BEACHCROFTTHOUGHT LEADERSHIP SERIES

Beating Insurance Fraud

A blueprint for the successful prevention and management of fraud

Introduction

The issue of insurance fraud is rarely absent from industry headlines. Most stories

present a simplistic case of the recession acting as catalyst for growth in fraud,

promoting an increasingly urgent need to pursue and catch fraudsters.

That fraud is a huge and increasing cost to the insurance industry is clear. However,

the wider issue is far more complex and the solutions less straightforward than is

apparent initially. The picture is muddied by improvements that many insurers have

made in detecting fraud and a growing appetite at a senior level to put fraud on the

business agenda. Many insurers themselves subscribe to the view that the harder you

look for something, the more likely you are to find it.

While insurance companies have made great strides in fraud detection over

the years, they still have some way to go in fraud prevention. Approaches to dealing

with insurance fraud are inconsistent and often too narrow in their focus on

identifying fraudulent claims. Where a broader view is taken, groups are hampered

by poor data, a lack of knowledge sharing and internal integration and business

structures that often actively work against successful fraud management.

As part of our commitment to remaining at the cutting edge of the issues facing

the insurance industry, this report will formulate a blueprint for how insurers can

manage fraud most effectively. It will explore the key challenges and blockers and set

out practical strategies and best practice for tackling insurance fraud.

We spoke to eight of the leading players within major UK and international insurance

groups about current fraud management practices and the internal and external

strategies for success in beating fraud. Our thanks go to all of those who participated.

I am sure that you will find the views of our interviewees offer much food for thought.

David Pollitt

Head, Financial Institutions Group

Executive summary

Our research focused on how insurers are dealing with fraud now and what strategic

and practical steps are necessary to beat fraud in the long term. The key messages are:

How fraud and fraud detection has evolved

� Although the recession has increased fraud activity in some lines of business, it

is difficult to state definitively what impact the recession has had on volumes of

individual policy claims and the subsequent cost to the industry

� Insurers are looking harder for fraud within their businesses and finding more

fraud as a consequence, which is increasing the perception of an increase in

levels of fraud

� Far more insurers have fraud teams compared to ten years ago, with an increase

in general fraud awareness throughout the business

� There are likely to be further developments in the nature of fraud that is

committed, with increases in commercial fraud and individuals or groups of

fraudsters committing more sophisticated and elaborate schemes of fraud

Insurers’ approaches to dealing with fraud

� Dealing with fraud is often now seen as part of protecting the bottom line and

since the recession there is an expectation from shareholders and boards that

fraud will be reduced as a cost saving measure

� Although many insurers proclaim to have a zero tolerance approach to dealing

with fraud, there are still clear constraints around what they can and cannot

do and many insurers have to adopt a commercial pragmatism in how they

pursue fraud

� There remains an over-emphasis amongst insurers on claims fraud, which

encourages a silo mentality and ignores the other parts of their business where

fraud is perpetrated or can be eradicated

� Insurers are still hampered by a lack of resource, poor data sharing and

incompatible systems, both internally and across the wider insurance and

financial services industry

Beating fraud

� Insurers need to identify clear leaders within the organisation who have oversight

and responsibility for all aspects of fraud and who are incentivised to take a more

holistic approach to the issue

� Sales and underwriting teams need to be fully engaged in the fraud mission,

with fraud risk factored into pricing models and sales cycle controls improved

� More needs to be done to improve the collective industry effort and encourage

greater data sharing, not just amongst insurers but also with the wider financial

services sector and to improve relationships with the Police, authorities and

Government

Further Information

For further information please contact:

David Pollitt

Partner and Sector Head, Financial Institutions

Tel: +44 (0) 117 918 2226

Email: dpollitt@beachcroft.com

David is Head of our Financial Institutions sector. He has been advising financial

institutions for a number of years on contentious and regulatory matters.

He combines his practice of advising financial institutions with his role as sector head,

which involves him spending time speaking to clients about their business and their

legal requirements, so as to ensure that our service delivery is perfectly aligned.

His commitment to clients’ businesses is unquestioned; “I genuinely think he knows

my business better than I do” observed one.

Lorraine Carolan

Partner and Head of Fraud Personal Injury

Tel: +44 (0) 121 698 5227

Email: lcarolan@beachcroft.com

Lorraine specialises in defendant personal injury and deals with very high value

multi track claims – both motor and liability which had grossly exaggerated elements

to them. Since 2004 she had led Beachcroft’s National Claims Validation team.

This team acts for the firm’s major insurance clients, and is responsible for all

aspects of fraud work to include motor, EL and PL. Specifically, as well as dealing

with minimal impact/significant trauma cases and staged/contrived/ringed cases,

Lorraine’s focus has been on tackling those behind pursuance of these claims, e.g.

Claims Farmers, Solicitors, Medical and other experts. In order to tackle these parties,

Lorraine has established close links with the Solicitors Regulatory Authority, General

Medical Council and SOCA. She also leads extensive fraud training both internally

and externally.

Ben Daniels

Partner, Head of Civil Fraud and Asset Recovery

Tel: +44 (0) 117 918 2018

Email: bdaniels@beachcroft.com

Ben is a financial services litigation specialist and a recognised expert on fraud and

urgent injunction work. He specialises in the protection of assets at risk as a result

of fraud; the protection of data and confidential information; and the resolution of

complex contractual disputes. Within the financial services industry, Ben has

a particular interest in life insurance disputes; acting for product providers and IFA

networks in mis-selling claims; and all litigation that is affected by the Financial

Services & Markets Act 2000. His experience includes acting on a major multi-

jurisdictional fraud in which several life companies were defrauded by an offshore

IFA, involving the recovery of assets via the Isle of Man, Gibraltar, Spain and

Kenya; and acting for a general insurer in a multi million pound claim against a

number of individuals and companies allegedly involved in a motor fraud ring in

Cambridgeshire. The key individuals’ bank accounts and assets have been frozen and

the civil proceedings are being dual-tracked with a criminal investigation.

Emma Bate

Partner, Data Protection

Tel: +44 (0) 20 7894 6740

Email: ebate@beachcroft.com

Emma has extensive experience of advising our insurance clients on all contractual

and commercial issues including negotiating aggregator agreements. In particular

she has spent the last 2 years on secondments to Zurich (both UK and international

businesses) and Bupa International. She has experience of both specialist insurance

contracts as well as general procurement, outsourcing and e-commerce. Emma has

a particular interest in data protection and other consumer regulatory issues.

She led a team that reviewed a major UK insurer’s policies under the Unfair Terms in

Consumer Contracts Regulations, as well as guided clients through OFT, ASA

and Information Commissioner complaints.

Mathew Rutter

Partner, Financial Services Regulatory

Tel: +44 (0) 20 7894 6322

Email: mrutter@beachcroft.com

Mathew has experience of a wide range of non-contentious regulatory issues as

they affect insurers, banks, asset managers and other financial institutions. His areas

of expertise include financial promotions, consumer credit, TCF, unfair terms in

consumer contracts, market abuse and insider dealing issues, money laundering,

MiFID, conduct of business issues and corporate governance. Mathew regularly

advises on transactions in the regulated sector, including change of control issues.

He also advises on new authorisations and perimeter issues over whether

authorisation is required. Mathew also advises regulated firms on corporate

and commercial matters, such as outsourcing arrangements, joint ventures, and

shareholders or LLP agreements. Mathew regularly writes articles and gives talks on

regulatory issues, and has appeared on radio and television discussing regulatory

developments.

Catherine Burt

Partner, Claims Validation

Tel: +44 (0) 191 404 4042

Email: cburt@beachcroft.com

Catherine has extensive experience of personal injury litigation having worked

for a range of insurers and corporate clients. She is partner in Beachcroft’s Claims

Validation Team and is responsible for the Newcastle and Manchester teams.

Catherine deals with all aspects of fraud work including the various types of motor

fraud but has a particular interest in EL/PL fraud. Catherine assists Lorraine Carolan

in client relationships for major insurance clients and corporates and presents fraud

training on behalf of Beachcroft.

Craig Dickson

Head of Credit Hire

Tel: +44 (0) 121 698 5270

Email: cdickson@beachcroft.com

Craig heads Beachcroft’s Credit Hire team and also occupies a business

development role in the firm’s Claims Validation team. He regularly advises

clients in negotiating agreements with credit hire organisations, alternative

resolution models and working with insurers to develop effective credit

hire and fraud strategies. Craig is well known in the industry for his credit

hire and fraud expertise. He has written articles, participated in industry

debates and frequently presents on the subjects at industry events.

Rhiannon Davies

Senior Solicitor, Data Protection

Tel: +44 (0) 20 7894 6577

Email: rdavies@beachcroft.com

Rhiannon advises on commercial and contractual issues for insurance clients and

has particular expertise in data protection. She regularly advises clients on data

protection issues including drafting privacy policies and notices, ensuring data

protection issues are addressed in contracts, advising on responses to subject access

requests and providing bespoke training. Recent highlights have included providing

data protection advice to a multi national insurance company dealing with the

aftermath a data security breach and advising an insurance company on containment

of a data security incident.

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