Opportunistic insurance fraud can be tackled with aggressive prosecution but educating and discouraging can prevent crime and penalty before it ever occurs
Some in society are career criminals. They will ply their illegal trade for as long as they can get away with it. There is little insurance companies can do to persuade them against committing fraud, so the focus must be on building strong anti-fraud and cyber defences.
There is, however, another group of people who commit fraud against insurers – the opportunists. With this type of fraudster the insurer does have more chance of dissuasion despite opportunistic fraud being relatively easy to commit and without any clear and obvious penalties for wrong-doing.
The starting point is an understanding of why an otherwise law-abiding person might decide to commit a criminal act.
In 1953, the American criminologist Donald Cressey conceived the Fraud Triangle, which identifies three factors leading to fraud and other unethical behaviour:
- Pressure – such as money problems, gambling debts, alcohol or drug addiction
- Opportunity – a low likelihood of being caught or the discovery of vulnerabilities in a company’s processes
- Rationalisation – justification for their actions, such as the belief that defrauding a large company is a victimless crime
The opportunity aspect can largely be dealt with by the physical defences that insurers put in place – reduce the opportunity and you reduce the temptation. But it is equally important to challenge the perception that it is socially acceptable to defraud an insurance company.
There is often peer pressure at play. Individuals may be encouraged to commit fraud by others, on the basis that ‘everyone is doing it’. This theory, coupled with an inherent distrust for insurance companies, makes this argument almost believable but this kind of pernicious influence is difficult to break down yet one of the best tactics is to turn it on its head.
In the US, the Coalition Against Insurance Fraud has made great headway in tackling this issue. Over the past three decades, it has been conducting research among the general public to understand the motivations behind opportunistic fraud.
The initial research, in 1997, found that 96 per cent of Americans fell into one of four personality types: the moralists (‘insurance fraud is wrong, period’); the realists (‘insurance fraud will always be with us and there is nothing we can do about it’); the conformists (‘everyone else is doing it, so why can’t I?’); and the critics (‘I have no problem with people sticking it to insurance companies’).
Although there was very little demographic distinction between the groups, one common theme emerged – the effectiveness of peer pressure. Knowing how they would be perceived by others if caught committing fraud was found to be the biggest behavioural motivator.
On the back of this research, the Coalition conducted several high-profile consumer campaigns, urging moralists to speak up when they saw fraud and encouraging those considering it to think of the social implications of being caught.
The result of these campaigns was startling. The proportion of people identifying as critics dropped by more than 50 per cent from 1997 to 2017 (from 26 per cent to 11 per cent), while the proportion of those willing to ‘finesse’ a claim to get extra cash dropped from 91 per cent to 84 per cent.
These campaigns show that it is possible to turn negative peer pressure on its head and use it in the insurance industry’s defence. They also show that physical defences are only part of the answer to the industry’s fraud problem. This is as much a hearts and minds issue as it is a technical one.