Tackling fraud in motor insurance claims

Fraud may not seem like a transformation topic but when it costs the insurance industry billions annually and raises premiums for honest policyholders, any strategies to address this are necessarily transformative.

This insight explores the pervasive issue of fraud in motor insurance claims and discusses strategies to mitigate its impact.

The scope of the problem

Fraud in motor insurance can range from exaggerated claims to incidents of staged accidents and false theft reports. These fraudulent activities not only strain the resources of insurance companies but also compromise the integrity of the claims process. We often hear a lot about consumer fraud but less about repairer network fraud. 

Fraud by repairers in the motor insurance industry is a concerning issue that significantly contributes to the overall cost of insurance fraud. This type of fraud typically involves auto repair shops and can manifest in various ways, as highlighted by recent major cases of repairer fraud in the industry.

If you are observing an acceleration of your claim’s triangles, it may be time to get ahead and beneath the problem.

Common types of consumer motor insurance fraud:

• exaggerated claims: policyholders inflate the value of their claim, seeking compensation well beyond the actual loss
• ghost accidents: claims are filed for accidents that never occurred, often involving fictitious vehicles and drivers
• staged accidents: deliberate crashes are orchestrated to file claims against insurance policies, often involving multiple colluders
• false theft reports: vehicles reported as stolen to claim insurance money while the vehicle is secretly kept or sold by the owner
• false policy holders: a fleet insurance policy is obtained and used as a cover for selling insurance and providing illegal cover to uninsured drivers and criminal gangs.

Common forms of repairer fraud:

• overbilling: repair shops may bill for more hours than the work took or charge for parts and repairs that were never performed
• inferior parts: using cheaper, non-original parts while charging for premium ones, compromising vehicle safety and performance
• unnecessary repairs: performing additional, unnecessary repairs to inflate the bill.
• kickbacks: repair shops might engage in illegal kickbacks with tow truck operators or even insurance adjusters to get more business referred to them under fraudulent circumstances
• intentional damage: repairers may cause intentional damage to increase the scope of work.

Benefits of effective fraud management 

Implementing robust fraud detection and prevention strategies can lead to substantial savings for insurance companies, which can be passed on to consumers through lower premiums. Moreover, a cleaner claims process enhances customer satisfaction and trust in the insurer and insurance industry.

Strategies to combat fraud

Auditing and inspections: employ specialist auditors to inspect repairs and verify that the work claimed has been completed to the required standard. This can also involve routine checks of the garages they work with to ensure compliance with agreed standards.

Approved repairer networks: ensure that your established networks of approved repair shops remain vetted for quality and reliability. This not only helps to control costs but also reduces the incidence of fraud.

Data analytics and artificial intelligence (AI): leveraging advanced analytics and AI can help detect patterns and anomalies indicative of fraudulent activities. Machine learning models can predict high-risk claims based on historical data, improving screening processes. One insurer was able to spot fraudulent fleet claims when a hairdresser’s fleet policy took them all over the UK.

Telematics: the use of telematics devices in vehicles allows insurers to gather real-time data on vehicle usage and driver behaviour. This technology can be instrumental in verifying claims' legitimacy, especially in accidents and theft.

Use of technology: for repairers, advanced software that can scrutinise invoices and flag inconsistencies or unusual patterns is another effective method. Technology can also be used to track the history of parts to ensure that what is being charged has indeed been used.

Collaboration with the police: effective partnerships between insurers and the police are crucial. Sharing information can help in the swift identification and prosecution of fraudsters, acting as a deterrent to potential criminals.

Enhanced claims investigation: insurers are bolstering their claims investigation processes by employing skilled investigators and training staff to spot signs of fraud. More thorough checks and the requirement for additional documentation can also help verify claims' authenticity. This needs to be balanced against processing speed.

Education: educating consumers about the implications of insurance fraud and how they can report suspicious activities plays a critical role in prevention. Awareness can also discourage individuals from participating in or falling victim to fraud.

Informing policyholders about how to select reputable repair services and the signs of potential fraud can also help in mitigating risks. Policyholders should be encouraged to report suspicious activities.

This overview highlights the necessity for ongoing vigilance and innovation in the fight against insurance fraud, especially within the motor sector.

How can Crowe help?

Engaging with these strategies not only protects resources but also safeguards consumer trust in the insurance market. Fraud is a multi-faceted issue that requires a robust approach involving technology, human oversight, and strong legal frameworks to effectively combat.

Through proactive measures and continuous improvement of fraud detection and prevention practices, the motor insurance sector can safeguard itself against such unethical practices, ultimately leading to reduced costs and enhanced customer trust.

While the battle against fraud in motor insurance is ongoing, the integration of technology and enhanced investigative practices are making significant inroads in mitigating its impact. As the sector continues to evolve, so too will the strategies to combat fraudulent activities, ensuring the sustainability and integrity of motor insurance.

For more information contact Buki Obayiuwana or your usual Crowe contact.