Domestic Insurance Fraud - Literature review Example

 Domestic Insurance Fraud The 2012 Association of British Insurers publication states that up to fifteen fraudulent insurance claims are unearthed on a daily basis in the United Kingdom. These fraudulent claims may involve the invention or exaggeration of a claim or even lying in order to get a cheap cover. The report says that these fraudulent claims add an extra 50 euros every year to the premiums of honest customers. The number of dishonest claims that were uncovered in the year 2011 by the insurance firms were approximately 139,000 amounting to one billion Euros (ABI, 2012). The general public is much more likely to commit insurance fraud compared to other forms of crime. Various top organizations such as KPMG have presented various statistics profiling household fraudsters, as shown in the table below. Figure 1: Fraudster profiles at occupational levels One of the most interesting findings in a study conducted by Button, Pakes & Blackbourn (2013) states that there is almost a balance in terms of gender when it comes to dishonest claimants in household insurance. The research found that 54% of these fraudsters were men while 46% of them were women. The table above illustrates that due to men’s’ dominance in management positions, they are more likely to commit fraud. However, the research showed that if opportunities are going to be equal for both sexes then both sexes will commit fraud at almost an equal level. However, Button, Pakes and Blackbourn (2013) state that women involvement is quite high due to the fact that they (women) mostly handle domestic matters in traditional family settings. When it comes to Age, the research by Button, Pakes & Blackbourn (2013) shows that dishonest claimants are mostly in the 31 to 50 age bracket. Those over fifty made the largest group which was 29 percent of total dishonest claimants. The age-group of 18 to 29 years of age only represented 14 percent of the entire group. The older people are most likely to own household products as well as insurance claims for these products; hence the big number of dishonest claims from older people Figure 2: Dishonest claims and gender (Mark, Francis and Dean) Figure 3: Age of Dishonest claimants (Mark, Francis and Dean 2013) Looking at the occupation of claimants in household insurance, students, the retired, people in sales, marketing and people in clerical jobs have less dishonest claims, though their population would suggest otherwise. This does not imply that they are honest, for data on actual holdings of policies was not present. The occupations that had a more dishonest profile included the armed forces, health and caring, the unemployed as well as management level employees (Button, Pakes & Blackbourn, 2013). It is also evident that more than 50 percent of claimants had submitted a claim within a year of subscribing to the policy. Over 30 percent of these claimed within six months. This means that any claims that are made within one year after a policy is opened are mostly fraudulent. The significant number of first time claimants was fraudulent. Thus, customers who have not made any claims before need to be scrutinized thoroughly before any compensation is made (National Fraud Authority, 2012). When it comes to insurance fraud, fraudsters are more likely to fraudulently make claims for specific types of products. The products that are mostly claimed dishonestly include computers, television sets and mobile phones. Other items that come after these include jewellery, multiple items, bicycles, home furnishings, money as well as audio systems. Clearly, fraudulent claims are more on electronic products compared to other domestic based products (Button, Pakes & Blackbourn, 2013). Fabricating any insurance claim for a dishonest claimer involves the invention of an event that is covered by an insurance policy, or adapting one that has already taken place. Most of the scenarios mostly involve certain forms of accidents. 85 percent of claims normally lie in this category. 12 percent of these on the other hand are involved in scenarios of theft. Well, most of the fraudsters prefer the staging of events for it is the least risky way out. Fabricating a crime always involves reporting the crime to the police officers hence increasing the probability of getting caught while committing another more serious crime. This clarifies the assumption that many would like to go the least risky way (Button, Pakes & Blackbourn, 2013). The Office for National Statistics in its 2013 statistical bulletin acknowledged that fraud as a concept is difficult to estimate or measure since it is a crime based on deception. Thus, there is a gap in fraud statistics. As a result, the report recommends or suggests the use of other sources such as the Action Fraud service. The Association of British Insurers (ABI) states that there is a very large number of dishonest home insurance claims that consist of alleged accidental damage to furniture as well as carpets due to spilled drinks, which in most cases are caused deliberately. In addition, ABI says that dishonest motor insurance claims are very costly compared to any other claims. The Association of British Insurers has exposed some of these dishonest and fraudulent claims. One of these claims involves a policyholder taking his car to Germany for the purposes of participating in a race event. In the course of the event, he crashed the vehicle. The crash resulted in extensive damage. The claimant then had his car transported back to the United Kingdom. He then left it at the side of a road and claimed that the damage occurred there. In another case, a woman reported to the insuring company that her husband had exaggerated injuries that he had received from a car accident. He therefore managed to collect 385,000 Euros in compensation. Her husband had pretended to be severely injured for a period of three years (ActionFraud, 2011). According to the Federal Bureau of Investigation (FBI)’s 2011 reports, senior citizens in the United States are the ones who mostly own homes and hence are more likely to commit domestic insurance fraud. The age of people who commit insurance frauds range from 18 to 51 (Clark, Davies & Tilley, 2003). In Australia, research suggests that the cost of unnoticeable and dishonest fraud within the overall insurance sector goes up to 1.9 billion Euros every year. This cost added 44 Euros to the average insurance policy that was purchased by consumers. The research also indicated that 13 percent of general insurance claims, were dishonest and they represents 10 percent of the claims value. Some of the cases of fraud are from repeat fraudsters, and others commit organized fraud. The age of persons who conduct such dishonest claims are of age 31 to 50 and their average age is 44 (Clark, Davies & Tilley, 2003). References ABI. (2012). No Hiding Place: Insurance fraud exposed. Retrieved from https://www.abi.org.uk/~/media/Files/Documents/Publications/Public/Migrated/Fraud/ABI%20no%20hiding%20place%20-%20insurance%20fraud%20exposed.pdf ActionFraud. (January 2011). http://www.actionfraud.police.uk/home-cheat-home-jan11 (accessed Jue 29, 2015). Button, M., Pakes, F., & Blackbourn, D. (2013). Profile of a house insurance fraudster. Clark, J., Davies, T., & Tilley, H. (2003). Fraud Investigation: A Claims Handler's Guide. FBI. (2011). https://www.fbi.gov/scams-safety/fraud/seniors (accessed May 2015). National Fraud Authority. (2012). Annual Fraud Indicator. Office for National Statistics. (2013). Crime in England and Wales, year ending December 2013. Retrieved from http://www.ons.gov.uk/ons/rel/crime-stats/crime-statistics/period-ending-december-2013/stb-crime-stats-dec-2013.html Read More