The True Cost of Insurance Fraud: Understanding the Impact on Consumers and the Industry

Last month, the Association of British Insurers (ABI) reported that the number of detected fraudulent claims fell by 19% in 2022 compared to 2021, to 72,600 cases - or 198 a day. However, the latest figures show that the average cost of insurance fraud has risen to £15,000 – indicating that criminals are increasingly “aiming big”.

Despite the fall in the number of detected fraud cases, the ABI warned that there will be “no let-up” in cracking down on scammers.

With the rising cost of living, many individuals and families struggling to make ends meet may be tempted to consider less legal means by making a fraudulent insurance claim as a way to obtain some extra money. This can be particularly true in relation to public liability incidents and personal injury claims where the claimant has experienced a legitimate loss but has exaggerated the extent of the damage or injury. This was most notable in the number of whiplash claims prior to the reforms implemented in 2021.

The sectors with the highest number of detected fraudulent cases are motor, property, and casualty insurance, with motor accounting for 59% of total insurance fraud claims. This includes staged accidents and injuries, as well as false claims of theft or damage. But whilst there are indications of fraudsters moving away from traditional types of fraud such as “crash-for-cash” scams, there are worrying signs of more sophisticated fraud claims being attempted as more criminals try for bigger payouts.

Some of the most recent cases of fraud reported by the ABI:

• A man was jailed for 16 months for falsifying 15 travel insurance claims valued at £75,000, using the identities of people he knew.
• A fraudster was jailed for four years, as a result of him cloning the identity of a claims management company to arrange over 60 false motor insurance claims, worth £26,000.
• A London man pocketed £50,000 by acting as an illegal insurance intermediary (known as a ‘ghost broker’) and selling fake motor insurance.
• An employee at a veterinary practice was caught claiming over £37,000 in fraudulent pet insurance claims. The woman took out pet insurance policies with six insurers and made a total of 18 fraudulent claims against them over four years.
• A man was jailed for making bogus medical claims worth £24,000 against 3 insurers. These involved submitting fake receipts for non-existent medical treatments.

Insurance fraud is never a victimless crime. Detected cases of fraud costs the UK over £1 billion every year. Fraudulent cases that go undetected add an estimated £2 billion on top of that, pushing the premiums for legitimate insurers by up to £50 in the process.

A common misconception is that no one really loses out because the banks can reimburse the victims. But the reality is that those who end up suffering the most are the genuine consumers who face having to pay higher premiums as the cost of covering the crimes is passed on to them.

At a time when everyone is already facing higher living costs, it is crucial that firms remain vigilant to ensure their genuine customers are protected from harm. That includes responding to the levels of complexity and frequency of fraudulent claims with equal sophistication and mitigation. In a recent speech, the FCA’s Sarah Pritchard highlighted the importance of “risk calibration” to ensure firms are acting proportionately to the levels of financial crime. Read the full speech here.

If you are interested in learning more, the Development Zone has a range of courses related to topics we have touched on in this article, including our new ‘Ghost Brokers’ module.

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