Commercial Insurance – Fighting Fraud With One Hand Tied Behind Our Backs

Feb 6, 2019

Martyn Griffiths

Commercial insurance image
Commercial insurance image
Commercial insurance image

About 18 months ago, I sat at a round table discussing fraud in commercial insurance, when a flat statement was made that sums up some of the issues that insurers face in fighting commercial insurance fraud: “The day I make date of birth mandatory in commercial insurance is the day my volumes drop through the floor!” The statement was made in frustration, because I believe everyone around the table wanted to do more to detect and prevent fraud, but it highlights the point: don’t we make it difficult for ourselves to do this properly?

Personal versus commercial lines

In personal lines it is much easier. There is a person (or persons), we get their name, address and date of birth and that is enough to identify them and do whatever checks we need. In commercial lines, we get a name of a business, limited or non-limited, or the name of an individual(s) trading as a non-limited business… and no date of birth. Given the disparity in the information gathered, is it any wonder that there is a migration of fraud from the heavier policed personal lines market to the soft underbelly of commercial insurance? At the same time customer demand means that we need to be serving our customers faster and with minimum friction. The increasing pace and the fact that much SME business is traded online, means that the fraudster's job is made that much easier. They don’t have to see an intermediary to work their way through the system. We clearly need to do a better job at Compliance and Knowing Your Customer, but how can we achieve that when the industry standard data capture does not lend itself to achieving this purpose? An alternative to this is to use a provider who has access to additional information to help you understand your customers better. The positive side of this story is that seeking this additional information to fulfill our regulatory obligations can help us in our fight against fraud too.

Compliance: Stricter rules and regulations

While insurance is not governed in the same way as Financial Services or Banking from an Anti-Money Laundering perspective, being seen as a low risk area for money laundering and concealment or conversion of the proceeds of crime, it is possible for insurers to become involved in such matters and as such there is a clear requirement for better Customer Due Diligence (CDD). The Joint Money Laundering Steering Group recommends that this is carried out at the earliest possible stage, at the point of quotation or point of sales for new business, or at renewal or point of claims for existing customers. Experience in the rest of Europe would suggest that enforcement action on insurers is not far away. The Dutch National Bank in the Netherlands carried out enforcement action on general insurers and as such identifying the Ultimate Beneficial Owner of the enterprise forms a core part of the commercial underwriting process for Dutch insurers. Having ready access to this data then makes the fight against fraud much easier. Having established the ownership structure, connections and networks can be identified, making the fraudsters job that much harder and helping the insurer keep up with the fraudsters. The challenge is how to do this with the limited data received. Utilizing third party companies to obtain the UBO (Ultimate Beneficial Owner) data and check this at the key points required is a first positive step.

Commercial Screening within reach

FRISS can help with this, leveraging third party data to understand the ownership structure of an organization, helping achieve dynamic compliance and at the same time using the retrieved data to detect fraud. Two birds with one stone. As for date of birth? This is for the industry to come together and improve the data capture at source. In the meantime, download our e-book on commercial insurance underwriting to learn more about how FRISS can help you.