Claims Fraud

Transcript

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Welcome

Welcome to the Claims Fraud Course

On completion of this course you will be able to:

• define fraud and demonstrate an understand of why claims fraud exists in the insurance industry

• recognise and identify fraud within the areas of commercial property, motor and third-party

• identify fraudulent claims in the workplace through practising methods of prevention and investigation

• have the basic knowledge of recent developments within the insurance industry.

This course is in 4 parts:

• Module 1: An overview of claims fraud

• Module 2: Commercial Property, Motor and Third-Party Fraud

• Module 3: The Prevention and Investigation of Fraud

• Module 4: Developments in Claims Fraud

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Module 1: An overview of claims fraud

In this module we will explore the following topics by explaining what fraud is and how to identify fraud. We will look into the Irish law and how An Garda SÍochána tackle insurance fraud.
We will then examine some examples from the FSPO and the CPC.
The below areas will be covered in this module.
• What is Fraud?
• How to identify which claims are fraudulent?
• Fraud and the Irish law
• Claims fraud and litigation
• An Garda SÍochána
• How much fraud is taking place?
• General potential fraud indicators.

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What is fraud?

First we will look at what is fraud, select the information icon on screen to view the definition of fraud or select your toolkit.

It is important to emphasise that the overwhelming majority of claims are not fraudulent.

Although certain provisions of the Consumer Insurance Contract Act, 2019 replaced the pre and post contractual principle of utmost good faith, it remains the intention of all insurers to
treat all policyholders and claimants as honest and genuine, unless there is evidence to demonstrate otherwise.

How to identify which claims are fraudulent?

An insurance claim is fraudulent if it is made by a policyholder who knows that the loss stated in the claim has not occurred at all or to the extent claimed (deliberate exaggeration).

Mens rea (state of mind) of the perpetrator is a crucial element for the fraud to occur – there needs to be a mal intent for the fraud to take place.

An insurer is not only interested in whether or not the policyholder has suffered a genuine loss, but if a lie has been made to misrepresent the claim.

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Are all overstated claims fraudulent?

The question of whether an exaggerated or inflated claim is also fraudulent has always been ambiguous.

The courts take the view that, if policyholders put forward a claim that is greater than the amount they believe they will recover because they expect to partake in some form of negotiation
then whether the claim is fraudulent will depend upon the nature and extent of the exaggeration.

How do we prove fraud?

Fraud is a serious allegation. It must be clearly substantiated and not be confused with carelessness.

Exaggerated claims are only fraudulent if there is an intent to defraud the insurer or if the overestimate is so great that it could only have been intended to defraud.

Therefore the term “deliberate” is crucial in the definition of fraud. For the fraud to be proven it needs to be demonstrated that the perpetrator knew their action were unlawful and knew
they were aimed at making a gain.

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Fraud and the Irish Law

There is no general offence of fraud, however, the Criminal Justice (Theft and Fraud Offences) Act 2001, created an offence of Making Gain or Causing Loss by Deception (Section
6).
The offence is committed where a person dishonestly with the intention of making a gain for themselves or another or of causing a loss to another by deception induces another to do or
refrain from doing an act. The term ‘dishonest’ means the absence of a claim of right made in good faith.
Deception

Deception is defined in Section 2(2) as meaning one of three possibilities.

the creation or reinforcement of a false impression, including a false impression as to law, value or intention or other state of mind.

the prevention of another person from acquiring information which would affect that person’s judgement of a transaction.

failing to correct a false impression which the deceiver previously created or reinforced or which the deceiver knows to be influencing another to whom they stand in a fiduciary or
confidential relationship.

From an insurers’ perspective most complaints made to Gardai under the 2001 Act are in regard to a deception where an insured or a third party tried to deceive insurers in relation to a
claim that was made.

Examples include: staged accidents, phantom passengers, producing false invoices to support a claim, alleging a break in at a property that did not occur, submitting false loss of earning
certificates or invoices for parts which were not fitted into a vehicle.

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Fraud & the Consumer Insurance Contracts Act, 2019

The Consumer Insurance Contract Act, 2019 was enacted by Dáil Éireann and signed into law on the 1st of September 2020.

This important piece of legislation reforms the law applicable to consumer insurance contracts. It strengthens the rights of policyholders improving their protections if they are a
‘consumer’. The Act also amends the respective duties of insurers and their consumer policyholders. The Act is wide ranging, dealing with many different aspects of insurance contract
law.

There is specific reference to fraudulent claims and claims made where the consumer provides information that is false and misleading in a material respect.

The Insurance (Miscellaneous Provisions) Act 2022 (Ireland)

It is understood that, as part of the originating Law Reform Commission report (that gave rise to the CICA), the intention of S18(4) was, evidently, to ensure that wherever claims were
excluded because they arose on foot of a criminal or intentional act or omission of the Insured, the wrongdoer’s actions would not necessarily defeat a claim by anyone who was an
innocent co-insured on that policy. The Insurance (Miscellaneous Provisions) Act 2022 has clarified the application of S18(4) sufficiently narrowing its scope in order to ensure that the
original intention of the protection for innocent co-insureds is fulfilled.

Key Points

If a consumer makes a claim containing information which is either false or misleading, and if the consumer knows that such information is false or misleading, or
otherwise consciously disregards whether it is false or misleading, then the insurer may refuse to pay the claim and terminate the contract.

Where the insurer becomes aware that their consumer-policyholder has intimated a fraudulent claim, the insurer must notify the consumer that they are avoiding the
contract. The policy will be considered to be terminated from the date of the submission of any fraudulent claim. The Insurer is under no obligation to return any premium
paid by the consumer.

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Fraud & the Consumer Insurance Contracts Act, 2019

The Consumer Insurance Contract Act, 2019 was enacted by Dáil Éireann and signed into law on the 1st of September 2020.

This important piece of legislation reforms the law applicable to consumer insurance contracts. It strengthens the rights of policyholders improving their protections if they are a ‘consumer’. The Act also
amends the respective duties of insurers and their consumer policyholders. The Act is wide ranging, dealing with many different aspects of insurance contract law.

There is specific reference to fraudulent claims and claims made where the consumer provides information that is false and misleading in a material respect. As of September 2022, S18(4) has yet to be
commenced and has itself been modified as part of The Insurance (Miscellaneous Provisions) Act 2022 (Ireland).

The Insurance (Miscellaneous Provisions) Act 2022 (Ireland)

It is understood that, as part of the originating Law Reform Commission report (that gave rise to the CICA), the intention of S18(4) was, evidently, to ensure that wherever claims were excluded because
they arose on foot of a criminal or intentional act or omission of the Insured, the wrongdoer’s actions would not necessarily defeat a claim by anyone who was an innocent co-insured on that policy. The
Insurance (Miscellaneous Provisions) Act 2022 has clarified the application of S18(4) sufficiently narrowing its scope in order to ensure that the original intention of the protection for innocent co-insureds is
fulfilled.

Key Points

If a consumer makes a claim containing information which is either false or misleading, and if the consumer knows that such information is false or misleading, or otherwise consciously
disregards whether it is false or misleading, then the insurer may refuse to pay the claim and terminate the contract.

Where the insurer becomes aware that their consumer-policyholder has intimated a fraudulent claim, the insurer must notify the consumer that they are avoiding the contract. The policy
will be considered to be terminated from the date of the submission of any fraudulent claim. The Insurer is under no obligation to return any premium paid by the consumer.

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Section 18 Consumer Insurance Contract Act 2019

Proportionate remedies and claims handling

18. (1) Where a claim made by a consumer under a contract of insurance contains information that is false or misleading in any material respect and which the consumer either knows to
be false or misleading or consciously disregards whether it is false or misleading, the insurer shall be entitled to refuse to pay the claim and shall be entitled to terminate the contract.

(2) A valid claim made under a policy is not affected where, under the same policy, the consumer makes a subsequent fraudulent claim or where fraudulent evidence, or information is
submitted or adduced in its support.

(3) Where an insurer becomes aware that a consumer has made a fraudulent claim, the insurer may, as soon as is practicable after becoming aware of that fact, notify the consumer on
paper or on another durable medium that it is avoiding the insurance contract, and if the insurer so notifies the consumer, the insurance contract shall be treated as having been
terminated with effect from the date of the submission of the fraudulent claim (referred to in this subsection as “the date of the fraudulent act”), whereupon—

(a) the insurer may refuse all liability to the consumer under the insurance contract in respect of any claim made after the date of the fraudulent act, and

(b) the insurer need not return any of the premiums paid under the insurance contract.

(4) (a) Where a contract of insurance, under which 2 or more consumers are co-insureds, contains a term or condition excluding coverage for loss or damage to property caused by a
criminal or intentional act or omission of a co-insured, the exclusion shall apply only to the claim of a consumer—

(i) whose act or omission caused the loss or damage,

(ii) who abetted or colluded in the act or omission, or

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(iii) who consented to the act or omission and knew or ought to have known that the act or omission would cause the loss or damage.
Section 18 Consumer Insurance Contract Act 2019 continued

(b) Nothing in paragraph (a) shall be interpreted as—

(i) allowing a person whose property is insured under the contract of insurance to recover more than that person’s proportionate interest in the lost or damaged property, or

(ii) affecting the operation of a term or condition in the contract of insurance excluding coverage for loss or damage to property caused by war, an act of terrorism, a nuclear attack or a
cyberattack.

(c) A consumer whose coverage under the contract of insurance would be excluded but for paragraph (a) shall cooperate with the insurer in respect of the investigation of the loss,
including—

(i) by submitting a statutory declaration if requested by the insurer, and

(ii) by producing for examination at a reasonable time and place designated by the insurer documents specified by the insurer that relate to the loss.

(d) For the purposes of paragraph (a), 2 or more consumers are each a co-insured under a contract of insurance where each of those consumers—

(i) has an interest in the insured property, and

(ii) is insured against loss or damage to the insured property.

(5) An insurer shall not be entitled to claim against the consumer the cost of investigating a fraudulent claim.

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Claims fraud and litigation

In civil cases, the standard or proof for fraud is the ‘balance of probabilities’. However, in practice, given the seriousness of such assertions, fraud will need to be clearly proven. This
essentially means that to be successful in an assertion of fraud, better proof will be needed then say for example, an assertion of negligence.
This is one of the reasons insurers sometimes reluctantly plead fraud and often prefer to rely on credibility issues and place the plaintiffs on full proof of loss in cases where they suspect
fraud. However, many insurers are now taking harder lines on cases of suspected fraud.

Personal injury claims arising from staged road traffic accidents are one of the most common types of claims fraud which is fought by insurers once they secure satisfactory evidence.
When alleging that an accident has been staged and that the people involved knew one other we should bear in mind a reasoning of Judge Groarke.

When dismissing personal injury claims arising from a staged accident he stated that:

“Coincidences happen in life but the evidence in this case, which discloses coincidences of a most astonishing nature, really push the explanation of coincidence off the cliff,”

Fraudulent exaggeration is often suspected in personal injury claims and unless the insurer has undisputed evidence the Plaintiff is likely to obtain an award of damages. However, we
have recently seen some cases when the evidence did not allow for much doubt.

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An Garda Síochána helping to tackle insurance fraud

Below are three examples of operations An Garda Síochána have launched in order to tackle fraud.

Operation NASCAR

Operation NASCAR launched by Gardai - thanks to cooperation with the insurers - has uncovered an organised group of people who staged road traffic accidents in order to receive
compensation for personal injury claims. So far, 21 (per Insurance Ireland report) persons have been charged with the criminal offences, 14 of which under Section 6 of The Criminal
Justice (Theft and Fraud Offences) Act [Link] Coatee

More recently, 5 people have been arrested in course of an Operation Coatee which uncovered insurance fraud.

[Link]

Operation Vantage

[Link]

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Does the FSPO deal with fraud?

It needs to be noted that the Financial Services and Pensions Ombudsman (FSPO) does not deal with customer complaints if there is either a strong indication of fraud or if fraud is being
alleged by insurers. Such cases are outside the FSPO jurisdiction and have to be litigated.

Consumer Protection Code and claims fraud

Among numerous measures aimed to protect the consumers’ interests, Central Bank also imposes a duty on insurers to investigate claims.

In line with the Consumer Protection Code:

‘’Claims processing 7.6 A regulated entity must endeavour to verify the validity of a claim received from a claimant prior to making a decision on its outcome.’’

How much fraud is taking place?

It is estimated that fraud costs Irish insurers approximately €200 million a year and increases the price of an insurance policy by €50. These figures reinforce the notion that insurance
fraud is not a victimless crime as honest policyholders are charged higher premium as result of fraudulent claims. A recent survey into the public attitudes of fraud conducted in Ireland
uncovered an interesting contradiction:

Only 1 in 4 people would report insurance fraud whereas 81% regards it as unacceptable and understands that it increases the premium for honest policyholders.

66% think that ‘catch me if you can’ attitude greatly contributes to committing insurance fraud as fraudsters believe it’s unlikely they would get caught or that they would face serious
consequences.

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How much fraud is taking place?

There are many types of fraud that can take place. The facts of any given case are of prime importance and it is clear from the case law that the matters in issue have related to the facts
in question and the ability of – in most instances the Insurer – to prove fraud on the strength of the evidence. Depending on the details of the specific incident staged accidents can fall
into any of the below categories.

Losses that did not happen

Such as a fictitious loss of an item of jewellery or falsely claiming to have been injured in an accident.

Genuine losses made to fit a policy wording

For example, roof slates may need repairing but a claim is submitted at the time of a storm. The Insured needs to prove that the loss being claimed-for has arisen as result of the
operation of an insured peril, e.g., storm.

Genuine losses where the claim is exaggerated

Often seen in claims for personal injury and loss of property.

Deliberate losses

Such as arson.

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How much fraud is taking place?

There is no typical description of a fraudster although some very broad categorisations can be made.

Mr and Mrs Average

The majority of insurance fraudsters that are otherwise law abiding people who will perhaps fraudulently exaggerate the claim or change the
description of the circumstances. They are typically between the age of 35 and 50.

The fraud can be either opportunistic or sometimes with an element of pre-meditation. The fraudster believes the risk of getting caught is relatively
low and that there is no harm in defrauding a faceless insurance company.

The criminal fraudster

They take out a policy with the specific intention of committing premeditated fraud; often professional criminals who probably already have a
criminal record. They can work alone or in organised groups, which may involve others such as witnesses, solicitors and garage owners being
complicit in the crime. They can often cost insurance companies large sums of money in one incident.

Professional enablers

There have been proven instances in England where solicitors, medical professionals and vehicle credit hire companies conspired together with
the claimants and facilitated their claims by providing with legal advice, false medical evidence and use of damaged vehicles. There is a growing
concern that this might have been taking place in Ireland as well.
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Claims tourism

With average awards for whiplash in UK being on average 4.4 times lower than in Ireland there is an “incentive” for fraudsters to travel into Ireland and try to cause accidents so that
claims can be made. This issue has also been identified in by judge Kearns in the report of the Personal Injury Commission

” PIC is aware of increased sophistication in the bringing of such claims by both individuals and groups, some of whom are drawn to this jurisdiction by the high rewards on offer. This
phenomenon, increasingly revealed in accounts of court cases in recent years” View example here

Perhaps over time, the changes in award levels contemplated by the Personal Injuries Guidelines will cause a reduction on this type of fraud.

People under financial pressure

The aim of insurance claims fraud is to obtain an unlawful financial gain. Therefore, people under severe financial pressure may be more likely to commit fraud. It has now become a
subject of speculation as to whether we will see more instances of fraud due to the upcoming financial crisis caused by the unprecedented Covid-19 situation.

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General potential fraud indicators

Fraudulent claims often have characteristics that point to their fraudulent nature. It is important to emphasise that the presence of one or more indicators is only a starting
point for potential fraud. Further investigations are required.

The presence of one or more of these indicators does not automatically mean the claim is fraudulent. It will however be a combination of these indicators together with
other information that leads to a need for further investigation.

Documentation and evidence of loss

Areas to consider are:

• Unprofessional documentation, for example, it looks as though it has been home produced or there are obvious spelling errors

• Names, addresses and telephone numbers are incorrect and their existence requires validation

• VAT numbers are shown when the policyholder is not registered (or vice versa)

• VAT number provided is incorrect

• Signatures on the claim documentation do not match those on the proposal form

• Policyholder is unable to supply any documentation in support of the claim.

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The policyholder (claimant) profile

You may want to conduct further investigations if the policyholder (or claimant in the case of liability claims) displays the following characteristics:

• They are unusually familiar with insurance terminology and claims processes

• They are particularly aggressive from the beginning, trying to bully the claims handler into submission

• They made contact prior to the loss to check that there was cover

• They handle everything in person, therefore avoiding correspondence by mail

• They are willing to accept a much reduced settlement rather than produce documentation

• They have a previous claims history

• They are vague with regard to circumstances surrounding loss.

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Relationship between the policy and the claim

The following are warning signs:

• The loss is close to inception or renewal

• There has been a recent increase in sums insured or cover

• There are details which do not match the policy

• There have been premium defaults

• Changes in personal details have not been notified, such as the item lost or stock sums insured

• The policy is cancelled after the loss.

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The nature and type of loss

Factors for consideration are:

• Inconsistencies in the loss circumstances

• The loss circumstances are unrealistic

• The items which are subject to the claim do not match with the policyholder's lifestyle

• The loss includes a large amount of money

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You have now completed the first module on the claims fraud course.
By now you should have a working knowledge of what 'fraud' means as well as why it is so relevant to the insurance industry.
The information in this module will never be completely comprehensive because of the scope and nature of fraud. However, during this part of the module you will have learned about:

• What is Fraud?
• How to identify which claims are fraudulent?
• Fraud and the Irish law
• Claims fraud and litigation
• An Garda Síochána helping to tackle insurance fraud
• How much fraud is taking place?
• General potential fraud indicators.

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Module 2: First Party Claims - Commercial Property, Motor and Third-Party

Welcome to the second part of the Claims Fraud module.

In the first part of this module we gave you an overview of claims fraud - what it is, what cases have developed this area legally and finally general indicators that may suggest potential
fraud.

We now move on to more specific areas of claims fraud:

• First party claims commercial property

• First party claims motor fraud

• Third party fraud.

We will provide further indicators that may suggest potential fraud as well as the frequently used terminology.

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First Party Claims Commercial Property

First party claims are claims made by the policyholders and are subject to terms and conditions of their insurance policy. In the fight against fraud, insurers are supported by the policy
conditions and exclusions which often allow them to avoid suspicious claims; e.g. a breach of the claims cooperation clause enables them to decline a suspect claim even if there is
insufficient evidence of fraud but when the policyholder refuses to provide all relevant information. In contrast, third party claims are not subject to any contractual terms and claimants
cannot be successfully refused payment if they refuse to submit all required information. They can still move on to issue proceedings and the insurer is then exposed to legal costs.

Potential fraud indicators

The commercial property fraudulent claims that are most costly are those that are either entirely invented or staged. Typically, these involve arson or theft. While these claims are
relatively low in volume, they are generally high in cost.

Claims involving arson are often associated with companies going through a cash-flow crisis. In the current economic climate this has become increasingly likely. The proceeds of an
insurance claim are seen as an easy way of resolving a company's financial difficulties.

Although more often associated with smaller companies these types of claim can involve companies of all sizes with fire or theft appearing to be the result of an inside job. Such claims
typically:

• Involve a local manager or senior person in the company

• Often prevent an earlier crime, such as theft of takings or siphoning off of stock, being uncovered

• Are triggered by a forthcoming audit, stock take or holiday when a relief manager would be in charge.

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First Party Claims Commercial Property continued

Arson

Arson carried out by or on behalf of the policyholder is one of the oldest known forms of commercial insurance fraud. Today it continues to be one of the most prevalent forms. As with all
fraud, early identification is the key. There have been significant advances over recent years regarding the detection of arson, such as many more trained arson investigators in the fire
service.

It is vital to ensure the investigation team are on site as soon as possible. Forensic scientists play a crucial role in detecting arson. There have been major advancements in identifying
the cause and source of a fire and whether or not petrol or some other accelerant has been used.

Common types of fraud

Deliberate (fraudulent) exaggeration - This is usually an opportunistic fraud and takes place when the policyholder incurs a genuine loss. When submitting a claim they chose to inflate
tits value; value or quantity of the stolen or damage stock or financial loss following a business interruption. In such cases false invoices or false set of account might be produced to
support the claim.

Business interruption claims - These need t be reviewed for any potential fraud in times of recession or when the policyholder’s company has not been returning profit.

Loss or damage to the stock - Special attention needs to be given to claims relating to obsolete stock or stock which has not been selling [Link] policyholder knowing that they
cannot sell the stock may become under severe financial pressure and be tempted to stage a claim to recover the value of the un-sellable stock items.

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First Party Claims Commercial Property continued

Additional fraud indicators

In addition to the general fraud indicators covered previously you could also consider:

• Was the business in financial difficulties?

• Had the business recently lost a major customer?

• Was the business losing money?

• Was there a coincidental lack of security at the premises, such as an alarm which had not been set, at the time of the loss?

• Did the loss of stock/machinery include seasonal stock/machinery out of season, for example, Christmas cards in July?

• Is the policyholder’s inventory different to the Garda report?

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First party claims - Motor (private & commercial) Fraud

Potential fraud indicators

The major area of fraud claims for stolen vehicles includes the policyholder submitting a claim for the theft of a vehicle they never, or no longer, own Theft of a vehicle that has not been
stolen and which the policyholder has arranged to be kept in a secret location.

In addition to the general indicators previously looked at in this module you may also consider:

• Is documentation missing such as the NCT Certificate, Vehicle Registration Certificate, driving licence, service history or purchase receipt?

• Is the vehicle recovered by someone other than Gardai?

• Is the policyholder unable to supply the spare set of keys?

• Whether the vehicle is recovered with no sign of forcible entry

• Policyholder does not pick up the vehicle when recovered by Gardai.

• Other common types of fraud involve claims for pre-existing damage or presenting a mechanical damage (not covered under the policy) as an accidental damage claim, e.g. engine
damage presented as a flood claim.

If the claims handler believes there is potential fraud then the claim should be investigated further as part of the company's internal fraud process.

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First party claims - Motor (private & commercial) Fraud

Staged motor accidents

Staged motor accidents continue to increase, costing the insurance industry millions every year. It is estimated that fraud cost the industry €200 million per year. Sometimes it is not

just the drivers and passengers who are party to the act, but lawyers, garages and doctors can all be involved.

A staged accident in its simplest form is where an accident is deliberately staged between two or more vehicles. Often the vehicles will be hired.

For example, two friends or associates will hire vehicles and deliberately have an accident where there is no dispute regarding liability, such as vehicle one runs into the rear of vehicle
two.

The driver of vehicle two and his passengers will submit injury claims - either genuine or fictitious - to the insurers of vehicle one. Several thousands of euros, can be made from just one
simple staged accident.

Sometimes this is carried out with two very old vehicles which have been insured for third party fire and theft only. This process can be repeated many times.

Case Study - Angela McDonagh v. Catherine O’Sullivan - President of the Circuit Court Mr Justice Raymond Groarke described the Plaintiff as a “fraud” who had deliberately set a trap
for an unsuspecting driver by slamming on her brakes and causing a rear-end accident.

Link to news article here

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First party claims - Motor (private & commercial) Fraud

‘Crash for cash’ accidents

Staged accidents are also known - somewhat sensationally - as 'crash for cash' accidents. They can also involve induced motor accidents where an innocent motorist is induced to crash
into the back of the fraudster's vehicle. The fraudster will deliberately cause the accident, often by slamming on their brakes at a road junction, forcing the driver behind to crash into
them.

This innocent driver will then be seen in the eyes of the law to be at fault. Claims are made against the innocent motorist's insurer often including several accounts of fictitious injuries
from gang members who were, or claimed to have been, in the vehicle.

The gangs sometimes need dishonest doctors, garages, lawyers and even insurance brokers to help them make the fraud look genuine

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First party claims - Motor (private & commercial) Fraud

Indicators for staged accidents - In addition to the general indicators suggested in Part 1 you may also consider if:

• The policyholder has a history of prior accidents with similar circumstances

• The policyholder has had previous claims with the same lawyer

• The policyholder is unemployed or self-employed

• There is a lack of familial or personal relationships for the people in the vehicle

• The accident happened in a quiet location (for example, industrial estates) and at a quiet time such as late at night

• There are over-enthusiastic and willing witnesses often living in the same vicinity as the driver and/or passengers

• Claimants report similar symptoms and all go to the same doctors or lawyers

• Medical reports seem standardised

• There are inconsistencies between vehicle damage and injuries sustained such as minor vehicle damage yet the claimant is suffering from a severe whiplash injury.

• Documentation is of a poor quality often handwritten.

• Exaggerated injury claims

If the claims handler believes there to be a potentially staged accident, then the claim should be investigated as part of the company's internal fraud process. Copyright © The Insurance Institute
Third Party Fraud

Over recent years, local councils have seen a massive increase in the number of slip and trip accidents reported and injuries claimed.

What is third party fraud?

Bodily injury fraud has risen dramatically over the last few years in line with the growth in the number of the road users which has resulted in the increased frequency of road traffic
accidents and, hence, motor claims in general. Public liability personal injury claims, often arising from trips and falls are also on the rise and have adverse impact on numerous business
who cannot get insurance or whose insurance premiums have increased.

How can third party fraud arise?

• An incident being fictitious, for example a staged accident

• An incident occurring, but the circumstances altered to pursue a claim

• A genuine incident occurring but the losses suffered being exaggerated, such as the injuries sustained.

• Phantom passengers

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Third Party Fraud

Many of the sanctions available to combat first party fraud do not apply when tackling third party fraud. Often if a third party attempts to defraud or exaggerate a claim the claim is either
reduced or repudiated. This is a saving to the insurance company, but it does not remove the problem. In handling third party claims, insurers must ensure that they are not a 'soft touch'
for would be fraudsters.

What are potential fraud indicators?

Potential fraud indicators on third party claims could be:

• The claimant's injuries persist for an unusually long time

• The level of injuries are inconsistent with the incident

• The claimant is unwilling to undergo treatment

• Loss of earnings claims from self-employed persons

• Minor accidents which lead to significant subjective injuries such as headaches and backache

• The claimant fails to respond to treatment

• The claimant is elusive regarding the accident circumstances

• The claimant did not seek medical advice or treatment.

• The claimant or residents at a given address have a history of previous similar claims.

• There are multiple injury claims arising e.g. vehicles are fully occupied and all passengers are claiming

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Well done, you have finished Part 2 of the Claims Fraud module.

In this course you further developed your understanding of the areas in which fraudulent claims may be made, as well as learnt some of the common terminology.

In this section you found out about the potential frauds that can be committed in the area of commercial property, motor insurance and third party fraud.

You discovered how some nefariously acting claimants employ the crash for cash or staged accident method for claiming. In each case we showed you indicators that could suggest
fraud.

In Part 3 we examine:

• Databases

• Strategies for insurers

• Investigating fraud.

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Module 3: The Prevention and Investigation of Fraud

Welcome to the third part of the Claims Fraud module.

Over the last two parts of this course we explored what is meant by fraud, why it costs so much to insurance companies and some examples of fraudulent claims in the areas of
commercial property, motor insurance and third party insurance as well as possible signs of fraudulent behaviour.

In this part of the course we will:

• examine how databases are used to prevent fraudulent claims

• explore the ways in which insurers can discover and investigate fraud when it is potentially arising

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Fraud Prevention

Databases and their role in the prevention of fraudulent claims

Databases and the information sharing that they facilitate can be an invaluable asset to insurers in their fight against claims fraud. However, insurers must be keenly aware of the
restrictions placed on this activity by Data Protection legislation.

The standard for insurers to comply with in this regard can be found in the General Data Protection Regulation (GDPR). Recital 47 limits the sharing of such information to that which is
‘strictly necessary for the purposes of fraud’. This standard applies to all of the databases discussed in this course.

Databases – Insurance Link Anti-Fraud Register

Insurance Link is a matching search engine which was set up in 1990 and most of the Irish insurers and self-insured bodies have been signed up to same.

Its purpose is to record:

• All motor vehicles which are deemed a write off or have been stolen (including recovered vehicles), It also includes the total loss vehicles processed by British insurers.

• Names, addresses and dates of birth of all personal injury claimants (not confined to road traffic accidents)

• Property claims (including commercial property)

Insurance Link is used mainly to combat fraud relating to non- disclosure of previous claims; it also allows to identify persons who have had multiple previous claims.

Insurance Link is operated by Insurance Ireland.

Insurance Ireland’s Guidance on Data Protection Requirements for Insurers When Handling Personal Data offers guidelines for insurer use of InsuranceLink to ensure compliance with
the GDPR.

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Databases – Integrated Information Data Service (IIDS)

IIDS is a shared members' database which enables to verify the information provided by the policyholders in relation to the penalty points and no-claims discount. The information
regarding the penalty points and any other endorsements is available due to the arrangements made with the Department of Transport. This database helps combat the application fraud
where incorrect details are supplied at the proposal or the renewal stage in order to obtain a cheaper premium.

Databases – Art Loss Register

This is an international data base. Details of precious works of art are entered onto a computerised system. If a loss occurs it will be logged on the database and remain there until a
recovery is made. All major art galleries, auction houses and fine art insurers subscribe to the database.

When dealing with claims for such items, validations against the database can be made.

Databases – Irish Motor Insurance Database

Irish Motor Insurance Database (IMID) consisting of the Motor Third Party Liability Database (MTPLD) and National Fleet Database (NFD) is maintained by the Motor Insurers Bureau of
Ireland (MIBI). The data in the IMID is provided by motor insurers, brokers, fleet owners and motor traders. The data includes policy holder details, vehicles registration numbers and
names of drivers that are permitted to driver the vehicles that are covered by each policy. The IMID is managed by the MIBI and the data is shared with the Department of Transport and
An Garda Síochána as set out in Section 78A of the Road Traffic Act.

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Other databases

Insurers also generally have access to other databases, such as vehicle information databases supplied by commercial entities. For example, they may be able to access vehicle
information such as:
• Production year, make, model, carrying capacity, colour.

• Number of the previous owners in Ireland.

• Status of the road tax and NCT.

• Information if the vehicle is an import.

• Previous and current tax category (this will reveal if a vehicle was used as a taxi or as a commercial vehicle).

While this has an Underwriting purpose, it can also assist insurers in investigating fraud, such as fraudulent misrepresentation.

Fraud Investigation Procedures – Staff Training and compliance

Automated systems assist in the detection of fraud, however, the strongest weapon insurers have in the fight against fraud is their own staff. Staff must be well trained and up-to-date with
the latest investigative methods and techniques.

All claims processes need to be clear and understood by the staff.

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Strategies for Fraud Investigation

Insurers aim to deal with all genuine claims as efficiently as possible. They do however need to have systems in place to provide for the early detection of fraud and by doing so it will
assist the fast-tracking of genuine claims. Each insurer has a different approach to the identification and investigation of fraudulent claims, but the process will be clearly defined and
documented so that everyone can follow and understand it.

Different insurers have chosen different routes depending on which they believe is the most appropriate for their fraud strategy and which fits in better with their business objectives and
core competences. This module will not provide a view as to which method is better but we will outline the differences between the methods.

The first stage in a claims process is notification of the claim. Depending on the type of claim this can be by post, telephone, email or online. It is the first opportunity the claims handler
has to identify any potential fraud. The following will all come into play at this stage:

• Fraud triggers/indicators

• Databases and automated systems

• Claims handlers’ knowledge and experience

It is important that genuine policyholders are fast-tracked and claims where there are concerns are investigated further. The method of investigation varies depending on the nature and
size of the claim.

Insurers can follow several strategies at this stage, including:

• In-house investigation by internal fraud experts

• External investigation by loss adjusters, specialist investigators, forensic scientists, forensic accountants.

• A combination of the above

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Strategies for Fraud Investigation

Voice stress analysis

This software measures the stress levels in someone's voice, often referred to as a 'lie detector'. The theory behind this technique is that when someone lies, stress is induced and this is
reflected in the person's voice. By initially asking non-stress inducing questions such as name and address, the software then has the individual's voice patterns and can detect changes
in these patterns. They do not conclusively prove that a claimant is lying.

It is possible for someone who is very determined to beat the software by, for instance, chewing gum or being 'stressed' throughout the whole telephone call. The software detects the
change in voice patterns, then the claims handlers use the information gleaned and incorporate it into the claims investigation. Insurers are legally obliged to advise claimants that they
are being subjected to a lie detector test.

Cognitive interviewing

This is the use of interviewing techniques to explore the circumstances of the loss and is used by specially trained staff who interview claimants following a loss. It is a fact-finding
exercise carried out over the telephone that aims to distinguish between the honest and the deceptive claimant. Cognitive statements and the related interviewing are not perfect. They
help the insurer make an educated decision based upon detailed analysis and recommendations.

Data matching software

IT software can search data for suspicious matches which may be indicative of a fraudulent activity. The claims handler inputs the data gathered in relation to the claim. If as a result of
this information there are a certain number of triggers the system will alert the claims handler to potentially fraudulent activity.

Aerial photography and mapping

This is used by insurers when dealing with household and motor claims.

Through the use of detailed maps, insurers can use virtual technology to simulate car accidents. In conjunction with mapping systems and other geographic data it is claimed that
demographic data on claims statistics can be used to analyse the likelihood of fraudulent claims by detailed postcode.

This method has been used in England, however, with the introduction of the post codes in Ireland insurers could consider availing of this technology.

These methods have significant success, with claimants withdrawing their claim. A question often asked is whether the claim was withdrawn because it was not entirely genuine or
because the claimant lost patience with the process. It is not the intention to deter honest claimants, in fact, the use of these systems will assist in fast-tracking honest claimants.
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Vehicle Telematics

Insurers are now investing in vehicle telematics systems that track the driver’s speed, braking habits, route and destinations. In the event of a claim, cross-referencing the telematic data
with the driver’s statement allows the insurer to confirm the veracity of the claim. These systems, though an expensive investment, can prove their worth over the long term.

Internal and External fraud experts

Internal

Many insurers have set up in-house fraud units.

These allow insurers to build centres of excellence within their own organisation and become experts in fraud investigation.

These fraud experts can then share this knowledge with other staff, thereby contributing to improved fraud detection.

Often ex-Garda officers are employed due to their familiarity with investigative techniques and the meticulous building of evidence.

External

External expertise and reports

External expertise may be required for some parts of an investigation, including:

• Obtaining detailed witness statements

• Investigation as to the cause of a fire

• Reconstruction of a loss

• Specialist assessment of quantum – this may involve, for example, referring the claims to the loss adjusters, some of whom specialise in fraud investigation.

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Well done, you have finished Part 3 of the Claims Fraud module.

In order for insurers to track their success in identification of fraud claims they must have a system of measuring results. Regular data analysis enables to identify emerging fraud trends,
track and improve the effectiveness of fraud measures applied.

The number of fraud claims and the associated savings should be recorded. Apart from tracking the successes from a business perspective the details can be shared with staff to ensure:

• The profile of fraud remains high

• They can see the results of their hard work in the initial detection

By now you will have a strong understanding of the kind of claims that are potentially fraudulent as well as some of the methods of detecting them before they become costly and time-
consuming both to insurer and genuine policyholder alike.

In the fourth and final part of this module we will move on and explore:

• How is the industry responding?

• The Financial Services and Pensions Ombudsman

• Recent Developments.

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Module 4: Developments in Claims Fraud

Welcome to the fourth part of the Claims Fraud module.

By now you should have a strong working understanding of Claims Fraud and the kind of methods that insurers currently use to detect and prevent fraudulent activities.

This part of the module will complete the course by looking into newer developments in the industry - from the industry’s efforts to raise public awareness of fraud to some legal
developments in the area.

We will look at the following topics:

• Industry’s response to fraud

• Legal developments

• Social developments

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Industry’s response to fraud

How is the industry responding?

Protecting honest policyholders by making it as hard as possible for the dishonest minority to 'get away with it' is a priority for the insurance industry. The industry needs to work together
to improve the effectiveness of its anti-fraud measures.

Loss adjusters

Insurers appoint loss adjusters for the majority of the property claims. It is of the utmost importance that the loss adjusters remain vigilant and flag any potentially fraudulent claims to
insurers. The majority of the loss adjusting firms have in-house fraud units. Most of the cases assigned to loss adjusters are dealt within the delegated authority schemes, that is, the loss
adjusters settle the claims without prior authorisation from the insurers as long as the claims meet contractually prescribed criteria.

However, any cases where fraud is suspected are normally dealt on non-delegated basis which ensures continuous cooperation between the insurers’ in-house fraud units and the
respective units within the loss adjusting firms. Many insurers offer performance or financial incentives for the loss adjusters in cases where fraud savings were made.

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Insurance Ireland Anti-fraud Forum

Insurance Ireland is the voice of the Irish insurers; it represents 95% of the domestic insurance and 80% of the international life insurance market. It represents its members’ interests to
the government, state agencies, regulatory bodies, public representatives, other national interest groups, the media and the general public.

The Anti-Fraud Forum has been created by Insurance Ireland to foster cooperation among the in-house fraud units, in an effort to engage on fraud matters with An Garda Síochána,
Data Protection Commissioner and other relevant authorities.

The group organises meetings on regular basis which enjoy a high level of participation. It provides a forum to discuss existing fraud issues and emerging trends. A comprehensive
contact list of special investigations unit (SIU) staff at insurers has been prepared to further improve cross-industry cooperation in this area.

The group originally focused on claims fraud but its remit was expanded to focus on application fraud including misrepresentation of policy information and payment related fraud; the
group now also encompasses health insurers.

The group organises regular training events for all SIU staff to ensure that all SIU staff possess high skills and adhere to best practice in their work. Moreover, the training events have
proven to foster networking and a sense of common purpose in relation to fraud. The group publishes newsletters related to fraud and covers topics of interests to SIU staff.

The forum will continue to be at the forefront in encouraging best practice when dealing with issues related to fraud in the industry. The prevention and detection of fraud is at the top of
its agenda as is complying with the GDPR and insurance sector guidance on data protection compliance.

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Insurance Confidential

Insurance Confidential is a fraud reporting hub operated by Insurance Ireland. It was set up in 2003 and over 9,000 suspected cases have been reported since. The information provided
is then distributed among the member insurers. It allows members of the public to report suspected insurance fraud via an online portal.

‘It’s not funny when it’s your money'

A media campaign was launched to raise public awareness of fraud and its impact on the cost of insurance. The underlying notion is that insurance fraud should not be seen as a
victimless crime and to encourage public to reflect on this matter and understand that fraud affects all honest policyholders.

Dedicated Garda Unit to tackle insurance fraud

At the Insurance Ireland Annual Fraud Conference in October 2017, Minister for Justice Charlie Flanagan flagged the possibility of a dedicated Garda Unit which would tackle insurance
fraud cases and be funded by insurers.. The suggestion initially arose in the Cost of Insurance Working Group’s January 2018 ‘Report on the Cost of Employer and Public Liability
Insurance’. Unfortunately, there seems to have been no consensus on this matter.

Memorandum of Understanding on the Reporting of Suspected Insurance Fraud

Subsequently, a Memorandum of Understanding was signed between Insurance Ireland and IFCO to ensure a co-ordinated, uniform and consistent approach to reporting, recording,
assessment and investigation of suspected insurance fraud offences.

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Legal developments

Data Protection

A major part of the fraud detection process is the sharing of information between organisations. It is important that insurers fulfil their obligations under Data Protection legislation.
The primary source of data protection requirements are contained in the General Data Protection Regulation (GDPR) and the Data Protection Act 2018.
In the previous part of this module, it was noted that GDPR Recital 47 recognises that the processing of personal data strictly necessary for the purposes of preventing fraud represents a
‘legitimate interest’ of controllers (companies).

Article 5 of GDPR

Article 5 of GDPR sets out the principles of data protection compliance as follows:

1. Process the personal data lawfully, fairly and transparently (“lawfulness, fairness and transparency”)
2. Keep the personal data only for a specified purpose and process it only in ways compatible with this purpose (“purpose limitation”)
3. Ensure that the personal data is adequate, relevant and limited to what’s necessary for the purpose (“data minimisation”)
4. Keep the personal data accurate and up to date (“accuracy”)
5. Keep the personal data no longer than is necessary for the specified purpose(s) (“storage limitation”)
6. Keep the personal data secure (“integrity and confidentiality”)
The seventh principle is that the controller must be able to demonstrate its compliance with the data processing principles (“accountability”). Usually this will mean having appropriate
documents on file to demonstrate compliance.

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Legal developments

Under the Consumer Protection Code (Provision 4.13(i)), insurers are required to include ‘a summary of the regulated entity’s policy in relation to how it will use a consumer’s personal
data’ in their Terms of Business.

Legitimate interests

It is vital that data subjects’ rights under the GDPR are not breached in the course of fraud investigations. Investigates must always comply with the data processing principles and the
wider GDPR. The most common legal basis for data processing associated with fraud detection and prevent is the basis of ‘legitimate interests’ i.e. insurers legitimate business interest
(along with the wider societal interests) to prevent insurance fraud. Insurer SIU teams often keep in close contact with their firms Data Protection Office, to obtain GDPR compliance
advice on an ongoing basis.

Disclosure to law enforcement

Disclosures made by insurers to Gardai need to comply with the GDPR. Insurers are also aware of their obligations under Section 19 of the Criminal Justice Act 2011. The obligation to
make a report under section 19 applies to any ‘person’ (which would include an insurer). A person must disclose information that he “knows or believes might be of material assistance”
to the Gardaí in relation to the investigation of a relevant offence e.g. insurance fraud. Depending on the circumstances of the case, this may also provide the GDPR legal basis of ‘legal
obligation’ to report the matter.

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Legal developments

Civil Liability and Courts Act 2004, Section 26

Insurance Ireland lobbying of the Government led to the inclusion of anti-fraud provisions in the Civil Liability and Courts Act 2004. Section 26 of the Act introduces a specific offence of
insurance fraud in relation to personal injury actions and offenders now face a fine of up to €100,000 and/or up to 10 years in prison. It is an offence to make or give false or misleading
evidence or affidavit in an action or to a solicitor or an expert witness; the entire claim can be dismissed even if some aspects of it are genuine.

Since the introduction of this amendment insurers have had numerous personal injury claims dismissed by the courts under the Section 26 of the Act. Some of those cases have been
referred for criminal investigation and resulted in prosecution of the offenders. Insurers need to be careful in their application to the Courts as the misleading evidence must be central to
the claim being made (it cannot be trivial) in order for the Courts to invoke Section 26.

Immaterial fraud

This is where the policyholder acts fraudulently simply to obtain payment for a genuine loss. A common example is someone forging a receipt for a lost item. This can happen when the
policyholder has felt under pressure from the insurers to produce a receipt.

Remedial actions

The remedial action an insurer can take is often dependent on the type and nature of a claim. If for example a third party claim is found to be fraudulent then usually when an approach is
made to the solicitors acting on the claimant's behalf the claim will be withdrawn. With first party fraud the claim is rejected and often the policy cancelled.

Sometimes an insurer will press for prosecution and consequently need to liaise with the Gardai. Prosecution is a key part of changing the public attitude to insurance fraud Such court
cases often attract media attention.

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Legal developments

Criminal Justice (Perjury and Related Offences) Act

Under this Act, insurance fraudsters giving false or misleading evidence in court will face up to 10 years in prison or a fine up to €100,000.

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Social developments

Public attitudes

One of the biggest problems for insurers in their fight against fraud is the public perception of insurance fraud. Many see it as a victimless crime. This perception of insurance fraud needs to change so that,
like theft and other crimes, it becomes socially unacceptable.

There are signs, due to the work carried out by insurers and industry bodies, of some success in the fight against fraud.

It appears that the public attitude towards fraudsters has hardened as many people making reports to Insurance Confidential cite the fact that they are motivated to make reports as they have to pay
increased premiums as a result of the activity of fraudsters.

One of the most worrying trends has been the significant growth in premeditated fraud being carried out by organised criminal gangs. This is an area in which insurers have achieved notable success. There
is some evidence that these organised gangs are starting to switch their attention to areas other than insurance fraud, which they now consider to have a high risk of getting caught i.e. credit card fraud and
online scams.

In recent years we have seen a heated public debate over the high cost of insurance. One of the factors impacting the increased premiums is the cost of fraud to the industry. This has also become a topic
of the Oireachtas debates.

New book of quantum guidelines.

The Personal Injuries Guidelines were published by the Judicial Council which is a body composed of all judges in Ireland. They set new guideline levels for personal injury compensation awards in Ireland.

The Minister for Justice, Helen McEntee TD, announced the commencement date of the Personal Injuries Guidelines: Saturday 24 April 2021.

The new guidelines from the Judicial Council will change the amounts of General Damages to be awarded by the Courts and by the Injuries Resolution Board.

That will help bring about greater consistency across personal injuries awards. The guidelines will support greater use of the independent, transparent, fair and efficient service provided by the Injuries
Resolution Board.

The Personal Injuries Guidelines deal with a wide range of injuries in terms of General Damages, which are the amounts awarded for pain and suffering in relation to an injury where someone else is at
fault. They do not change Special Damages, which are costs like medical or travel expenses or compensation for loss of wages.

As the Injuries Resolution Board and the Courts will consistently award damages in line with the new Guidelines, it should reduce the likelihood for claims to go to the lengthy and costly litigation process,
and instead support the greater use of the Injuries Resolution Board service which has far lower processing costs and is far quicker.

The new Personal Injuries Guidelines must be used by the Injuries Resolution Board and the Courts in awarding compensation if a person successfully pursues a personal injury claim. If the Injuries
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Well done, you have completed the Claims Fraud module.

You should now have a good understanding of Claims fraud, some of the terminology and some of the indicators suggest potentially fraudulent activities are occurring. In this part of the
course you saw how insurers are becoming increasingly proactive in their methods of prevention and detection of fraud. You have also seen how the industry has created a more ‘joined-
up’ way to tackle fraud. You also saw the increased importance of how insurers need to be more transparent when processing and sharing personal data and the necessity to use it in a
'lawful and fair' manner.

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