Motor Insurance Fraud: How It Affects You & The Insurance Industry

Author: Ryan Eden
Date: September 2020

In recent years, car insurance premiums have been increasing and rising fraudulent claims is recognised as a sizeable contributing factor. In 2017, car insurance premiums increased by an average of £50 due to fraudulent claims in the wider market (Horne, 2018).

According to the Insurance Fraud Bureau (IFB), false motor vehicle crash claims cost UK insurers £340m every year (Ageas, 2020).

False crash claims are just one example of many different forms of motor insurance fraud. Fronting, failing to declare changes in circumstance, failing to declare modifications, vehicle dumping, ghost broking, phantom hire, ‘flash for cash’ and ‘slam on’ fraud are all recognised forms of car insurance fraud (RAC, 2020).

‘Fronting’ occurs when a driver chooses to cut the costs of another driver’s car insurance by declaring themselves as the main driver. Whilst this may initially seem like a good idea, it can result in documentation being sent to the wrong person and it can invalidate insurance and affect the claims stage once a claim is made (Frampton, 2015).

‘Vehicle Dumping’ is where a person will claim that their car was stolen, when in reality the person chose to dump their vehicle and state that it is missing. There isn’t much information available on how much this costs the motor insurance industry. However, if a perpetrator is caught it can result in imprisonment, licence suspension, large fines and community service (City of London News, 2019)

‘Ghost Broking’ occurs when organised crime groups or individuals pose as genuine insurance brokers. They deceive unwitting customers into buying “cheap” motor insurance policies and in most cases simply purchase the insurance through a separate motor vehicle insurance company. However, these companies are not authorised to conduct insurance business and the policy will often be invalid as a result.

If a customer is aware that the insurance is fake at the time they bought the insurance and are caught driving an uninsured vehicle, then the punishment can vary from 6 points on a licence and a £300 fine, right up to the vehicle being seized and crushed (Get Safe Online, 2020; Frost, 2018).

‘Phantom hire’ is a growing form of fraud and it is estimated that phantom hire fraud costs the insurance industry around £60m every year (Action Fraud, 2020). Phantom hire is where criminal gangs set up bogus car hire companies and submit false claims for replacement cars whilst their own vehicle is being “repaired”. In some instances, it has been found that the same vehicle was being “hired” by more than one individual at the same time.

In other cases, it has been found that a car was genuinely hired however, an E Class Mercedes was claimed for when it was really a ford fiesta that was being hired at a cost of £200 less per day (Action Fraud, 2020).

‘Flash for cash’ and ‘slam on’ fraud is a considerable threat to the motor insurance industry. Fraudulent car collision claims increased 45% year-on-year in 2019, compared to an average increase of 27% across all categories of insurance fraud (Fleet News, 2020). Flash for cash is where drivers agree and deliberately crash into another driver’s vehicle. Slam on fraud is where a driver will suddenly brake with the intention of causing a vehicle behind to crash into their vehicle.

As the level of fraud increases, the need for technology to help fight fraud increases as a result. Concrete evidence of deception, inconsistent statements or acts of dishonesty must be present for fraud to be identified (Insurance Fraud Bureau, 2020). A report, from the Association of Certified Fraud Examiners, found that only 13 percent of organisations currently use AI or machine learning to help fight rising cases of fraud. It is anticipated that 25 percent of organisations will adopt this technology in the next year or two (Cohn, 2019).

At Synalogik, providing clients with the tools they need to help fight fraud with accurate and fast results is at the heart of what we do. With our automation and data-scoring technology, our Scout™ platform is able to assist the insurance industry in their efforts to fight fraud.

If you’d like to know more, get in touch.

References

Horne, B. (2018) Fraudulent claims drive up the cost of car insurance

Ageas Fighting insurance fraud

RAC (2020) Car insurance scams and frauds 

Frampton, C. (2015) What is fronting and why does it affect car insurance 

City of London News (2019) Man sentenced for exaggerating his car’s value and falsely claiming it had been stolen 

Get Safe Online Motor Insurance Fraud (Ghost broking)

Frost, J. (2018) Ghost broking losses cost £631,000 over the last 3 years – IFED 

Action Fraud Hire car fraud is costing motorists and insurers millions each year

Fleet News ‘Crash for cash’ warning as insurance fraud on the rise

Insurance Fraud Bureau Crash for Cash

Cohn, M. (2019) Companies starting to use AI technology to fight fraud

Ryan Eden
Ryan is User Acceptance Tester & Product Support Technician at Synalogik. Ryan qualified from University of Worcester with a degree in Business, Entrepreneurship & Management.