There has long been a popular view that the tax office is fair game when it comes to minimising liability and maximising returns. Kerry Packer had once famously boasted as much to a Senate Committee hearing.

A similar attitude seems to exist towards insurance companies, with insureds viewing it as something of an open chequebook, in which the insurer can always afford to pay.  But what does it cost the Australian economy? USD 2 billion a year, according to Sally Griffiths, director of VFM Services.

Australians aged between 31-50, who are likely to commit fraud, seem to think an insurance policy is an easy way to make a quick buck. It is for this reason, for example, that when a claim is made for spoiled food due to a failed motor or weather event, the spoiled contents are likely to be more like those of a Michelin 3 starred restaurant than the more typical fare of an average Australian fridge containing chump chops, fish fingers and no-frills cheddar cheese. Those items seem to which miracoulsy morph into lobsters, prawns, rib-eye steaks and brie. 

From the vantage point of the insured, it is only a few hundred dollars or perhaps a few thousand, - a drop in the ocean for the billion-dollar insurer. The view is likely to be, ‘why not have a go?’ Insured’s are becoming more sophisticated and are well aware of the commercial considerations that drive an insurer’s decision not to investigate or defend these relatively small claims, especially as the average fraudulent amount is under USD 900.

Insurers face the problem of whether to discourage fraud by actively litigating and increasing the number of fraud ‘triggers’ used. Alternatively, an insurer may make the ‘customer focused’ or commercial decision to accept the claim, as they trust their customer. The problem with the second approach is the cumulative costs of the high number of small claims. Secondly, buoyed by the ease of a successful fraudulent claim, the insured may be tempted to repeat it, or worse, up the ante in a later claim. 

Insurer’s need to put their mind to, and answer this not so simple question. Is a little bit of fraud ok? If the answer is yes, then the insurer should read no further. If the answer is no, there are many ways to combat and deal with fraud in a practical and of course, legal way. Nothing speaks louder than the facts. A good investigation into a fraudulent claim needs to address three areas.

Motive

  • Look at the finances of the insured i.e. are they living beyond their means and do they have creditors knocking at their door;
  • Are the items being claimed indicative of that person’s life style;
  • Has the insured tried to sell that item before;
  • Is the item insured for more than its value.

Opportunity

  • Was that person in a position to commit the alleged act;
  • Were they physically able to;
  • How recent is the policy inception compared to the date of loss

Credibility

  • Inconsistencies in the insured’s statements;
  • Inconsistencies with the insured’s partners’ recollection of the circumstances of the claim;
  • Mobile phone records that contradict the insured’s versions;
  • Social media photos, i.e. that engagement ring that was stolen, that later appears on the insured’s Facebook page with 30 likes;
  • The insured’s digital foot print – do their bank statements tell a different story;
  • Witness statements are crucial;
  • Obtain a detailed investigation or forensic report that draws a conclusion based on expertise and experience.

There is a long-standing view that the burden proof for fraud is higher than the civil standard - on the balance of probabilities. The test being, the more serious the allegation, the higher amount of evidence that is required to prove that allegation i.e. the Briginshaw test1. This means in most cases, you essentially need to have a photo of the person holding a petrol can next to a house fully ablaze.

We look at fraud in a different light and say that insurance policies do not cover intentional acts. So by putting the insured to proof i.e. shifting the burden to the insured to prove they did not intentionally burn their house down or swerve to miss a dog and hit a tree, defeats the evidence needed to prove fraud. Simply put, the insured must first prove that the policy responds. If they can’t, the case may end there2.