How Fraud Impacts Insurance Policies

There are a number of variables that impact the cost of insurance. Some are within your control while others are not.

With car insurance, your choice of vehicle, usage and parking can all impact the price you pay. Similar factors are shared across other forms of cover of course, but one thing that impacts quotations across the board is insurance fraud.

The Insurance Fraud Bureau estimates that over £2.1 billion is spent on fraudulent claims every year, adding around £50 to every single policy. Understandably, most consumers are far from pleased to be paying for bogus claims. Insurers too are equally keen to eradicate the problem and cut the cost of policies for their customers.

So What is Insurance Fraud?

In the most part, insurance fraud is a premeditated effort to make or manufacture a claim for personal financial gain. This includes everything from relatively minor embellishments to so-called ‘cash for crash’ claims, in which vehicle owners deliberately engineer incidents often with unsuspecting incidents. Not only is this costing policyholders millions, but it is incredibly dangerous.

Unfortunately, deciphering the genuine claims from the decidedly dishonest is no easy task. In a ‘cash for crash’ type incident, the hallmarks are much the same as a standard collision. More often than not a car will simply brake heavily in an attempt to make another vehicle drive into the back of them. This happens all the time on the roads, mostly by accident, but sometimes there are hidden motives.

With home and contents insurance, there are a whole host of potential deceptions. From fake burglaries to deliberate damage, insurers are in a Catch-22 situation. Costly and thorough investigations need to be made and genuine claimants bear the brunt. However, if claims aren’t scrutinised, then fraud is likely to rise.

How does it Impact Insurance?

You might be surprised to learn that the cost of fraud is not always spread evenly. Indeed, if you live in an area where there are an abnormally high number of claims, you could end up paying even more.  This was recently highlighted when a crime ring in the Durham area was cracked, with the police uncovering dozens of cash for crash claims across the region. Reports claimed that other road users in Derwentside were paying £100 extra annually as a result of this widespread fraud.

The unfortunate truth is that there will always be some people that are willing to break the law in order to make some ‘easy’ money. This is why the government has implemented a number of new statutes to protect policyholders and punish those that commit fraud or avoid insurance altogether. For instance, in the previous example from Durham, each of the criminals received jail sentences with the longest being four years.  While this may be an extreme case, similar punishments await anybody committing a similar crime.

So insurance has to bear the brunt. Detection may be getting better and a national database with historical claims should make it easier to spot irregularities in future, but in the meantime we all have to foot the bill. Of course this is massively unfair and consumers are unhappy with rising costs, and rightly so. But until insurance fraud can be eradicated there will always be a premium on policies.

The impact fraud has on your home or car insurance policy is largely dependent on your locality unfortunately. So the fewer claims made within a particular area and timeframe, the less you will have to pay. This is calculated in much the same way as burglaries or floods, with the cost being determined by risk.  While not entirely error-free, this algorithmic method of calculating insurance is the fairest available method for all parties.

What is Being Done to Combat Fraud?

In the 2012 report on insurance fraud from the Association of British Insurers (ABI), it was revealed that there were 139,000 dishonest claims discovered during the previous 12 months. In fact, of all the car insurance claims made, 5.7% were found to be fraudulent – rising from 5% in 2010. That is quite a staggering figure, particularly when you consider the volume of incidents being dealt with.

Although detection is rising, this doesn’t necessarily mean that more people are committing fraud. Indeed, that is a figure we can never truly know. But what it does show is that the significant investment being made to combat this crime (some £200 million each year) is not going to waste. While the issue is far from being resolved entirely, it is certainly not for the want of trying.

The Insurance Fraud Register, which launcher in September of last year, could prove to be a vital in both detection and prevention. With insurers able to clearly see who has made fraudulent claims in the past, they can use their discretion when dealing with claims in the future. It may also push up the price for those who have transgressed, ensuring they continue to pay for their crime for many years.

So plenty is being done to tackle insurance fraud, but there is still plenty more to do in the coming years.