Insurance Fraud and its Perpetration - Essay Example

Insurance Fraud Insurance Fraud and its Perpetration The phrase ‘insurance fraud’ is used to refer to an assortment of illegal activities which involve using dishonest methods to acquire money from insurance companies. In the recent past, incidents of insurance fraud have greatly increased. This type of fraud could be conducted through the processes of selling, buying, using, and underwriting insurance. Insurance fraud can be categorised into ‘soft’ fraud or ‘hard’ fraud. The hard variety of insurance fraud typically includes the attempt to fake the incidence of an accident, personal injury, arson, or even theft, in order to be given the payment stipulated under the agreed-upon insurance policy. The individuals who are mostly found engaging in hard fraud include company executives, as well as employees. A corporate worker who engages in fraud will typically choose to defraud the insurance firm by taking bribes from physicians to validate false claims. Insurance agents could also participate in defrauding an insurance firm by not forwarding policyholder premiums to it, and instead pocketing them while hoping that a claim is not filed by the policy holder. Hard fraud could also be perpetuated by con artists who create fake insurance firms, and then proceed to collect premiums from gullible consumers. Such con-artists almost never pay claims. Once the numbers of claims being filed by policy holders reach a certain number, the defrauders will vanish with the company assets. Soft fraud is also referred to as opportunity fraud; and takes place when a claimant overstates a genuine claim. For instance, a car owner who is involved in a minor incident where there is a ‘fender bender’ problem can exaggerate the claim (Karamouzis and Hallawell 2005). Soft fraud can also take place in the course of the underwriting process when consumers are invited to renew their coverage. In such an instance, the claimants could offer false information for the purpose of lowering the insurance premiums; thus increasing the possibility of their applications being accepted (Pontell 2005b). For instance, they could provide false information on the car’s mileage, provide a false garage location, or even add to the number of items that may have been stolen, in incidences of theft. The UK Fraud Act 2006 The UK Fraud Act of 2006 actually strengthened the existing law on insurance fraud. It included the notion that people would be charged with fraud if they used fake representations, or even refrained from disclosing important information (Hoyer, Zakhariya, Sandner, and Breitner 2012). This Act also stipulated that when cases of insurance fraud reached the magistrate’s court, persons found guilty would be liable to spend a year in prison; while the sentence in the Crown Court would extend up to ten years. Other types of fraud, such as involves forged checkbooks, would carry a sentence of 5 years (Samonas and Angell 2010). The UK Fraud Act of 2006 had an addition of three subsections that dealt with different illegal actions that could be prosecuted. Under the Act, people could be prosecuted for dishonesty, or even causing the loss of property for other people. The Act dealt with the issue of dishonesty and the propagation of false information where advertisements are concerned. How has insurance fraud been tackled in the UK in recent years? (Counter Fraud Agencies of the UK) In the United Kingdom, the Serious Fraud Office is the principle prosecuting firm for insurance claims, whether they involve the life, automobile, or medical type of insurance fraud (Warkentin and Willison 2009). The Serious Fraud Office is an autonomous British government department that is tasked with the responsibility of investigating, and then prosecuting serious cases of fraud and corruption. This office is equipped with the adequate resources that are necessary to launch widespread investigations into the internal affairs of various individuals and organisations that are suspected of serious fraud. In each case, the sentence, if the accused party is found guilty, is based on the intrinsic factors that are involved with each case. For instance, life insurance fraud tends to carry a harsher sentence than property or automobile insurance claims. In the UK Fraud Act 2006, it is stipulated that any action, representation, or claim made in the hopes of deriving unmerited gain is a criminal fraud offence. According to Hoyer, Zakhariya, Sandner and Breitner (2012) fraud costs the British economy approximately £30bn every year. Of this amount, £2bn is due to insurance fraud. However, the cases of insurance fraud are gradually increasing. To deal with the problem of insurance fraud, there are a number of counter-fraud organisations that have been formed in the UK alone. In the past, the nation suffered because insurance fraud was not well understood by the public or even British lawmakers. However, in the last 10 years, many counter-fraud measures have been developed (Pontell 2005). There has also been a change, among law enforcement organisations, in how insurance fraud and the best way to contain it is viewed. In the past, police officers felt that all that was required to contain insurance fraud in any incident would be detection, followed by a thorough investigation, and, possibly, prosecution. At present, however, law enforcement authorities are more concerned with pre-empting incidences of fraud. The law enforcement authorities have recognised that understanding the nature of insurance fraud can result in revising the existing processes in order to make sure that all bases are covered (Liu and Li 2005). The risks of insurance fraud are generic, and are identical in various parts of the British public as well as private sector. The barrier that police authorities in different cities and even nations have to deal with is encouraging organisations to start seeking to pre-empt fraud instead of simply reacting to it after it has already taken place. In Britain, there are now many counter fraud professionals. According to Hoyer, Zakhariya, Sandner, and Breitner (2012) the British government established the counter fraud professional accreditation board in 2001. According to Garfinkel and Nimalendran (2003) insurance firms have disclosed that approximately 15% of insurance claims are fraudulent. This is quite detrimental for the insurance sector because fraudulent claims and the subsequent expenses that are accrued due to the investigation process results in higher premiums for genuine or sincere customers. The process of investigating fraud also affects the insurers’ ability to handle genuine claims promptly. Some most common types of insurance fraud in the UK include: Claims of house breaks in which the list of the stolen goods is exaggerated Hit and run incidents as well as reports of vehicle theft. Arranged accidents in which owners intentionally destroy their vehicles in order to escape repair hefty charges, and benefit from the insurance they will collect. Claims of suffering from physical injuries as a result of motor vehicle accidents Claims of disability fraud are then facilitated by complacent or bribed physicians (Viaene and Dedene 2004). The counter fraud professional accreditation board has, since 2001, accredited approximately 13,000 people in various levels such as the foundation, advanced, degree, and even masters’ levels (Garfinkel and Nimalendran 2003). The individuals who are employed in the counter-fraud organisations are usually from a variety of backgrounds such as auditing, and accountancy. There are also a small minority who are former law enforcement authorities. Other counter-fraud specialists tend to have a background in sector-specific fields, and may include dentists, or even pharmacists. Such individuals are well acquainted with their sectors, and may understand how fraud could be perpetrated in their industries. One of the most recognised counter-fraud organisations is the ‘Insurance Fraud Department’ (IFED). The IFED is a professional police unit that mainly functions in dealing with incidences with insurance fraud. The IFED is tasked with probing all kinds of insurance fraud such as motor insurance fraud, induced traffic accidents, contrived accidents, application fraud, phantom passenger claims, ghost brokers, commercial liability fraud, data fraud, professional enablers, internal fraud, and opportunistic fraud (Courtney 2005). The Insurance Fraud Enforcement Department (IFED) even works in league with the City of London Police in dealing with insurance fraud. The Insurance Fraud Bureau (IFB) is another organisation that was created to deal with fraud claims. It is a non-profit establishment that is sponsored by the insurance industry and mainly seeks to prevent and detect cross industry, as well as organised insurance fraud. The IFB is responsible for coordinating the insurance industry reaction to the detection of criminal fraud systems across the nation, and works in league with British law enforcement establishments to offer a cost effective and planned solution for the prevention, as well as exposure of incidences of fraud. The IFB also supports the more extensive strategy of the Association of British Insurers. Another British organisation tasked with investigating and exposing incidences of fraud is the ‘National Benefit Fraud Hotline’. This is actually a service that allows people to be able to confidentially report any incidences of benefit fraud. This organisation works in league with Credit Industry Fraud Avoidance Service (CIFAS). CIFAS has Britain’s most extensive databases of genuine fraud information, along with an extensive variety of fraud prevention services (Anonymous 2009). CIFAS also uses the latest technological mechanisms to safeguard organisations. According to Brancik (2007) there are approximately 300 firms in the private as well as public sectors that share information concerning fraud through the CIFAS organisation. These firms are found in different industries such as banking, credit card, grant giving, retail credit, asset finance, mail order, insurance, savings, online retail, telecommunications, share dealing, factoring, contact centre, vetting agencies, and the insurance sectors. The CIFAS organisation then supplies advice, and information through a service known as the Protective Registration, to at-risk members of the public. Another well-known organisation is the UK Fraud establishment which is mainly an independent team that has years of experience and functions in the international scene. This organisation supplies risk reviews for its organisations, and also offers information on subjects concerning fraud prevention and risk management. The Xhire Anti Fraud Network is another team that is made up of British companies that have banded together for the purpose of fighting fraud in different industries. This network has an email network, as well as a public website that seeks to inform its clients on matters concerning fraud. Conclusion In the UK, insurance firms have come to the realisation that there should be other ways that are used to deal effectively with cases of fraud, if they are to succeed in decreasing insurance fraud. British industries have come together to form establishments that share information about the most recently discovered methods of dealing with insurance fraud. While the figures showing how often insurance fraud is detected have improved, the amount of money being lost to fraudulent claims has also increased. It is evident that industries require a proactive approach to deal with this menace. In addition, proactive measures are far cheaper than reactive measures to sustain. The most urgent need, at present, is for industries to come together and develop technologically advanced models of fraud detection. This means that there is a need for more systems in the underwriting phase of the policy against fraud. References Anonymous. (2009) ‘Internal fraud likely to rise in the wake of economic crisis, Treasury & Risk, pp. 10-10. Brancik, K. (2007) Insider computer fraud: an in-depth framework for detecting and defending against insider IT attacks, Taylor & Francis, New York. Courtney, K. (2005) Home office identity fraud reduction programme, Identity Fraud Steering Committee, London. Garfinkel, J.A. & Nimalendran, M. 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