According to the Insurance Fraud Bureau, the cost of organised fraud to the industry is approximately £200m per year. While this is only a small portion of the estimated £1.6bn total cost of fraud, it is of particular concern because it is typically carried out by organised gangs, often using the money to fund serious illegal activity, such as people trafficking, arms dealing and terrorism. Although there are isolated examples of fraud rings operating in arson and disability claims, the vast majority of organised fraud involves motor insurance. It is an unfortunate truth that the criminal gangs instigating this type of fraud are rarely identified by insurers or the police, as they operate ‘behind the scenes’ — persuading others to make personal injury claims on the back of accidents that are either staged or entirely fabricated. Historically, those targeted by gangs to take part in fraud have largely followed a well-defined profile, predominantly males in the 25 to 44 age bracket, living in more deprived postcodes. These individuals also tend to have a history of suspect claims or minor criminality. There is mounting evidence, however, that this is changing, as the gangs behind the scams cast their net wider in search of the ideal claimant. This is borne out by analysis of the thousands of fraud ring cases investigated by Keoghs. Case analysis Analysis of cases handled over the past 12 months shows the number of fraudsters within the 18 to 25 age bracket has increased by 10%, compared with the previous year. Meanwhile, the proportion of fraudsters in the 26 to 30 bracket has fallen by 0.5%. This trend is also starting to be recognised across the industry; in a survey of Keoghs' insurer clients compiled in September, 83% of those noticing a change in the average age of fraud claimants said they had seen a marked decrease in their age. Another trend, more difficult to quantify, but suggested by anecdotal evidence, is that organised fraud is becoming a more middle-class pursuit, with the two groups increasingly involved being students and young professionals. The link between youth unemployment and youth crime rates is well established. In 2004, economist Steven Levitt analysed a wide range of data into the relationship and found that, controlling for other factors, almost every study showed a relationship between non-violent crime and the rate of unemployment. Levitt’s estimate was that a 1% increase in unemployment would cause a 1% increase in crime. In 2005, a study by the government’s Social Exclusion Unit found that nearly two-thirds of young offenders were unemployed at the time of arrest compared to 46% of those aged over 25. The latest figures from the Office of National Statistics reveal that youth unemployment is at a 20-year high, with more than one in five — 22.3% of 16 to 24-year-olds — out of work. More than two fifths of those out of work have been unemployed for more than six months. As a result, many are anticipating a sharp increase in the level of crime committed by young people and this appears to be borne out in the increase seen in organised fraud. Strain on finances There is also a suggestion that issues such as a rise in tuition fees for higher education and lack of availability of affordable housing is putting such a strain on young people in jobs and full-time education that many are now willing to take the risk of committing fraud to survive. In many cases, this is a last resort unlikely to be taken under normal economic circumstances, but which is now being used as an opportunity by the criminal gangs who recruit fraudsters. To make significant amounts of money from fraud, the criminals need to recruit willing volunteers to file bogus claims in exchange for a share of the pay-out. The most common scenario — that used by Mohammed Patel, the fraudster jailed in 2009 for causing 93 crashes — is for a fraudster to use a contact’s car, with their permission, to stage a collision on the road, following which the owner of the car can make a large claim for personal injuries. However, as insurers’ risk and fraud managers have increasingly grown wise to this and subjected claims from the most commonly affected postcodes to increased scrutiny, the gangs have shifted their recruitment strategies. There have been a number of cases of active recruitment of fraudsters in universities – with those taking part often studying for high-earning professions such as law or medicine, and coming from stable, middle-class backgrounds. In one case currently under investigation, the ringleader at the centre of the scam was a student who had crashed the cars of a number of fellow students in order for them to benefit from the pay-outs. So, what can insurers do to stop these practices? Rapid shifts In the face of such rapid shifts in the demographics of those involved in fraud rings — and the state of the economy driving people to turn to desperate measures and commit fraud for the first time — it is clear that concentrating on those with a history of suspect claims will not prove an effective deterrent. What is needed are all-encompassing fraud detection tools and techniques, based on a joined-up approach to sharing detailed information both internally in organisations and between insurers. Ideally, as soon as a potential fraud ring is uncovered, investigators should be able to cross-reference the details of the claims involved with all other relevant cases across the industry as a whole in order to identify and investigate any links. Investment in analytical techniques and technology, coupled with an open approach to sharing data on suspected fraud rings, is essential if the industry is to stand any chance of identifying and bringing to justice those at the heart of the problem.
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