Commercial fraud bill put at £550m a year
Insurance Post / 8th September 2005
The Association of British Insurers is unlikely to embark on any new major data-sharing initiatives, after the results of its first commercial fraud survey.

However, the ABI said the results of this Mori poll were a valuable step in quantifying the problem, so the industry can start to tackle the £550m loss it suffers each year from a combination of exaggerated claims and fraudulent attempts to obtain compensation from employers.

These two issues were highlighted as among the greatest contributing factors, which the ABI said adds 5% to every commercial insurance premium.

According to the report, one in seven claims by businesses are exaggerated and one in three of the UK's largest firms have provided false information on a policy application. Also, one in 12 of more than 1000 respondents believed exaggerating property or motor claims was acceptable.

The ABI, along with a syndicate of sponsors including Capita, Cunningham Lindsey UK, Davies Arnold Cooper, NIG, Royal and Sun Alliance, Allianz Cornhill and Zurich, commissioned the research.

CLUK's fraud management director, Mike Boon, told Post Magazine: "By the nature of the survey, we're asking for people to be honest about dishonesty."

Mr Boon said the issue of exaggeration was often the preserve of smaller companies: "We found the attitude towards insurance among smaller businesses meant they tend to be more likely to exaggerate property claims."

However, he added: "I was most surprised to find that policyholders were also victims, as well as occasionally perpetrating the crime themselves."

Further findings included 56% of firms with more than 500 employees reporting that they had received a fraudulent compensation claim by one of their employees. "Inevitably, some of these claims are being paid, and some are being dealt with," said Mr Boon. "By doing this survey, it helps us understand the problem."

A spokesman at the ABI explained that the next step was to begin raising awareness by having dialogue with organisations such as the Confederation of British Industry and the Federation of Small Businesses. "Obviously, the cost of commercial fraud from this survey is not to the extent of our personal lines survey in 2002, which came out at over £1bn.

"However, there is so much we can do. This hasn't caught us unaware, we need to make use of existing databases and work closely with the FSB and CBI, to identify the common pitfalls that insurers can avoid and tackle the problem better."

Once again, the ABI mentioned the problem of fraud being a low police priority. "Part of the picture is the work of deterrents. It's never going to be the number-one police priority and it's not one of their key performance indicators but we need to get it higher up the enforcement agenda," the ABI spokesman added.

Finally, Mr Boon denied the handful of companies involved in commissioning the research with the ABI does not fully represent the industry, but conceded it must get buy-in from more companies and industry bodies as well as the Financial Services Authority and the Association of Chief Police Officers.

He also argued that the ABI's much-delayed motor fraud database was "making progress" and the market should not expect overnight solutions on data-sharing in the commercial insurance market. "These are major projects and I know the ABI anti-fraud committee is making progress. It is also important that individual companies have decent systems to help them identify fraud better."

ABI COMMERCIAL FRAUD SURVEY FINDINGS

- Number of respondents: 1000+

- Cost to industry: £550m (equivalent to 5% on every premium)

- One in seven claims are exaggerated

- One in 12 respondents believe exaggerated property/motor claim is acceptable

- One-third of the UK's largest firms provide false information on applications

- One in 10 have dealt with false compensation claims from employees, rising to two in three at firms with 500+ employees

- 20% are aware of employees exaggerating a genuine illness.