When money is tight there is a change in attitudes to insurance fraud. But, ask Amanda Fyffe and Helen Walters, are financial misstatements always fraudulent - and how can you tell?
By summer 2014, the UK economy is expected to reach and overtake its pre-recession peak. But despite this, the effects of the recession are far reaching, and many people still have a tight rein on their purse strings.
It is not only about the continuing financial consequences of the recession, but also the deeper impact these constraints have had on people's attitudes to insurance claims.
Leonard Brimson, European head of fraud at Zurich, has been quoted as saying: "Recession doesn't turn honest people crooked, it just accelerates the issue." Does this mean that, in a recession, dishonest people are more likely to turn to crime - or perhaps that more people would consider making a fraudulent claim in times of recession?
Exaggerating an insurance claim or making a false claim is seen by some as ‘easy' money and a victimless crime. According to the Association of British Insurers, an increasing number of Britons see insurance fraud as more acceptable during a recession, with one in ten adults happy to admit having made a fraudulent insurance claim.
But ABI statistics indicate that 80% of fraudulent claims are opportunistic rather than premeditated, indicating that some are willing to take the risk - perhaps failing to account for cash-in-hand work or exaggerating injuries, and taking the attitude that insurers can afford it or won't find out.
In 2012 8% of UK income-protection claims received by insurers were stopped or declined either because they were fraudulent or because full and correct information was not provided when the insurance policy was purchased.
Fraudulent income-protection claims can often result in the payment of benefits that should not have been paid, leading to the time-consuming and often costly task of recouping them and possibly incurring further costs through litigation.
Insurers are investing in people and technology to prevent and detect fraud and prosecute its perpetrators. But if fraudulent claims go undetected, insurers' costs will increase, which in turn will result in higher premiums for future policyholders.
The ABI estimates that undetected fraud adds an average of £50 to every insurance policy - so ultimately the policyholder is the victim of this perceived ‘victimless crime'.
What is fraud?
The Serious Fraud Office defines fraud as the "abuse of position, or false representation, or prejudicing someone's rights for personal gain". This is essentially the act of intentional deception and includes:
- Deception - whereby someone makes a false representation, for example claiming illness or injury where there is none;
- Failure to disclose information - for example, withholding earnings records or submitting falsified or misleading information; and
- Abuse of a position - for example a company accountant making false payments.
In income-protection claims, fraud can manifest itself in a variety of ways, but perhaps one of the more difficult areas to detect fraudulent claims is where there has been financial misstatement.
In simple terms, a fraudulent income-protection claim arising from financial misstatement results from either pre-incapacity earnings being overstated or post-incapacity earnings being understated - or both. But not all financial misstatements are fraudulent, so care needs to be taken when reviewing financial data to understand the reasons for financial misstatement in the context of the claim.
We are all human, and mistakes can and do happen - documents can go missing, payments can be delayed or bookkeeping can be inadequate. But the important consideration is whether, once a mistake has been identified, anything has been done about it. This might be resubmission of records to Her Majesty's Revenue & Customs or Companies House and updating insurers as necessary.
