Top 4 Insurance Frauds and How To Prevent Them

Nov 7, 2022

Dennis Potgieter

Top 4 Insurance Frauds image
Top 4 Insurance Frauds image
Top 4 Insurance Frauds image

Measuring insurance fraud is and has always been an elusive target. Trying to understand fraud numbers will always be an ongoing task. It is generally predicted that fraud, on average, can be as high as 20% of an insurer’s claims cost. But to understand insurance leakage better, let’s dive deeper into the real-life examples of the top four insurance frauds and how can you prevent them.

What motivates fraudsters to commit insurance fraud?

Many individuals that commit fraud do it out of desperation because they found themselves in great financial distress. But that is not the only motive for committing insurance fraud, others include greed, addiction, and a sense of entitlement.

  • Organized crime syndicates do not mind spending up to 3 months’ insurance premium, knowing that their mark up on claim pay-outs could be more than triple what they paid.

  • Before clients cancel their insurance policy, they submit a false or fraudulent claim as they see insurance as a grudge purchase and have to benefit from all the premiums they paid over the years.

  • Debt collectors are after a fraudster and the only way to repay his/her debts is to submit fraudulent claims.

  • Clients are unable to get extra loans or credit from banks or finance houses and the only way to get cash in hand is to submit fraudulent claims.

How do organized crime groups commit car insurance fraud?

Organized crime is a category of transnational, national, or local groupings of highly centralized enterprises run by criminals who intend to engage in illegal activity, most commonly for money and profit. In previous years we became accustomed to the accident staging syndicates who would buy up accident damaged vehicles from salvage compounds, have them insured and then stage an accident, theft or hi-jacking with the intention of getting paid out the insured value. These losses would happen within the first few days of the inception of the policy. This way there would be very little evidence of the existence of the vehicle and no time for inspection.

The syndicate members started off by being the insureds on policies and later realized that they can make use of individuals that are financially strapped for money, pulling them into this vicious circle and making it difficult for insurers to close the loop on this crime ring. In addition, these criminals would as well commit identity theft by submitting personal details of unsuspecting people in order to take out policies. They also randomly select vehicle information to the extent of copying details of vehicles that are standing on dealership floors with no ownership records as yet. Furthermore, they also use details of vehicles that were previously uninsured, but involved in accidents.

The claim would also be submitted within the first week of inception, not allowing time to verify why the registered owner and policy holder information is not corresponding. By the time one realizes that something is wrong, and the matter is handed over for further investigation, the syndicate members already collected the rental vehicle. Release fees have also been paid to an unauthorized towing operator for the release of the vehicle. The towing company and invoice are then found to be fictitious and you will not find the vehicle at the towing operator’s premises. In some instances, the vehicles that are with the towing operators have been abandoned by the previous owner making it easy for syndicates to use the vehicle information as these vehicles aren’t de-registered or even scrapped, as is required by law.

By the time all this information is uncovered through investigation, the rental vehicle is already rented out to an unsuspecting individual who already paid the fees to the syndicate members, or the vehicle is stolen. Real time analysis and triggers would prevent similar events like these to progress to the stage where rental vehicles are issued and possible claims paid and there would be no financial loss to the insurer.

Download our eBook Insurance Digital Transformation - Maximizing Opportunities Through Fraud Mitigation.      

Why is it important to have high-end watches’ serial numbers shared internationally?

While many people are afraid these days to purchase or wear high-end watches, due to the current increasing crime rate worldwide, they still love to reward themselves with such extravagant timepieces which they insure.

Armed robberies of these high-end watches have been on the increase, executed with precision by organized crime rings. In the majority of cases, the modus operandi is similar. Some of you may know and refer to these organized criminals as the Rolex Gang in countries such as South Africa.

It is found in most cases that the insured is followed visiting common areas such as local grocers, shopping centers, petrol stations and restaurants. Spotters keep a lookout for customers wearing these high-end watches. The customer, in this instance the insured, is then followed and when they arrive at their destination, they are ambushed and robbed of their watches.

The target is always the watch; these armed robbers almost never take any other item, unless the opportunity presents itself. Many times, the culprits are brazen and footage can be obtained of them with their faces identifiable. When such an incident occurs, the insured typically reports the armed robbery to the police, who will circulate a stolen watch by means of its serial number. The serial number and make of a watch are then recorded on the police database.

One such incident happened in April 2019. After conducting an investigation into a customer’s watch that surfaced in October 2019 at an auction house in China, the investigator was able to stop the watch from being sold. The value of the watch, at the time of loss, was in the region of R600,000 ($36 000). This was made possible by ensuring that the watch was also circulated internationally through the manufacturing jeweler.

However, common scenarios like these give an opportunity to fraudsters to insure fake watches and stage losses. These losses come across as being legitimate and rather than investigating them, insurers proceed with quick settlement and the potential recovery of the watch. Most international and exclusive brand watches have serial numbers and can be circulated by the manufacturer of these watches, making it impossible to sell on auctions. Acquiring and compiling data around such losses, especially that of syndicate members, can assist in the identification of these cases to be investigated. Sometimes only images of the watch are presented as proof and these are taken from the internet. With the enablement of image scanning tools, one can pick this up very quickly and pursue an investigation into the matter.

How can technology assist in recovering a stolen vehicle? 

Car theft happens more often than we would like to think. In many cases, the insurance company will try to recover the vehicle, only to end up paying out the claim because the tracking unit was disabled. But it doesn’t have to be like that. This real-life example shows a different solution and outcome of the claim.

Mr. Z reported his vehicle stolen from his residence in the Bluff area, KwaZulu-Natal, South Africa. As he prepared to leave for work, he discovered that his vehicle was missing. The night before the theft, he had parked the vehicle in his yard behind his access-controlled gate. When his wife got up the next morning, she noticed that their access gate had been opened. When they further investigated, they realized that the vehicle had been stolen and there was no visible damage to the gate or its motor.

Mr. Z immediately reported the theft to the police and informed his tracking company in an attempt to track and recover his vehicle. The unthinkable happened, however: Mr. Z was told that the tracking unit fitted to his vehicle had been recovered – and that his vehicle was still missing.

All hope of recovery was already muted as no one believed that recovery of the vehicle was possible. It was now a case of verifying the loss and formulating the payout on the claim, but the investigator responsible for the claim immediately leaped into action. She knew that the vehicle was fitted with an active iDrive system and requested a trace of the vehicle.

The investigator soon received some good news; the car’s iDrive system was still active and the vehicle had been traced to a specific location in South Africa. With the assistance of the police, the vehicle was recovered. The police also managed to arrest three suspects and recovered suspected stolen property.

It was suspected that the vehicle’s spare key was used to steal the vehicle, as the insured could not provide it at the time of the assessment. This raised suspicion that the insured could be involved in orchestrating the theft of his own vehicle. This turned out to be true and additional network links could be established from the details of the suspects that got arrested. This resulted in the discovery of other similar staged losses and insurance claims where these individuals were involved in. Cross referencing known personal data helped establish important links which assisted with the process of uncovering a whole network of individuals and property that was involved in this organized crime syndicate. Your fraud detection solutions and systems should be able to connect these dots for you.

Providing altered documents will not get your claim paid

Another common insurance fraud includes submitting claims with edited documents, like in this real-life example below. The SIU department was appointed on a theft of a laptop claim, whereby the claim was submitted within a month of inception. This claim was triggered by the fraud detection solution. After interviewing the client, some discrepancies were picked up about the loss. He did not report the theft to the police and only reported his laptop as lost. The loss also allegedly occurred in another province, and whilst visiting family members, yet could not supply their contact details.

Proof of ownership for the laptop was requested from the client and he then provided an invoice from the iStore he purchased the laptop as well as the method of payment. The client confirmed that it was done through his bank debit card and he also supplied his bank statement to confirm that he purchased this item. After some in-depth investigation, it was confirmed that the bank statement provided by the client was altered as the details thereon did not match the account. The metadata revealed alterations to the content of the document.

Shortly after, the insured called the claims department to state that he miraculously recovered his laptop and that he did not wish to claim anymore. On the same day, the manager of the iStore contacted the investigator and informed him that another insurer requested validation of the exact same invoice which was inquired about earlier, however, the details were for another client.

A comparison was done on the proof of ownership documents, with the other Insurer, and it was found that the documents were scanned in the same manner and carried the same markings. It was also found that the client’s contact number and email address were the same, although the address and profile were different. After receiving and analyzing all this information, it was confirmed that this was identity theft and that this claim proved enough to have the client arrested for fraud.

How can you prevent fraud at claims?

Seeing all these examples of meticulously planned frauds makes you wonder how you can protect your honest customers and prevent fraud at claims. The answer is technology.

Proactively detecting fraud before claims are paid and upgrading analytics, are currently one of the insurers’ main fraud-fighting priorities. As an industry, insurers have become accustomed to detecting fraud at the claims stage or when a claim has already been settled. These days, analytics along with claims fraud rules plays an important part in identifying potential fraudulent policies as well as fake claims.

Moreover, data is an important contributor when designing these fraud triggers. Data is extracted, acknowledged, and bifurcated to identify and analyze behavioral patterns. Without quality and quantity of data, it becomes an almost impossible task to create these fraud triggers or to allow for proper analysis in order to further improve on the rules that were already created. Partnering up with a platform that allows for the growth of information is important as well as the stricter assessment of useful data points.

The solution is an end-to-end platform with advanced analytics powered by ever-evolving AI. It can help you detect fraud at different stages and long before the claim is paid.

Download our eBook Insurance Digital Transformation - Maximizing Opportunities Through Fraud Mitigation.