Counter Fraud Measures

1. Counter Fraud Measures Practical Steps for Loss Adjusters A National Training Presentation by CILA Anti-Fraud Special Interest Group Members: Summer 2008

2. Is Insurance Fraud a Victimless Crime? Fraud is estimated to cost each household £655 a year *ABI submission to the Fraud Review 2006 The ABI Anti-Fraud Committee estimates the annual cost of General Insurance Fraud to be circa £2billion *ABI Anti - Fraud Committee for General Insurance The ABI estimate that 15% of household claims are fraudulent * ABI 2006 publication “Tackling Fraud” The ABI estimate that 10% of commercial property claims are exaggerated. * ABI UK Commercial Insurance Fraud Study 2

3. Why do Loss Adjusters need to demonstrate Fraud Awareness? The fourth FSA requirement concerning financial crime requires those who are regulated to have an effective counter fraud policy. This includes: All regulated staff, including their suppliers, to be “fraud aware” And requires the regulated business to: Evidence deployment of their effective counter-fraud strategy 3

4. What is Fraud Awareness & how do I keep up to date? Whilst claims anomalies occur naturally, recognise that fraud can be present at any stage of handling a claim. Awareness originates from a blend of personal experiences and knowledge of fraud. The application of education and training about what is termed fraudulent conduct by claimants, third parties, suppliers, claims handlers and others Include recognition of risk (fraud) indicators in reports and show how the issues were resolved Check for guides on risk indicators & current fraud issues and trends at: ABI: http://www.abi.org.uk CILA: http://www.cila.co.uk IFIG: http://www.ifig.org/ 4

5. What Constitutes Fraudulent Behaviour? Fraud Act 2006 Fraud itself is not defined. Frauds require evidence of one of the following styles of behaviour: By false representation (Section 2) By failing to disclose information (Section 3) By abusing a position of trust (Section 4) Each action requires evidence of: Dishonesty Intent to make a gain or to cause a loss (Came into effect 15/1/07 for England and Wales. Similar law in Scotland and Northern Ireland) 5

6. ABI Fraud Definitions 2004 Two Categories Underwriting Fraud Claims Fraud Proven Insurance Fraud Where the proven deliberate actions of a policyholder or third party are clearly evident Suspected Insurance Fraud Where a handler having an actual suspicion of fraud challenges the applicant/claimant by letter, telephone call or instruction of an investigator etc, to clarify key information, provide additional information or documentation etc, and the applicant/claimant subsequently goes away 6

7. Underwriting Fraud Where a policyholder or applicant either misrepresents or deliberately fails to disclose material facts at policy inception (that would materially impact either the terms and conditions applied to a policy of insurance, or the issue/renewal decision itself ) for financial gain. 7

8. Claims Fraud 3 broad categories: Fictitious Losses, Incidents or injuries Claimed loss or incident did not occur. However, a policyholder or 3rd party falsely claims they did and deliberately presents a false set of circumstances and/or evidence for their financial gain. Staged incidents Where a claim is received in respect of damage, loss or injury that has been caused deliberately. Material misrepresentation or exaggeration of loss or personal injury Where genuine losses or incidents occur and a policyholder or third party deliberately misrepresents relevant material facts and/or exaggerates the true extent of damage sustained or material loss or personal injury received, above and beyond what they would be ordinarily entitled to, for financial gain. 8

9. A Continuous Cycle The Counter Fraud Continuum Prepared by Keoghs Solicitors 9

10. Four Part Set Identification Fraud Awareness Risk Indicators Referral for Investigation? Validation Non complex enquiries to confirm what told by claimant to remove concerns Referral for Investigation? Investigation when concerns cannot be removed Research Anchoring issues with Customer Technical Review Investigation against Investigation Plan Resolution after Investigation Remove concerns and settle the claim Process produces: Drop out by claimant Fraud Proven and Claim Denied Referral to the police for prosecution? 10

11. Fraudsters Insurance Fraud Bureau Targets Focus for Counter Fraud Measures 11

12. Treating Customers Fairly- The Right Balance Good Service to retain Client’s Customers Counter Fraud Measures to Protect Honest Policyholders 12

13. Examples of Fraudulent Conduct Fraud appears in different shapes and guises, including: The loss that did not happen The contrived loss The deliberate loss Genuine loss but exaggerated Genuine loss excluded but made to fit the policy A loss where the goods claimed for were not owned by the claimant 13

14. Claims Validation Process 14

15. What do we do with Suspicious Claims? Recognise the risk (fraud) indicators. ABI definitions give an industry standard definition of fraudulent conduct and useful KPI’s to measure performance Within own skill sets seek to resolve the issues with the customer (Use TCF process) If resolved : Record concerns on the file and show how they were resolved and continue as normal If Unresolved: Conduct appropriate Research If Resolve concerns can return for normal handling If still unresolved Refer to Technical Claims/Investigation Team Identify suitable Investigation Plan – agree same with Insurers and work to it 15

16. The Police investigate Crimes to identify a criminal • Loss Adjusters confirm Policy Liability for an insured loss 16

17. Treat the Customer Fairly “Spirit of TCF extends to weeding out fraudsters, i.e. it is incumbent upon organisations not to pay fraudulent policyholders in order to evidence that they are treating genuine policyholders fairly” “In support of this, fraud is to be a key topical subject for 2008 and audit visits will focus upon establishing that firms have a clear anti-fraud culture”. Andrew Bulley & Sarah Forsyth FSA Retail Firms Division We have been warned!!!!!!

18. Summary • Fraud Awareness as part of a rounded counter-fraud package is good business practise and required by the FSA • Know & follow your company counter fraud process • Treat the Customer Fairly • Using the ABI fraud definitions will lead to consistency of interpretation • ABI Categories can be used as Counter Fraud KPI’s to measure own performance as well as that of competitors • Benefits for Honest Policyholders