Insurance fraud: still a reason to worry

Insurance fraud has always been a problem for the sector.  For years insurers have been attempting to deter it with varying degrees of success trying to limit losses thus improve their financial performance. Different successes ratio in fraud prevention results from differences in maturity of their approaches, operational processes and the quality of data stored in their IT systems, both in Poland and abroad.

Pursuant to Article 298 of the Polish Penal Code, insurance fraud is defined as an act of causing a triggering event in order to obtain the contractual compensation. In Poland such an act may be classified as an offence or vice and, according to the Polish Penal Code, inflicts a penalty of imprisonment ranging from three months to five years.

Despite the penalty risk and the existing legal sanction, many promising clients of insurance firms try deliberate deception to obtain unrighteous compensation exploiting insurance products.  Insurance firms that took care of owned data quality, selected relevant tools and developed effective controls aimed to spot frauds increased greatly the possibility to react on identified crime-attempts and identify repetitive beneficiaries/causers, identify and group frequent life or motor claim locations also be able to see potential fraud rings.

Not all insurance products are equally attractive for fraudsters.  Each product has its own specific types of fraud scenarios.  In motor insurance, these include staged car crashes or theft.  In property insurance, firms try to prevent ghost burglaries, fires or virtual damages to the insured property, while in health and life insurance the types of fraud include relatively frequent deliberate injuries or fictitious decease.

Who are the fraudsters?

Insurance fraudsters can be divided into two large classes: incidental and organized ones.  Incidental fraudsters are usually customers in urgent need of cash that treat insurance firms as “large and financially stable institutions”.  Insurance fraud includes also activity of crime groups that turned insurance fraud into a source of lucrative income.

Who else can participate in insurance fraud?

Effective and long-term fraud activity is hardly ever carried out without help of insurance firm employees.  Further, third parties selling insurance products or third parties assessing damage (e.g. workshops) may participate in such practices.

Common efforts to build a common front against insurance fraud, to include activities undertaken by Polish Insurance Association, are a positive sign.

In coming posts, we will share our practical views on counteracting insurance fraud.  We will discuss key challenges faced by insurers and present available fraud prevention measures.

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