Insurance fraud… what is insurance fraud? For too many of us, insurance is the necessary evil that is something endured like death and taxes. It is, however, peace of mind knowing that we pay someone else to fix our unexpected expensive accidents. We diligently but grudgingly pay our premiums even though we may or may not have claimed throughout the year, but still our premiums continue to rise. They continue to rise year after year until they become too expensive and reluctantly, we forfeit them. Which essentially means that within our psyche we’ve reasoned that we’ve paid tens of thousands of dollars to our insurers, with no beneficial gain (for most of us), and with little to no incentive or bonus for our loyalty. So, we’ve wasted our money… or have we?
Let’s say, for instance that you pay $320 per month for house and contents insurance which equates to $3,888 over the period of one year. Multiple this for twenty years (without any inflationary adjustments) and your insurance will cost you $77,760. This is hardly going to cover the costs of a replacement build if your house accidently burns down, so in this scenario the insurer is taking on the probability (i.e., the risk) that your house won’t burn down, but the insurance is designed to front the cost if it does.
Insurance is based on the principle that the many pay for the misfortunes of the few. That is why in any one year most people pay their insurance premiums without having need to make a claim. In fact, some people pay premiums for years without having to make a claim.
This is the time to remind yourself why you bought an insurance policy in the first place. Think back over the years when your insurer was there helping you out with that minor dent in the back panel of your car when someone accidently ran into you. The damage might have been minor, but at least you didn’t have to pay for it. Or that time, you lost your wedding ring at the beach, or that time you had that house fire, and you lost all your belongings due to smoke damage… yes in hindsight, peace of mind is a wonderful thing.
So why do our premiums only seem to go up? Premiums rise like the cost of many goods and services. Premiums are calculated on a myriad of factors, not least inflation, cost of living, housing market inflation, building material costs and fraud, etc. But unlike a normal consumer product it is not a case of buy and forget. The onus is put on the customer, to set our price on the asset we want to protect, of course this is a negotiation with our insurer. This is why every year we get the letter telling us to review our policy to make sure that our assets will still be covered for replacement if anything were to happen. This is also true of depreciating assets such as our vehicles, electronics etc. If you feel that they are no longer worth what you paid for you can reduce your sum insured which in turn will reduce your premiums. However, be aware that if you reduce your sum insured, it will not cover you to buy the latest version/brand if you were to claim due to an accident. Insurance is there to replace your loss or to put your back to where you were before the accident or loss happened.
On the flip side, a common misunderstanding with insurance is…if, say you bought a car for $80,000 and you insured it for the same amount, the next year’s model hits the streets for $90,000, you will not be able to increase your cover to match. Your insurers know the worth of your current vehicle and is only covering that asset and not potential future (non-existent) assets.
There are approximately 1.1 million claims submitted by the public annually, equating to circa $2.2bn which equates to 37.5% of the total premiums paid. This suggests that there are very few people who have an insurance policy for 20 years and not claim at least once in the lifetime of the policy, regardless of the amount of loss. However, there are people who, incorrectly, think that having an insurance policy is like investing in a bank, whereas they can make sporadic withdrawals (false claims) to recoup on their investment. An example of a typical false claim:
The new iPhone has just hit the market and costs $1,600, I can’t afford a new phone, so I’ll tell my insurance company that I lost my current one, or it’s broken.
This behaviour is one reason why our premiums keep going each year. These are the people that forget that insuring peoples’ assets is actually a business, and we choose to do business with the insurers. Yeah sure, the insurers don’t have the best perceived reputation when it comes to paying out on claims, but there wouldn’t be any insurance if there weren’t any customers. So, despite the rhetoric inflammatory media articles which always sensationalise headlines, insurers are extremely customer focused.
On the flip side, last year the NZ insurance industry lost approximately $730 million from fraudulent claims, this is expected to rise each year. A conservative estimate suggests that insurance fraud generally costs $140 per household per annum. However, the cost to New Zealander’s is much higher when calculating the additional costs of the deployment of resources such as police, fire, ambulance, detection processes, and prosecution, etc. which are all additional costs that someone must pay for.
Depending on what reference you refer to, the meaning of Fraud is essentially defined as,
“Wrongful or criminal deception intended to result in financial or personal gain.” (https://en.oxforddictionaries.com/definition/fraud).
Public perception has long held the view that insurers recoup their loss via the annual increase in premiums. Whilst this is somewhat true, it also perpetuates the attitude that, if others are doing it and getting away with it, then why can’t I? This ultimately infuriates the normally honest policyholder who then decides, ‘if you can’t beat em, join em’, and then has an opportunistic fraudulent win and the fraud cycle continues, dragging more onlookers into the fold, much the same as a tornado sucking up everything in its path fuelling its momentum.
If insurance fraud is suspected and polices are cancelled or declined, two things will happen: 1) the insurer will eliminate that risk by not insuring you; and 2) the insurer will decline the claim but that will fall on all other policyholders to bare the cost.
The consequences, when caught, of attempting or succeeding at defrauding your insurer are extreme, harsh, and swift. You could receive a conviction and go to jail therefore your current and future employment and integrity are jeopardised. But worst of all, your insurance policy may be cancelled. This might be a so what to some people. However, the so what is:
- Scenario 1: if you’re paying off a mortgage, the banks require that you have insurance – no insurance = no mortgage = no house = no hope of ever owning your own property… ever. You might also think that you’ll get insurance through a different provider… think again. Most insurers share their claims information with each other through the Insurance Claims Register (ICR). If you’re assessed as being a risk to one insurer, others will see that.
- Scenario 2: if you’re still single and not thinking about marriage, kids, and a house… great live it up with your one asset that you love… your third-party insured ‘Smart Electric Drive car’ that has a top speed of 125km/h and takes only a mere 7 hours to recharge. Not so great on the burnouts but awesome power efficiency. However, if you have an accident and your found out to have lied to your insurer about how it happened because you didn’t want to admit liability, it is almost certain that your claim and perhaps your policy will be cancelled. This could mean that you may never be able to insure any significant assets in the future… because you are deemed to be a risk. Even if you try and wait it out and claim you were ‘young and dumb’ in those days, Insurers have long record trails, so this tactic won’t work.
- Scenario 3: you crash your car while driving under the influence, not only will you potentially end up in court and without a licence, but your claim will also be declined. Why? Because you were committing a criminal act when you damaged your car. Don’t even bother trying to lie to insurer at this stage, because the Police and insurers talk to each other.
Some people operate on the premise that if they are caught defrauding their insurer, they can explain what had happened and why they attempted to defraud. Excuses like: … I didn’t realise I had ticked that box; or this happened years ago, and I was young and didn’t realise the consequences…; or simply, I didn’t mean too, but I needed the cash. These excuses are not going to fly with insurers. Insurance in New Zealand has a history dating back to early colonial New Zealand (circa 1854) and they’ve heard all the excuses over the years.
Insurers do not have a history of being lenient on those who defraud them as this would set a precedence that they could not afford. In other words, where would they draw the line, not to mention the myriad of legal issues this would also delve into. Therefore, it is one rule for all.
Fraudulent insurance claims tend to be one of five themes.
- Exaggerations on claims
- Non-disclosure of information
- Fake Invoicing
- False statements
- Double dipping
Below are some of the more common fraud stories.
Exaggeration on Claim
- A 20-year-old man was stopped by Police while driving his car and after a search of his vehicle, he was subsequently charged with possession of drugs, offensive weapons, and possession of a stolen DVD player. Some 4 hours after his release from the Police station he returned to where his car was left and found that his car had been stolen.
He subsequently lodged a claim under his parent’s vehicle policy for the stolen vehicle and contents including his wallet and cash. He also had on the claim form that he had been processed for drink driving, and he had been away from his car for only 1 hour, and in that time his car, wallet and cash were stolen.
An investigation found that the actual facts of the claim were:
- his wallet & cash were returned to him by Police when he was released,
- he had been away from the car for 4 hours,
- the charges he faced were not drink driving but more serious, there had been a stolen DVD player in the car, weapons & drugs.
Additional investigation inquiries exasperated his claims even further and put into doubt the integrity of the policyholders (his parents) and that of their son, with respect to the car & contents claims as there was an extensive claims history with other insurance companies. The claim was declined, and prosecution followed.
- A prominent businessman claimed for stolen inventory claiming that the perpetrators forced entry into his storage warehouse and stole a vehicle and 150 mini quad bikes. The customer claimed to have imported bikes from China.
The warehouse did have signs of damage, but it was also alarmed which had not activated. The customs records showed the quad bikes were imported but there were only 20 of them. When the engine numbers were cross referenced against his sale records showed only 10 of them were sold. The claim was subsequently declined for inflation.
- A Northland woman insured a motor vehicle in her own name as the sole driver. A few days later she advised her insurer to add her husband to the insurance policy. When the insurer conducted some due diligence, it was found that a previous insurance policy with another insurer was in her husband’s name and over a three-year period four large motor vehicle claims had been made – totalling in excess of $30,000, none of which were disclosed to the current insurer. As a result, the policy application for not only the motor vehicle but also house and contents were declined.
- A new immigrant couple to New Zealand took out a contents insurance policy and a few months later they were burgled and lost an extensive amount of jewellery. When the couple put in an insurance claim the insurer checked the Insurance Claims Register (ICR) and found that the couple had suffered a similar burglary with another insurer six months earlier which was not disclosed to the current insurer. The current insurer declined the contents policy on the grounds of non-disclosure of material information, regardless of whether the burglary was real or not.
- A customer claimed for water damage to her clothes. The insurer subsequently found that a previous claim had been investigated due to a suspicion of fraud and so was obligated to make further enquiries on her current claim. This led to the discovery that the customer had undisclosed claims under her maiden name. Subsequent checks with the ICR revealed claims with another insurer that had not been disclosed. One of these had been investigated and declined. The customer was subsequently interviewed and then withdrew her claim. Her insurance was cancelled.
- An ICR check for a reasonable sized new farm account showed the applicant had not disclosed any claims. The ICR check showed there were at least 15 recent claims that had not been disclosed. The insurer subsequently confirmed that the previous insurer had cancelled the policies because of the extensive claims. This had not been disclosed to the current insurer therefore the application to insure the customer was declined.
- During a routine audit, a customer was found to have a declined claim on the ICR, with another insurer. The previous insurer had declined the customer’s claim and cancelled the policy due to the undisclosed fraud conviction.
- A potential customer attempted to insure a house for $395,000, and contents for $30,000. An ICR search revealed that the customer had been flagged by the previous insurer and an additional six non-disclosed claims with other insurers. New business with this customer was declined.
- An Auckland man lodged a claim for a burglary where he stated most of his tools had been taken from his home. An ICR search found that the insured had a burglary at the same address several years earlier that was accepted and over $5000 was paid out. An investigation revealed that he had numerous serious criminal convictions, all non-disclosed. The claim was declined, and the man was prosecuted.
- A Christchurch businesswoman lodged a claim for a lost ring (valued $4,500). The information she provided about the loss was very vague, she did not know when or where she lost it. The customer stated that she did not have any previous claims, however an ICR search found that she had a burglary claim the previous year where jewellery was taken which was cash settled for $2,600. The claim was subsequently investigated as the genuine nature of it was in doubt. The investigation resulted in her claim be declined and her policy cancelled due to non-disclosure.
- A claim was lodged for a house burglary, stating a new TV and play station had been stolen. The customer stated he was moving to a new house on the day of lodging the claim and the loss occurred at his previous address. An investigation found that the customer had had a recent claim where his car was broken into, and his CDs & car stereo had been stolen. The insurer spoke with the local Police, who were not convinced the burglary claim was genuine and that the customer had not disclosed his criminal convictions, which included drugs, and receiving stolen property and fraud. The claim was declined, and his policy cancelled.
- An elderly man lodged a claim for a 4-x wheeler bike and other farm property stolen from his shed during a burglary, estimated loss $20,000. The investigation found that he had had an undisclosed burglary with similar circumstances the previous year wherein $10,000 was paid out. An investigation found that the insured had been advised to secure his property and buildings and hadn’t done so. The claim was declined.
The claim was investigated, and evidence was found showing the insured was producing invoices and repair authorisations for non-existent repairs. In total he had made 6 successful claims on one policy and two successful claims on the other with a further claim held for investigation.
An additional windscreen claim had been submitted to the first insurer on a similar invoice, in an unrelated insured’s name, on a different vehicle. The investigation revealed that this last name was an assumed identity by the initial insured. The insured vehicle did not exist.
When confronted with the evidence the 69-year-old pensioner admitted making and using false invoices with intent to defraud insurers. He further admitted that he had taken a third policy in the assumed name and had made another false claim. He also admitted that he had made up the registration number for the insured vehicle, which did not exist. The claims totalled $4,200 The potential loss would have been much greater if the fraud had not been detected. Prosecution followed.
- A claim was submitted for a stolen car stereo worth $3,500. AnICR check was completed which showed a similar claim with another insurer. Further enquiries revealed that the stereo had been up for sale. The customer was interviewed by an investigator which then revealed several inconsistencies in the information provided. Prior to the investigator completing the interview, he had phoned the insured and went through the process of trying to buy the stereo. It was still available for sale. The claim was subsequently declined based on false statements. Prosecution followed.
- A customer claimed for a stolen vehicle. He provided both sets of keys that he had in his possession. Analysis on key data showed one of the keys was not for the customers vehicle although it was for an earlier model. Importantly the earlier model key was not transponder capable and would not have started the vehicle even though the customer was adamant his mother operated the vehicle regularly with that key.
The vehicle was recovered a short time after and the module reading showed two keys were programmed to the vehicle proving that his key was used in the theft of the vehicle. Given the customer was aware of the 2nd key and falsely represented that key to be an earlier model, his claim was declined.
- Claim for a stolen trailer over a year prior. A customer claimed for a stolen trailer. When the claim was being investigated it was found that the property had a CCTV surveillance camera but the customer could not produce any recording from the day the trailer was stolen. The trailer was also insured the day before it was allegedly stolen.
The customer had also posted on Facebook about his missing trailer a couple of days prior to the date it was allegedly stolen. Upon further enquiries, the customer admitted to an investigator that he had known the trailer was missing prior to insuring it. The claim was declined.
- A claim was made for the loss of two rings and a watch. The customer stated that she left the items wrapped in a tissue while playing sports at a stadium, and that the items were missing when the insured returned to where she left the items. Proof of ownership was not able to be provided and the incident was not report to the NZ Police. During the claims process, the jewellery valuer noted that they had dealt with an earlier claim made by the customer under a different insurance brand. During this claim the customer had stated the rings fell from the kitchen windowsill down the sink, this was investigated and at the time she changed her story to say she had lost them out the kitchen window. This claim was withdrawn, and the secondary claim declined.
- The customer reported that their vehicle had been hit from behind by a truck. The incident was not reported to Police, however the customer mentioned that he had organised the vehicle to be towed by Police to another address before a tow company picked it up. The customers previous policy was cancelled due to non-payment of premiums. It transpired that the customer had taken out his new policy after the event occurred, therefore the claim was declined.
- A customer intentionally submitted two claims to two separate insurers for the same lost items in an attempt to get paid twice. This is commonly known as double dipping and is fraudulent. Upon further investigation it was revealed that this was not the first time the customer had done this, as the Investigator determined the insured had double dipped on a previous claim as well as the current claim. The previous claims were paid out as the ICR wasn’t checked at that time and there was no alert system in place at the time. The current claim was declined, and the policy cancelled.
- A customer bought multiple policies using multiple identities using other business entity bank accounts for payment. Their modus operandi included maximising the sum insured and then making persistent requests for premium refunds to an alternate bank account prior to premium payments clearing. In two instances the premiums did clear even though bank account belonged to a Telecommunications organisation. In those instances, premiums were refunded.
The discovery was made using analytics and staff picking up on the multiple refunds to alternate accounts. Also, two claims were lodged by two of the identities against the policies for which premium payments cleared. However, claims were picked up for investigation by analytics tool. Entity matching software also flagged similar phone numbers, email addresses, names, dates of birth payment details to reveal high probability of single suspect, operating out of Auckland.
Enquiries with the real customer was established, he was the victim of identity theft and the car insured with us was purchased using his details. A complaint to police resulted in the offender being prosecuted and recovery of costs.
- A customer claimed they had damaged their tools by accidently running their vehicle over them. A suspicion rose around the claim when the customer had phoned several weeks earlier to query whether these tools would be replaced with new tools if they were written off. Photos received from the client of the damaged tools were also time-stamped prior to the insurance being taken out.
The date of loss also matched another claim with a different insurer on the ICR and upon further questioning the claimant admitted to lodging the same claim with both insurers and that the loss preceded taking out insurance. The claim was subsequently declined.
- A customer had two sets of contents insurance with two different insurers. The customer made six contents claims over a seven-month period, relating to damaged laptops, TVs and cell phones. Investigations identified that the customer deliberately misled both insurance companies by claiming identical loses, altering invoices and inflating the claims. For example, the customer lodged a claim for a damaged phone with one insurer in July, however had lodged a claim with the other insurer in April. Both companies replaced the cell phone. The customer is now flagged in the ICR.
Common Types of Fraudulent Claims
Some of the more common frauds that insurers are seeing are individual claims. The most common item or commodities that are claimed for are usually small portable digital devices, such has phones, tablets, iPad, TV’s, and sound systems. Lost or stolen jewellery is also a common fraudulent claim.
Vehicles are a high-priced commodity that are easily claimed fraudulently. Claiming for a stolen vehicle, when really, you’ve just parked it or hidden it at a mates place until an insurance pay-out is made is one of the most common vehicle frauds insurers see.
However, if you’re going to report an item stolen then you need to be prepared to talk to the police in the first instance as your insurer will always require a police report to accompany your claim.
Also, if you’re going to attempt to sell items that you have claimed for, be aware there also ‘Blacklists’ that alert trading companies about stolen items and entities such as Facebook and TradeMe websites are in the public domain for all to see.
Some customers go to extreme lengths to get an insurance pay-out for a vehicle they can’t afford to fix. Claims have included vehicles set alight; vehicles reported as stolen but then found after a payment from the insurer has been made.
Be aware that if you claim for a lost item and that item is subsequently found after your insurer has paid out, your insurer now owns one of those items and you are obliged to return it to your insurer.
Insurers also see organised fraudulent claims perpetrated by gangs and or syndicates of people claiming on staged accidents across multiple vehicles and using multiple people.
Trends & Patterns
Insurers are noticing an increase in the number of detected identity fraud cases. In recent cases, they have noted stolen credit card details have been used to pay the premium or set up to a genuine but unauthorised or stolen bank account (for example telecommunications company or church charity bank account). The policy is then cancelled, and the premium refund is paid into a different bank account (that the offender can access).
Insurers are also noticing that there is an increase in non-disclosures particularly relating to incidents involving alcohol and criminal convictions. Falsifying date and time of the incident is also a common theme occurring, especially if the customer has driving restrictions.
Whatever the reason for the attempted frauds, there is always financial pressure in some shape or form that is often evident.
The Fraud Psyche
The great majority of the population are law abiding citizens, but that’s not to say that most won’t be looking for an opportunity for an easy win without repercussions. If people are given two out of the three reasons for committing fraud (i.e., motivation and rationale) they will always look for the opportunity.
… the risk of fraud is a product of both personality and environmental or situational variables. This has two implications for understanding fraud risk. First, it means that individuals will vary in their propensity to commit fraud even when they are subject to similar environmental pressures. Second, it means that situations will vary in the impact on individuals according to the inherent risk factors at any given time. Just as there are likely to be high to low-risk individuals, there are also likely to be high to low-risk situations. As individuals move from one environment to another, the probability of fraud behaviour also changes. There are likely to be situational conditions that would discourage all but the most incorrigible people from committing fraud. Conversely, there are situations that encourage fraud to the point that even the average person is at risk of engaging in it. [Australian Institute of Criminology, trends & issues in the crime and criminal justice, No. 199, March 2001.]
So, how do the insurers know when I’m making a false claim? There are several tools available to insurers to help them determine fraud.
- Tip offs. Most tip-offs for fraud are usually made by someone close to us… a neighbour, family member or work colleague. What’s disappointing in these situations is that a spouse or partner may be aware of the fraud being perpetrated but doesn’t do anything about it until the relationship ends. In other words, people are happy to benefit from the spoils whilst still in the relationship, but this somehow becomes intolerable once the relationship is no longer.
- Insurers have very experienced claims managers and investigators that are trained in fraudulent behaviours. They also have assessors who can differentiate between damage caused in a hailstorm and a nine-iron golf club, for instance. Or glean the information out of key fob or car navigation aide to see when the car was last used, where it had been and how fast it was going, etc.
- Technology also helps insurers detect and analyse fraudulent behaviours and is constantly improving. For instance, technology has been developed that can tell if someone is lying just by measuring the stressors in someone’s voice. The internet of things (IoT) is advancing in all aspects of our lives, from unlocking our phones with our faces, bio security door locks, digital appliances, Fitbits, etc. All this technology holds data that can be accessed.
- In 1998 the Insurance Council of New Zealand implemented the Insurance Claims Register database that allows insurer members to view each other’s claims data in an effort to reduce the incidence of insurance fraud by giving the underwriters and claims managers the ability to view customer claims histories at the time of policy inception, policy renewal and claim submissions across licensee members’ claims data. It also enables licensees to quickly identify duplicate claims involving more than one insurer. The database holds ten years of claims, which is roughly around 8.3 million claims. Claims are held in the database longer if it pertains to a Christchurch or Kaikoura earthquake claim or a claim that has been flagged. If a claim has been flagged, it is because the insurer had reason to believe that that claim, or claimant was deemed to be a risk to the business. Prior to a claim being flagged the customer is notified. The flag also alerts other insurers, particularly underwriters, to the risk, which highlights that getting insurance from a different insurer after attempting to defraud your previous insurer is likely to be very difficult.
How do I fight fraud? Tell people that what they’re doing is not okay as it affects you also. You can also anonymously call the fraud line – 0508 FRAUDLINE (0508 372 835) or email www.ifb.org.nz. The Insurance Fraud Bureau website also has a Fraud Report you can fill out, also anonymously if you prefer. https://ifb.org.nz/report-fraud/
 For more information on insurance pricing go to https://www.icnz.org.nz/understanding-insurance/consumer-guides