The Covid effect on insurance fraud

September 17th, 2020

As the threat of Covid-19 shows no sign of easing up until a global vaccine is available, the everyday impact of the pandemic is continuing to be felt across the world. Aside from the obvious health implications, many countries are heading for, if not already experiencing, an economic recession. In times of recession, many people can experience financial pressure. Everyday living costs can rise, jobs and job security are under threat, and the weight of household debt and everyday expenditure can see some people get into financial strife. This combination of factors can lead to seeking opportunities to commit insurance fraud.

“The looming economic downturn we can expect to see has a number of long-lasting implications. One important one being an explosion of fraud in the coming years — and organizations need to brace themselves.”

Bruce Dorris, President and CEO of the Association of Certified Fraud Examiners


We know that financial hardship can lead to an increase in insurance fraud. There are two ways this can manifest – everyday consumers being more vulnerable to consumer scams, and an increase in people being fraudulent in their insurance claims. The Association of British Insurers (ABI) has a useful article on the different kinds of insurance fraud we can expect to see in this Covid-19 environment.

1. Consumer scams

The scope of consumer scams is wide ranging, and largely phone and website based. Criminals looking to exploit the pandemic will take advantage of people’s natural anxiety around the pandemic and spending more time at home, to target them with fake insurance and other financial type products. Ghost brokers are also known to act as genuine insurers and offer fake insurance products to people. Insurance and financial products are at risk during uncertain economic times, as people try to protect their businesses, income and seek safer investments.

Fear is a key driver for organised crime and consumer scams. The UK has reported instances of people using government fines and payments for breaking lockdown rules.

Senior citizens are also more at risk from Covid-19 related scams. I-sight highlights the below known scams targeted at seniors:

  • Selling counterfeit PPE or Covid-19 drugs
  • Opening or advertising fraudulent healthcare facilities
  • Going door-to-door offering fraudulent Covid-19 testing, either for payment or ending in a robbery
  • Selling fake lists of Covid-19 infected people in a specific neighborhood/geographic area

2. Fraudulent claims

When people experience financial difficulty, they can be motivated to take advantage of a genuine claim opportunity to see if they can get ‘more’ from the claims process. This might present, for example, as claiming for extra items following a burglary. Inventing or exaggerating claims in time of financial hardship is known within the insurance industry, and insurers often put in place extra checks and manual processes to ensure claims are indeed genuine.

Why do people commit insurance fraud?

In a previous article, we outlined why people may be motivated to commit insurance fraud.

Dr Donald Cressey, a notable criminologist, developed the Fraud Triangle in 1953. There are three key elements to the Fraud Triangle, and they describe the enablers for fraudulent behaviour to occur.

Importantly, all three elements must be present for a fraudulent act to be initiated. The three elements are:

  • Opportunity
  • Pressure or motivation
  • Rationalisation

What we know about insurance fraud from previous recessions

Trends from recent recessions have shown that fraud often starts increasing later in a financial crisis. General public fear is replaced instead by a person’s personal fear about their financial situation – if a job is lost, or income is reduced, people can really start feeling the financial pinch. Motivation and Rationalisation are in place here – all that is needed is an Opportunity.

“At the time of the last recession, many insurers relied heavily on manual intervention to detect fraud. There is now more reliance on predictive analytics and insights gleaned from data. Insurance staff are well trained, with more advanced counter fraud awareness and technical skills.”


How can you help identify and report insurance fraud?

  1. Use your common sense. If a deal or offer appears too good to be true, it probably is! There is plenty of information about consumer scams and how to report them.
  2. You can report insurance fraud in NZ by completing this fraud report form.  The information can be provided anonymously if you wish.

How are insurers working to identify fraud?

Insurers have an increasing range of technology to support their detection of insurance fraud. The ABI have identified the below tools that insurers are actively using to tackle the issue:

  • predictive analytics
  • insights gleaned from data
  • well trained staff with better technical skills
  • more advanced counter fraud awareness

Allianz are also working hard to speed up the fraud detection process with real-time fraud detection technology, in-house data scientists assessing fraud patterns and machine technology.

As well as ensuring that insurers don’t see insurance fraud costs sky-rocket, it is important for the industry that consumers continue to have trust in the insurance sector. Fighting fraud and supporting consumers in hardship are two important ways to tackle this issue. As a global problem, it will be helped by insurers working together and sharing information. At the end of the day, making fraud harder to commit is a great outcome, and will help the insurance industry manage the ongoing cost of insurance.