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Fraud Red Flags

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									Property Claims Fraud in the
  current financial climate
    Robin Wintrip FCILA, ACII
      CILA Anti Fraud SIG
WHAT HAPPENS IN A
  RECESSION?
            RECESSION
• Banks stop lending money

• Sales decline

• Debtors increase

• Cashflow evaporates

• Assetts decrease
             RECESSION
• Company failures are at a record high

• Businesses and consumers are under
  financial pressure

• The virtual collapse of the banking industry
  sets this recession apart from all others
             RECESSION
• Financial distress

• Fraud is motivated by need or greed

• Recession creates the environment in
  which fraud can flourish
             RECESSION
• A recession may place more individuals
  and companies at risk of financial failure

• The indicators that we use at other times
  work just as well at identifying financial
  distress in a recession
 HAS FRAUD INCREASED
DURING THE RECESSION?
  ABI NEWS RELEASE 04/09


• “Recession Britain – Insurers detecting
  record amounts of fraudulent claims”
  DETECTED FRAUD IN 2008

• Commercial - 9,800 claims £240M

• Household - 55,400 claims £110M

• Motor     - 35,300 claims £360M
  DETECTED FRAUD IN 2008
• An annual rise of 17% across all classes

• The value of detected fraud increased
 by 30%

• 4% of all claims were fraudulent (3% in
  2007)
ARE WE BECOMING BETTER
  AT DETECTING FRAUD
• Screening

• Search systems

• Investigation units

• Enhanced response
 ABI RESEARCH BRIEF 07/09
• “The indications are that the recession is
  having an impact on fraud, but it is too
  early to say for certain that this is
  happening.”

• In estimating...interviews with several of
  the major Loss AdjustOrs...
        RESEARCH BRIEF
• There are clear indications that the
  recession, is leading to an increase in
  general insurance fraud.
• One loss adjuster has detected 41% more
  fraud in 2008.
• Another Adjuster estimates a fraud
  increase of between 15% and 20%.
    PROFILE OF FRAUDSTER
• Male
• In full time employment
• Between 18 and 34 years old
• Gross household income over £30,000
• Has savings and investments worth less
  than £5,000
• Has more than £5,000 worth of debt
• Lives in north east or London
FRAUD INDICATORS
• At times other than recession, we
  encounter claims from individuals and
  companies who for other reasons are
  under financial pressure

• We are already alive to this and the fact
  that it can be a motive for fraud
• A company suffering a loss may look fine
  on paper, but behind the scenes is facing
  huge pressure from lenders
• May not be discernible from the usual
  financial searches conducted
• Day 1 questioning must establish whether
  a business was under pressure from
  lenders before loss
 RISK INDICATORS (Financial)
• Withdrawal of loan facilities

• Overdraft position

• VAT overdue

• Payment defaults
 RISK INDICATORS (Financial)
• Dishonoured cheques

• Factoring

• Revenue investigation

• County Court Judgements
  RISK INDICATORS (Activity)
• Property development

• Building, construction and allied trades

• Some makers/suppliers e.g. to auto
  industry

• Steelmakers/suppliers
  RISK INDICATORS (Activity)
• Some retailers – large and small

• Leisure industry

• Licensed trade

• Hotels & restaurants
              SUMMARY
• Increased incidence of claims- genuine
  and recession driven
• Losses which in a stable financial climate
  may not have been claimed for, may now
  become claims
• Otherwise honest individuals may now be
  tempted to do an insurance job
               SUMMARY
• We would expect to see an increase in
  fraudulent claims

• The findings of the ABI confirm that this is
  happening

• Members making a significant contribution
  in the fight against fraud

								
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