Insurance Claims and Insurance Fraud
The term insurance fraud covers a range of issues and can be a bit deceiving to some people.
It can include the exaggeration of otherwise legitimate claims, intentional misrepresentation of the facts or complex organised manipulation of the claims process to gain a financial advantage where there been no actual loss.
Opportunistic vs. premediated insurance fraud
The most common form of insurance fraud is the exaggeration of personal claims – this is referred to as ‘opportunistic fraud.’ Premeditated or planned frauds are usually committed by the professional fraudster and often by organised criminal gangs.
A serious crime
Regardless of whether the fraud is committed on a one-off basis (opportunity) or is a series of frauds committed by a professional criminal (pre-meditated), it is still considered at law to be a serious indictable offence where the penalties can be imprisonment for up to 10 years or a substantial fine or both.
We’re all paying for the cost of insurance fraud
The total cost of insurance fraud is challenging to estimate with precision.
In 2017 insurers detected $280 million in fraudulent claims in all insurance classes, excluding those relating to health insurance or personal injury (CTP, Government run Workers compensation etc). This figure represents the amount of detected insurance fraud only.
An estimate of the value of undetected insurance fraud in the Australian market is not yet available, but the cost of fraud, be it opportunistic or pre-meditated is a cost of claims and adds to the premium cost for all insurance consumers.
Through information sharing on suspected fraudulent or exaggerated claims, to operations and collaboration with Police around the country, insurers’ ability to detect insurance fraud, share when it happens and work with police to prosecute offenders will greatly increase the likelihood of insurance fraud being detected. This drives a direct benefit to consumers.
Insurance fraud comes in a few different shapes and sizes. Some types of fraud are done on purpose, some types involve small lies that may seem like they won’t matter, and some are committed without the person committing them even realising.
The cost of insurance fraud each year is big — it’s in the billions — and while it may seem easy to ignore these costs because they only affect insurance companies, the reality is that insurance fraud ends up costing you and others, be it in the form of higher premiums, higher excesses or policies with more things an insurer won’t cover — all of which are aimed at cutting down the increasing costs of fraud.
But what exactly is insurance fraud? And how can it be avoided?
What are the types of insurance fraud?
Insurance fraud generally falls into a few categories: non-disclosure, exaggeration and deliberate;
- Non-disclosure can be both deliberate and inadvertent. Fraudulent non-disclosure basically means that you haven’t revealed information to an insurer that might affect their decision to insure you or to pay out a claim. For example, when applying for car insurance, you may neglect to mention a conviction for drink-driving or you may tell your insurer that your car is always parked in a secure garage overnight when, in fact, it’s typically parked on the street. It’s important to note that even unintentional non-disclosure is still fraudulent.
- Deliberate fraud is premeditated and calculated in an effort to defraud an insurance company. That is, someone planned to commit fraud to make money. Common types of deliberate fraud include setting fire to property or faking a theft in order to receive an insurance payout.
- Exaggeration is pretty straightforward and is mainly limited to when a person makes a claim — it involves exaggerating the amount of damage or the cost of the loss in order to increase the payout of a claim.
As you can see from the various types, insurance fraud isn’t limited to criminals. Even well-behaved people can often be tempted to leave out important information or inflate the value of a claim for their own personal gain, and it can also be the case that a person doesn’t realise they are committing a crime by exaggerating the facts or failing to disclose important information
Report fraud
A number of initiatives are underway to enhance the industry’s capacity to identify currently undetected insurance fraud activity. The Insurance Fraud Bureau of Australia (IFBA) established by Insurance Council of Australia members in December 2010, is coordinating an industry response.
We will shortly be launching a new portal for reporting fraud, in the meantime, to report suspected fraud, please email IFBA and supply the following details:
- your name
- your preferred email address
- your contact number
- the full name of the person(s) that you believe may be committing insurance fraud
- description of the suspected fraud
Additional details if known:
- the DOB of the person(s) you believe may be committing insurance fraud
- the full address of the location where you believe the fraud occurred
- date of incident, if known
Insurance Fraud Bureau of Australia
The Insurance Fraud Bureau of Australia (IFBA) is a working element of the Insurance Council of Australia established to help combat insurance fraud in all of its forms. IFBA is increasing the focus on combatting insurance fraud, working with police and other bodies to prosecute cases when identified.
What does IFBA do?
The specific mandate of IFBA is to execute information collection, sharing and analysis of insurance fraud information that facilitates insurance company action against insurance fraud, informs community decision making and law enforcement investigations activity; to reduce the incidence and impact of insurance fraud on honest policyholders.
In other words, IFBA exists to help stop insurance fraud so that the costs are not passed onto those in the community who do the right thing.
To do this IFBA:
- Provides a business hours service for community members to report suspected insurance fraud.
- Provides a law enforcement inquiry service to facilitate police investigations where insurance fraud may be a factor.
- Coordinates information exchange between insurers where insurance fraud or a criminal act is reasonably believed to have occurred.
- Participates in community and government forums focussed on crime prevention.
The Australian Financial Complaints Authority (AFCA) Approach to non-disclosure and misrepresentation
AFCA produces a document to explain their approach to complaints from consumers when an insurer denies a claim on the basis the complainant failed to disclose (non-disclosure), or misrepresented, a matter. You can read this document here.
