Tackling fraud is an ethical thing to do, as it penalises those who commit it, deters those who are tempted by it and benefits those who never would have thought of doing it in the first place. Everyone, other than the fraudsters, benefits from there being less fraud around.
The ethics associated with fraud don’t stop there however, for how you tackle fraud also has an ethical dimension. There’s no point teaching fraudsters a lesson by adopting tactics that are questionable, perhaps even illegal, themselves. However with insurance fraud reportedly costing UK insurance in the region of £2.1 billion a year, the pressure on fraud personnel to deliver results must be huge.
So while insurers are investing heavily in their own fraud prevention systems and supporting those of the Insurance Fraud Bureau as well, they also need to make sure that checks and balances are in place to avoid drifting into unethical practices. The recent experience of three well known insurers in the Irish courts highlights the dangers of leaving such activities to their own devices.
How insurance fraud is investigated may to date have been something of interest only to those in underwriting and claims, but it’s not going to stay that way for long. The launch of the Insurance Fraud Register (IFR) later this year will bring it very much into the public domain, as several thousand people end up being labelled as fraudsters by the insurance sector. I’ve written in the past about some of the challenges faced by the IFR, which, if not properly resolved, will undermine its credibility in the eyes of the public. What I want to do in this post however is concentrate on the many individual insurers who will be supplying the IFR with fraud data and in particular, the ethical dimension to how that fraud data is acquired, sorted and analysed.
Some in the insurance sector, perhaps those who have worked long and hard at improving insurers’ handling of fraud, may be tempted to think that the sheer size and complexity of insurance fraud overrides the detail of how it is addressed – in other words, don’t the benefits for everyone of really getting to grips with fraud outweight the occasional corner that may have to be cut in order to achieve results? That’s a question upon which the public can supply a clear pre-existing answer: one set of rules cannot be upheld by the breaking of another set of rules. The ends do not justify the means. The Leveson Inquiry illustrates just how slippery a slope such thinking can turn into.
In this and a subsequent post, I’ll set out what I think are the key themes around which a set of principles could be fashioned to embed some ethical thinking into how insurers tackle fraud. The overall watchword for these themes is fairness, for no other reason than the way in insurers tackle fraud is just as much part of ‘treating customers fairly’ as any other part of their operation.
Firstly, be clear about what you’re trying to achieve by tackling fraud and make sure your approach reflects that. A reduction in claims costs is an obvious target, although tackling fraud can often be expensive. In some circumstances, the cost of tackling fraud has been known to exceed the savings achieved, but the fraud initiative was kept up anyway, for the purpose was to achieve more than just cost savings. There’s a public interest argument for tackling fraud, in that the more fraud is addressed, the more confidence the public has in the overall fairness of the market, which in turn builds market confidence and makes it work more efficiently. On a more individual level, for underwriting and claims personnel to be considered professional, that public interest must be taken into account – it’s one of the core elements of professionalism. So how do you take that public interest into account? By embedding it in how you define fraud, how identify it, how you investigate it and how you deal with what you find.
Secondly, remember that you’re a professional and as a result, possess a vastly superior knowledge of how insurance works than the policyholder. How that information assymmetry has been handled is critical to judging insurance fraud. So before putting someone on the IFR, take a careful look at how well what you expected the policyholder to do, or not do, was explained to them. Were the assumptions behind the quote they accepted not only highlighted in your quote and that of the aggregator as well, but also prominently displayed in the policy’s documentation? Did you explaination use technical terms, or was it spelt out in plain English? It’s important, when asking such questions, to put yourself in the shoes of the policyholder (or for example, the Financial Ombudsman Bureau) so as to appraise the situation in a fully professional way. Of course the policyholder is obliged to become familiar with the terms and conditions of their cover, but at the same time, the insurer is obliged to present that information in ways that are both clear and unambiguous.
I’ll post about four further themes shortly.