Insurance fraud is a big problem for insurers worldwide involving a diverse group of offenders. In Australia, it has been treated as a bit of sport by some, who openly talk about what they ripped the insurer off for at the pub or school barbeque. Insurance fraud is unique in many ways, one of those being that it is often committed by otherwise law abiding citizens.
One can’t help but think that more might be done to reduce the problem by impressing on this otherwise civilised and law abiding sub-group the fact that if they inflate or pad an insurance claim they are committing a crime and exposing themselves to a criminal conviction.
Australians would be very reluctant, if given the opportunity, to take their bank’s money and deposit it into their own accounts. People more readily see this as criminal activity ie. theft. If, however, many of those same persons were presented with the opportunity to inflate an insurance claim by a few hundred or a few thousand dollars, they may be inclined to make this “accounting adjustment” with full knowledge that such a claim is overstated. At law, there is little difference in the two situations. However, in the public’s mind there is more cultural acceptance of ripping off the insurer.
Conversations with underwriters reveal that many have accepted that insurance fraud is endemic and, apart from challenging the larger and more obvious cases, have taken a “what more can we do?” approach. But, is there more that can be done? And if so, will it cost much for the insurance industry to do it?
Putting to one side fraudulent non-disclosure, the majority of insurance fraud is created at the time that the claim is made. It is when the insured makes the fictitious or inflated claim either directly or through his or her broker that the crime is being committed. If more effort was made to clearly inform and warn the insured at that stage about the fact and consequences of insurance fraud, then we may experience a significant drop in insurance fraud for relatively little outlay.
When people complete their tax returns, one of the very first paragraphs they read is:-
I declare that
- The information provided to my registered tax agent for the preparation of this tax return is true and correct
- The agent is authorised to lodge this tax return.
Important: the tax law imposes heavy penalties for giving false and misleading information.”
Beneath that paragraph is provision for the tax payer to sign that declaration.
Would not a similar declaration or clause in an insurance claim form, upfront, in bold print, requiring specific consideration and acknowledgement by the insured’s signature, go some way toward reducing the extent of insurance fraud in Australia today? It would certainly seem to be an experiment worth trying. That opening paragraph and declaration should deal solely with the insured being informed of and acknowledging the consequences of fraud and providing false and misleading information as part of the claim.
In addition to this, a public awareness campaign similar to drink driving and anti-smoking campaigns might also be operated from time to time on behalf of the industry. The funds available for such a campaign will dictate its form and reach. However, there are more mediums today to get across the message, and specific notices might be given to insureds upon inception and renewal. Keeping the illegality of the conduct in the public conscious will reduce the cultural acceptance of a little bit of insurance fraud not being such a bad thing.
To undertake such an advertising campaign would not be a novel exercise. It is happening internationally. In Pennsylvania there is an Insurance Fraud Prevention Authority (IFPA) which coordinates insurance fraud prevention activity and increases the public’s understanding of various kinds of fraud through advertising and public relations campaigns.
Mr Ralph Burnham, Executive Director of the IFPA, is reported in the Insurance Journal as saying:-
“The initial research we conducted for this campaign told us that most Pennsylvania insurance consumers did not know exactly what insurance fraud was.
We wanted more consumers to understand that lying to their insurance company is a felony for which they can be investigated, charged, and punished. The results of our latest research show that our campaign’s focus on consumer education is the right approach.
We know that for an average consumer, who does not have the criminal mindset, insurance fraud is not a top of line issue. But over time, we want to gradually increase the understanding of and solidify attitudes firmly against insurance fraud.”
If we changed the focus of our claims forms up front, and adopted strategies similar to those adopted by the IFPA then Australian underwriters would hopefully achieve a return on this investment far exceeding that available on the equities market.