Fraud: how the assumption of guilt is undermining claim investigations

Insurance fraud is a widespread issue, where claimants seek benefits they are not entitled to. Insurance companies combat this with robust processes to flag potential fraud, followed up by investigations.

But is fraud as straightforward as you think? We discuss the effect of fraud, the problems associated with fraud investigations and recent recommendations.

Background on Insurance Fraud

The most indisputable insurance fraud fact is that when estimating the frequency, amount and total cost in the Australian insurance industry, there are no indisputable facts.

The Insurance Council of Australia (ICA) has asserted that approximately 10% of all general insurance claims are fraudulent, and cost the industry approximately $2.2 billion each year, working out at $75 for every insurance policy in Australia.

Regardless of the actual total, it is generally agreed that a great deal of insurance fraud goes unnoticed and unreported, with the Australian Federal Police estimating as much as 75% of serious fraud going undetected.

Impact of Investigations

Financial Rights Legal Centre (FRLC) found that in 2015, of the 130 disputes at the Financial Ombudsman Service (FOS) that involved the denial of a claim on the basis of fraud, an average delay for claimants was 521 days, but fraud was only established on the balance of probabilities 17.7% of the time.

Therefore it’s very important to have a process in place that triages accurately, eliminating claims from the denial/dispute path as early as possible.

Common failings/Areas for improvement

In a recent review of over 100 calls to their helpline over a four week period, the FRLC found that there were five broad areas of concern:

  1. Communication and delay issues;
    • Including customers not being advised about their rights or the investigation process
  2. Poor investigator behaviour and processes;
    • Interview styles that were emotionally straining, intimidating, accusatory or rude
  3. Unreasonable requests for information and/or documentation
  4. Unique issues faced by vulnerable people;
    • Use of mental health issues against claimant
    • Taking advantage of language barrier/denial of interpreter
  5. The pursuit of investigations with little or no evidence.

“Although insurers are entitled to investigate claims, it is inappropriate insurance practice (and inconsistent with an obligation to act with utmost good faith) to adopt a mindset of assuming or suspecting claims to be fraudulent at first instance” determined FOS.

Recommended improvements to industry/insurer practice

In their report, the FRLC recommended multiple areas for improvement, summarised below:

  1. Industry best practice standards to include investigation practice, and publish documents to help consumers
  2. General Insurance Code of Practice (GICOP) include commitment to diversity and anti-discrimination
  3. Minimum standards for use of interpreters, FOS guidelines to permit support persons where fraud is alleged
  4. ICA commitment to improve industry’s treatment of mental health stakeholders
  5. Ensure investigators receive ongoing diversity and anti-discrimination training
  6. ICA to improve fraud data, and make it public
  7. Better Federal and State legislation to improve consumer protection and privacy

The ICA has defended its fraud data and considers the report to be anecdotal and not indicative of systemic problems with the insurance investigation process. However, it supports a review of professional standards in the private investigations industry.

At GB we work with our clients’ everyday to mitigate risk and proactively manage claims. Connect with an expert to find out more about our specialised General Insurance claims management offerings.

For more insights into the future of fraud detection, GB’s Peter Walker will be presenting on how predictive analytics are benefitting the Australian insurance industry, including the impacts on fraud detection, at the 2016 Insurance Analytics, Predictive Insights and Big Data Forum 2016 http://claridenglobal.com/conference/insuranceanalytics-au2016/

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