Insurance fraud: How is the industry tackling it?

Insurance fraud is a problem that gets more expensive for the industry every year.

According to the Association of British Insurers, the value of detected fraud reaches £1 billion every year. And that figure doesn't even include undetected fraud.

Yet fraud is not just an additional expense for insurers. Estimates from the UK government from 2015 show that fraud adds roughly £50 to each household's insurance bill. Due to inflation, that's only likely to have increased in recent years.

As a price comparison website (PCW) that introduces leads to insurers, Confused.com has a crucial role in reducing fraud throughout the consumer pipeline. In this article, I'll talk about the threats the industry is facing and what we're doing to tackle them.

What type of insurance fraud do we focus on at Confused.com?

Insurance fraud is any illegal, illegitimate, or dishonest interaction a customer initiates with an insurance company. There are 2 types of insurance fraud: claims fraud and application fraud.

Claims fraud happens when someone makes an illegitimate insurance claim. For instance, they might report an injury from a car accident. This would be a fraudulent claim if the car accident never happened - or if the customer exaggerated the claim by lying about the extent of damage.

Claims fraud has increased by 61% from March 2022 to April 2023, according to the City of London police. Law enforcement has speculated that this rise might be due to customers trying to find ways to manage the cost of living crisis.

Claims fraud isn't something that Confused.com can tackle ourselves, as we don't manage claims. Instead, insurers must tackle false claims by using their investigators to check them.

However, as a PCW, we do play an essential role in preventing application fraud. This is when a potential customer or broker provides false information when applying for insurance coverage.

Let's explore in detail the 2 main forms of application fraud we see at Confused.com.

The 2 forms of application fraud

We can break insurance fraud into opportunistic and organised fraud (known as "ghost broking"). Ghost broking is the biggest threat we deal with at Confused.com.

1. Opportunistic fraud: a real customer provides false information

Opportunistic fraud is when customers not typically associated with organised crime see a chance to make money from an illegitimate claim or by providing false information.

For instance, drivers might lie about having a conviction or points on their driving licence, or drastically underestimate the miles they travel. The goal is to get cheaper car insurance premiums.

Opportunistic fraud is a surprisingly common occurrence. According to a recent poll by YouGov and the Insurance Fraud Bureau, over 20% of consumers under 34 said they would consider lying on their insurance application to save money.

However, it's not a victimless crime. As a result of fraudulent cover, insurers don't get paid the premiums they're correctly owed.

Insurers end up having to invest more in fraud detection and application validation. As a result, innocent policyholders can end up paying higher premiums to make up the difference.

Plus, opportunistic fraudsters are putting themselves at risk, too. If they don't provide accurate information, insurers could reject their claims.

2. Organised fraud: a fraudster purchases insurance on someone's behalf

Organised fraud is a more serious crime. This usually comes in the form of ghost broking, when "illegal insurance intermediaries" or fraudulent brokers sell illegitimate insurance policies. Ghost broking is the main challenge we're tackling at Confused.com.

Typically, it starts with the ghost broker setting up ads on social media selling cheap insurance. These ads often target the vulnerable or underinsured, such as new immigrants to the UK, students, older people, or people looking for cheaper cover.

The customer clicks on the ad, provides their personal details, and pays the fraudster, who sets up a policy with an insurance provider on their behalf.

However, the customer doesn't end up with legitimate cover. That's because the broker makes the payment with a stolen credit card or with details from a stolen identity. So, they pocket the cash the customer pays, leaving the customer with no cover.

There are 3 potential victims of ghost broking:

• The person who had their identity stolen and used on a policy
• The person who had their payment information stolen and used to pay for insurance
• The customer who paid up for no cover

Ghost broking is one of our biggest priorities. But the precise form it takes - the ads fraudsters use, the areas and demographics they target, and the tactics they deploy - is constantly changing. As a result, the way insurers tackle it must continue to evolve.

How can the insurance industry tackle ghost broking?

Ghost broking affects everyone in the insurance industry, including insurers, PCWs, legitimate brokers, and consumers. There are 2 ways the industry can work together to tackle ghost broking:

1. We can educate customers better about legitimate sources of insurance

Ghost brokers primarily prey on the vulnerable and the underinsured. Due to the high cost of premiums, these customers may struggle to access conventional insurance policies. Or they may need help understanding how insurance works due to language or cultural differences. That's why ghost brokers often advertise their services in foreign languages or lead with promises of "cheap" insurance.

As such, tackling insurance scams starts with tackling fundamental problems of accessibility and education. Many customers may not be able to recognise the signs of fraudulent insurance - or even know that fraudulent insurance is common.

Insurers (as well as anyone involved in the insurance industry) could respond to this by raising awareness of the threat of fraud and the channels insurance fraudsters use.

Insurers could do this by educating customers on how to check their insurance policy if they're sceptical about its legitimacy. For instance, they could show customers how to check for a Financial Conduct Authority firm reference number, found at the bottom of legitimate insurance websites.

Finally, vulnerable customers may be less likely to buy fraudulent insurance if legitimate policies are tailored to their needs.

You can find out more about this by reading our article on how insurers could increase accessibility for the underinsured.

2. We all need to share information effectively to tackle fraud

Ghost brokers aren't brand loyal. The fraudsters aren't just targeting one insurer, they're targeting many others.

To tackle fraud as an industry, we need cooperation and communication. If an insurer faces a new fraud threat, other insurers may have experienced the same problem in the past.

The need to work together as an industry is particularly true in the case of ghost broking. With claims fraud, insurers know the person responsible - they just need to check the claim's legitimacy. But with ghost broking, fraudsters can set up new social media ads, change profiles, or target new customers almost instantly.

As a result, insurers need to move quickly and stay up to date with what other players are experiencing across the industry. This way, insurers can get prepared to prevent particular fraud rings or tactics. Here's how we're making that easy at Confused.com.

What is Confused.com doing to prevent fraudulent insurance applications?

At Confused.com, we're one of the leaders in detecting and preventing insurance fraud. Here are 4 key ways we're protecting insurers and consumers.

1. We use data to detect fraudulent activity and prevent it from reaching insurers

Data is crucial when it comes to detecting fraud. We use statistical algorithms to track patterns, trends and anomalies in data that are then flagged up to a human expert to verify.

For instance, we may notice repeated data points on several insurance applications. This could be perfectly legitimate. For example, a family could use the same email address or many unrelated customers could use a public IP address to make an application.

But this could be a sign of fraudulent activity - for example, if the same email address with a unique domain name is on many applications with different names.

Once we have enough data to be sure that fraud is taking place, we block the application. The 'customer' would see a message telling them that we can't give them a quote. To save insurers time and energy, that application stops with us, meaning insurers don't need to waste resources on a fraudulent customer.

2. We lead fraud forums to share information with other industry players

Something we're proud of at Confused.com is our fraud forums. 40 to 50 companies, including insurers, legitimate brokers, and even our competitors, attend these quarterly meetings.

At the core of these forums is our belief that if we work together as an industry, we help to prevent fraud. That's why we get together and share information on fraud trends and help fill holes in each other's knowledge.

Typically, we meet 4 times a year. During the forum, we present Confused.com's fraud statistics, and then different participants provide their perspectives. The forum is an opportunity for key players in the industry to come together to share useful information.

For example, one insurer could share their experience of a new ghost broking tactic, helping other insurers and PCWs avoid it. We also run a separate forum specifically for PCWs like us and our competitors.

We also send regular bulletins to industry players, each including news on recent fraud behaviours or fraud rings. This way, the whole industry can stay alert while everyone benefits from an environment of cooperation.

Insurers and PCWs are always welcome to join these forums. For more information on how to get involved, feel free to contact me: fraud@confused.com.

3. We stay alert to the changing technologies and tactics fraudsters use

Fraud is constantly changing and developing. As we prevent one type of fraud, fraudsters quickly adapt their tactics - so we have to stay up to date on all the changes happening in the industry. One of the most significant impacts has been the emergence of AI.

For instance, in one recent fraud case, a victim told us how a ghost broker showed a video of the victim's insurance quote on-screen in order to "prove" its legitimacy. All the information was accurate and convincing, but when it came to the quoted premium, the fraudster had seamlessly switched to another screen. The fraudster showed the victim an extremely low price based on different information.

It's something that we can expect more of as AI and tools such as "deep fakes" become more developed. Similarly, AI might make it easier for fraudsters to scale the number of illegitimate claims they make.

These are new threats we have to stay alert to. That's why we're constantly monitoring and sharing the challenges we face with the rest of the industry.

PCWs and insurers need to collaborate to prevent insurance fraud

Fraud is ever-changing. As new technologies emerge and insurance fraudsters identify new tactics, how we tackle insurance fraud has to change, too.

That's why we at Confused.com are leading the way when it comes to greater cooperation in the industry. The fight against insurance fraud will only be successful if we all work together.

Find out more about how we're improving the insurance industry at Confused.com.