How insurance fraud hits your back pocket

Fraudulent insurance claims cost our nation an estimated $280M each year, according to the Insurance Fraud Bureau of Australia (IFBA). That’s apart from fraudulent personal injury claims such as workers’ compensation and compulsory third-party insurance. 

At the core of insurance fraud is theft – deliberate dishonesty that results in an actual or potential financial loss to a person or entity. Acts such as: 

• Opportunism (misrepresentation to exaggerate the value of the item lost, damaged or stolen, for instance) 
• Premeditation (theft, arson, staged incidents to fabricate a claim deliberately) 
• Fraudulent non-disclosure (deliberately giving false information to support a claim or not disclosing a criminal conviction, for example). 

Insurance fraud is performed by an insured person who makes a false or exaggerated claim against the insurer. 

Fraud is an indictable offence that could lead to 10 years’ gaol, a huge fine or both whether it’s a one-off crime or part of a series. 

How this fraud hurts you 

Why should that bother you, particularly if you see yourself as among those who make honest and accurate insurance claims? 

Insurance fraud is not a victimless crime – we all pay for it. Through higher premiums, more restrictive policies, higher excesses, and possibly over time, less choice for insurance cover. The impact on insurance companies is twofold. Firstly, directly by higher claims cost and, secondly, indirectly by having to implement sophisticated technology to assist in detecting fraud which is an expense for the insurer. Higher claims costs & expenses impact the insurer’s bottom line. 

Two-thirds of people who commit insurance fraud do so because they think they can get away with the crime. They mistakenly believe: 

• It’s too expensive for insurers to detect fraud 

• Such businesses accept a certain amount of fraud as part of doing business 
• It’s OK to inflate claims to make up for the excess 
• They believe they’ve paid more than enough in premiums over the years. 

Until recently, such fraud has been seen as a less-serious, white-collar crime. A low-risk, high-return criminal activity, second only in economic crime to tax evasion. As well, the Australian and New Zealand Institute of Insurance and Finance has found that, globally, just two per cent of insurance fraud cases result in criminal prosecution. 

More sophisticated detection techniques 

Insurers have traditionally used deterrence, education and identification to tackle fraud. Now, there’s a growing arsenal that insurers are turning to as well as manual detection. Newer approaches involve forensic accountants, data analysis and mining tools, scouring social media, credit reviews, GPS tracking, telco data, drones, covert devices, artificial intelligence (machine learning) and even blockchain. 

Insurers are also psychologically profiling who’s more likely to commit fraud. But, as their findings show perpetrators span the full spectrum of society, they haven’t been able to reach a demographic profile of a ‘typical’ fraudster. 

The insurance sector is already on the lookout for worsening fraud due to the pandemic’s impact and slimmer economic stimulus offerings from governments. In the coming months, the Insurance Fraud Bureau of Australia will deliver a revamped fraud detection system specifically for the Australian insurance industry. It’s expected to become very active and innovative in finding fraud and reporting it to the relevant stakeholders. The bureau is the ‘well-muscled arm‘ of the Insurance Council of Australia. 

How to report fraud 

As your broker/adviser, we can assist you in lodging genuine claims with insurers and receiving your full claim entitlement. We can also assist you with your risk management practices to help mitigate the general risk of fraud.