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Why Ireland needs an insurance fraud office



Insurance fraud is a global problem but the level varies from country to country due to a number of factors. These include local legislation, preventative measures used by insurers, culture and perceptions of insurance fraud. The methods used to measure fraud also differ with some figures representing only detected fraud while others include an estimate of undetected fraud.

Below are some interesting figures on insurance fraud from outside Ireland:

  • The Insurance Fraud Bureau (IFB) in the UK recently estimated that there is a 'crash for cash' incident every 4 minutes.

  • The German insurance association (GDV) found in 2011 that over half of insurance claims for loss or damage to smartphones and tablets were fraudulent.

  • In the US, auto (motor) insurers lose $29 billion of premiums (over 9%) each year through application fraud.

If the levels of fraud were the same in every country this would mean that Ireland has a 'crash for cash' incident every 60 minutes, 50% of claims for mobile devices are fraud and Irish motor insurers lose €168m* in premiums each year due to application fraud. But can we simply use figures from other countries to try and measure the problem here?


If the figures were consistent in every country then maybe this would be ok. However, the amount varies depending on where you are in the world:


  • The Insurance Information Institute (III) reported that US families pay between $400 and $700 more each year in premiums due to insurance fraud.

  • The Association of British Insurers (ABI) stated that detected fraud costs £1 billion each year and adds £50 to a household's premiums each year in the UK. (They also estimate there is an additional £1.9 billion in undetected fraud each year).

  • In Belgium, it is estimated that insurance fraud costs every household €125 per year.

What is not in doubt is the fact that insurance fraud leads to higher premiums for us all.

* Based on motor insurance premiums of €1,873.1 million in 2019 (source)


What is an Insurance Fraud Office (Bureau)


Insurance fraud offices act as central hubs and work with many stakeholders in preventing, detecting and investigating fraud cases.


By collaborating with insurers and law enforcement agencies, insurance fraud offices help the industry measure the level of fraud taking place. They help create awareness of the problems and influence where anti-fraud activities are focused.


Ireland currently does not have an insurance fraud office and figures on fraud are very limited. An estimate of €50 per policy or a total of €200m per year is often quoted as the cost of insurance fraud here. These figures have been referenced for over 10 years and don't appear to have much to back them up (apart from being similar to UK figures).


But is insurance fraud in Ireland really comparable with the UK or other countries? Could we be closer to the US figures showing each household paying $400 to $700 in additional premiums due to insurance fraud? Would that make a difference in how we perceived or tried to tackle insurance fraud?


It is very difficult to tell without concrete information being produced in the Irish market. It is worth noting that there are a number of key differences between Ireland and the UK that may indicate that we have a bigger insurance fraud problem than we think.


Why Ireland is Different


Comparably higher payouts for whiplash claims


In 2018, a report commissioned by the Irish government found that personal injury payouts in Ireland were 4.4. times higher than in the UK. While the average awards have fallen recently due to new guidelines, there are still sizeable differences in average payouts.


It is extremely difficult to prove or disprove the level of injury a person has experiences due to an accident. At the time, around 80% of motor claims in Ireland and the UK revolved around whiplash. This was far above international levels. In France the figure was 3% and may be due to the fact that the process involves more medical experts and less lawyers.


Could the higher than average payouts combined with the difficulty in identifying exaggerated injuries lead to an increase in insurance fraud?


There is no definitive proof but it is interesting to note the findings of a 2019 report by two leading neurosurgeons at the Mater Hospital in Dublin. They found that over 90% of patients attending pain management clinics for 'whiplash' stopped attending once their legal actions were completed.


Little or No Consequences to attempting Fraud


In the UK, the Insurance Fraud Bureau (IFB) has reported 1,300 arrests for insurance fraud since 2006 which has secured 700 convictions totalling 620 years in prison.


If Ireland has similar levels of fraud then this would equate to around 85 arrests and 46 convictions here. To the best of my knowledge, there have been 2 convictions for insurance fraud in Ireland in that period.


The IFB in the UK maintain a database of known insurance fraudsters called the Insurance Fraud Register (IFR). It acts as a deterrent to anyone considering exaggerating a claim and protects honest customers. There is no similar database in Ireland.


Fraud offices around the world also engage in 'name and shame' campaigns to put a human face on insurance fraud and act as a detterent. The Coalition Against Insurance Fraud (CAIF) in the US maintain an 'Insurance Fraud Hall of Shame' to discourage this type of behaviour. There is no co-ordinated campaign similar to this in Ireland.


Attitude to Insurance Fraud


A 2021 research study by KPMG in Ireland found only 77% of respondents believe it is unethical to overstate an insurance claim.


A 2019 report commissioned by Allianz in Ireland found that 74% of participants believe that those filing exaggerated or fraudulent claims are taking advantage of the current system.


These reports show that fraudulent or exaggerated claims are perceived as being 'acceptable' by around 25% of people in Ireland. By comparison, a 2013 study in the UK found that 40% of respondents believed exaggerating an insurance claim was acceptable.


Conclusion


The prevalence, cost and types of insurance fraud differ greatly per market. Using UK or international figures to try and estimate the level of fraud in Ireland will not give an accurate picture of where the issues lie and what actions are required. But who should be responsible for gathering the data and estimate the level of insurance fraud?


An Garda Siochana (Irish police force) recently setup a unit to deal with complaints about insurance fraud. The focus is mainly on claim fraud and they appear to have no remit on measuring the overall level and cost of insurance fraud.


Insurance Ireland manage the Insurance Confidential service for the reporting of suspected insurance fraud from the general public. They have also been active in creating awareness of the impact of insurance fraud. However, they are a member association and not all insurance providers in the market are members.


The IFB in the UK and NICB in the US are both not for profit organisations funded by the industry and dedicated to fighting insurance fraud. They work with insurance providers and law enforcement agencies but are completely separate entities. This model has been proven to work effectively and can work in Ireland too.