Fraud – The dark side of insurance
Going back to the basic insurance idea, the motive to buy insurance is clear. In order to cope with unexpected negative events, people invest in insurance policies to mitigate the risks facing their health and assets. They will purchase a policy from an insurance company detailing all conditions, deductibles and exclusions under which they shall receive an indemnity following the occurrence of a real, unexpected and genuine claim under the moral insurance principle of “utmost good faith”. At the heart of the insurance concept, an insurance risk has to be random and unintentional.
Additionally, the insurance claim whenever it occurs has to be accurately reported in order not to distort actuarial calculations.Therefore,
insurance optimally performs and is meant to operate in the absence of any insurance fraud, which is intentional.
The challenge transcends into a nightmare for the industry when insurance companies unintentionally pay and compensate policyholders for doubtful, staged and fake claims.
Insurance fraud is an intrinsic phenomenon of global insurance markets. It has been estimated that fraud adds an extra £50 to every household’s annual insurance bill in UK. The UK insurance industry confirms that it is facing yearly £1.3 billion of detected fraud, with a further £2.1 billion undetected1
. In the United States, according to the “Coalition Against Insurance Fraud”, insurance fraud costs at least $80 billion every year; this figure compared with the U.S. insurance industry’s net premiums written of $1.2 trillion in 20152
, represents 6.7% of premiums. By analogy,