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Connexus : Issue 38
FEATURE connexus www.abacus.org.au 49 49 connexus www.abacus.org.au INSURANCE Insurance fraud costs Australia an estimated $2 billion a year and mutuals can play a part in reducing that amount. There is no direct risk to a mutual if a member commits insurance fraud as it is not the actual provider of the policy. However, insurance fraud is not a victimless crime. It comes at significant cost to the insurance industry and adds to the overall cost of premiums paid by the public. Greater efforts are needed to reduce it, says Gary Gill, national head of KPMG Forensic. The most recent edition of KPMG Forensic’s Fraud Barometer showed a record number of insurance fraud cases went before Australian courts in the first half of this year. “The range of large insurance frauds, including a case where the insured faked his own death, shows that insurers remain a target,” Gill says. Insurance fraud is often opportunistic – through the ‘padding’ or exaggeration of otherwise legitimate claims. “Everyone ends up paying for insurance fraud. It’s often said in the industry that almost every householder who is robbed reports losing an expensive set of golf clubs,” notes Leanne Vale, senior manager financial crimes, at Abacus, who adds that some policyholders believe they have a right to claim every year without understanding the impact on their own claims history and overall premiums. Premium theft Fraud can also be premeditated or based on non-disclosure. Premeditated fraud includes arson, theft and staged incidents. Non-disclosure involves misrepresenting or hiding facts relevant to a policy or claim, according to Karl Sullivan, general manager risk and disaster, at the Insurance Council of Australia. The council estimates that fraudulent claims cost the industry up to $75 of every policy premium received, and around 15 per cent of insurance claims exhibit some indication of fraud. Its research shows that many Australians think there are no losers if an individual inflates their losses in a claim, but Sullivan says the cost is largely borne by the public in the form of higher premiums. Gill believes Australian insurers could benefit from a central database of insurance fraud and its cost. “Some countries have large databases that companies can check before paying out on claims. In Australia a lot of information is held by the various companies but is not pooled and available to all insurers.” It’s an issue the industry is addressing. The new Insurance Fraud Bureau of Australia (IFBA) was established by the Insurance Council late last year to increase information collection, sharing and analysis of fraud. It works closely with law enforcement agencies and its website and 24 hour hotline provide easy ways for members of the public to report suspected insurance fraud. Sullivan says the increased sharing of information has already yielded positive results. “We’ve spent the first 12 months coordinating the lawful exchange of data on fraud and we are seeking a public interest determination to ensure that we can go ahead and begin building a central database that can be searched by industry members. “It’s amazing how quickly you can unravel frauds when you share information. A very large fraud was exposed in Victoria recently as a result of comparing some claims data. Up to 10 companies had been hit by the same scam by the same people using the same vehicles. There’s been a saving of several million dollars,” he says. A friendly reminder Mutual employees selling policies can assist the fight against fraud by reminding purchasers of exclusions in the policies they are buying and the risks of non-disclosure. “Financial institutions already have sound checks and balances on staff hiring but they need to be vigilant that employees do not inadvertently assist non-disclosure. “For example, householders sometimes claim that a property is properly maintained and in a good state of repair even though it may not actually have a sound roof. If a hail storm comes along and causes further damage, the assessor is likely to deny the claim because the policy was based on misrepresentation and that is a form of fraud.” Sullivan says mutuals can sign up as members of the IFBA at no cost to receive regular fraud alerts and they can use the hotline to report suspected fraudulent activity at any time. Insurance companies expect brokers, agents and partners to provide the same level of information about potential policyholders and the assets being insured as would be obtained if the company was selling the policy direct. “ When we sell products through an intermediary the sale process includes an automated list of questions designed to accumulate all the information we, as the underwriter, would be seeking if we were asking the questions ourselves,” says a spokesperson for CGU. Vale says mutuals have a role in educating members about the need for full disclosure and good record keeping. They can inform members how to increase their personal and home security in ways that reduce the need to make insurance claims and ensure that, when needed, the claims process is straightforward. – Carolyn Rance is a freelance writer. “It’s amazing how quickly you can unravel frauds when you share information. A very large fraud was exposed in Victoria recently as a result of comparing some claims data.