insurance companies around the world “are reporting a higher number of bogus claims from cash-strapped motorists, homeowners and other con artists.

“In the US, the Insurance Information Institute estimates that fraud accounts for about ten percent of the property casualty insurance industry’s losses each year.

“Up to 85,000 questionable claims were referred to the National Insurance Crime Bureau in 2009, about 10,000 more than in 2008. The largest number of suspicious claims in 2009 was in the staged and caused accidents category.

“In Canada, organized insurance crime costs insurers and policyholders around $542 million annually, according to the Insurance Bureau of Canada.”

Some attempts to generate or inflate claims payments are so audacious they have entered the “Insurance Fraud Hall of Shame,” in the U.S., which is updated from time to time by the Coalition against Insurance Fraud.  The Coalition’s decision to “name and shame” is an attempt to put “a human face on an $80 billion annual crime that many consumers view as a victimless white-collar prank,”

As examples of some common frauds, Lloyd’s recounts numerous instances of people who make claims for injuries related to cars, sidewalks, etc., which are actually the result of non insurable activity – such as fights and outright deceptions.

An outstanding example from the U.S. involves a middle-aged woman’s claim for injuries that had left her “totally disabled”, forcing her to leave her teaching position. However, she was subsequently arrested for accepting workers’ compensation benefits while working at a youth sports camp. Then there are the bogus motor [auto] insurance claims, including the man who pushed his car off a cliff in an effort to claim under his policy.

Lloyd’s notes that “according to the Insurance Research Council, around one in every five motor insurance claims in the New York City area contains elements of fraud while as many as one in three appear to be inflated.”

As a result, of the rise in fraudulent claims, “insurance companies are investing more and more in detection methods and technology,” Lloyd’s notes. “This is starting to pay off with a growing number of dishonest insurance claims uncovered – up to 2,000 each week by the end of 2009, worth more than £16 million [$26 million],” according to the ABI.

“Reducing fraud remains an ongoing battle for the insurance industry,” stated Nick Starling, the ABI’s director of general insurance and health. “Our honest customers rightly object to having to pay higher premiums to subsidies the fraudulent minority, which is why insurers continue to up their game in the war on the cheats.”
“Whether claiming against a third party for bogus personal injury or on their own insurance, fraudsters are more likely than ever to get caught, leading to more expensive and harder to obtain insurance and credit, and the possibility of a criminal record.”

Source: Lloyd’s of London