Combating Casual Fraud on
Mobile Devices
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The latest analysis from Lifestyle Services Group shows the trend of the number of consumers making false or exaggerated claims on insurance products such as mobile phone and gadget insurance has more than doubled in recent years. Crucially, two types of fraudsters have emerged: the organised criminal who makes multiple claims on high-end handsets and the casual opportunist who wrongly believes that making a claim will get them cash or a free upgrade. Lifestyle Services Group now estimates that as many as 40 per cent of all claims are false or exaggerated.
Whether claimants are making a false allegation, or exaggerating or twisting an otherwise legitimate claim, the general industry consensus amongst organisations such as the Association of British Insurers (ABI) is that the recession has helped fuel the rise. Notably, since the start of the recession in 2008, Lifestyle Services Group has seen an increase in very amateur fraud attempts and a rise in the number of ‘walk-aways’, where the claimant drops the claim in response to enquiries. The number of ‘suspect’ claims has also significantly increased and accordingly, so has the number of claims proven to be fraudulent.
Latest industry figures highlight the extent of the problem. In 2010, CIFAS member organisations recorded 217,285 frauds to the National Fraud Database[1] and according to the Insurance Fraud Bureau, undetected general insurance claims fraud total £1.9 billion a year, adding on average £44 to the annual costs for individual policyholders.[2] Furthermore, CIFAS research shows that fraud has increased by 25 per cent over the past five years.
Casual opportunists often think that exaggerating the truth or claiming on an insurance policy when they have no genuine reason is not fraud or a serious crime, but simply getting value for money. Research by RSA for example shows that between March 2008 and January 2009, the number of people in Britain who think insurance fraud is acceptable increased by 22 per cent to 4.6 million.[3] Moreover, recent research from the ABI found that roughly one in five general insurance policy holders would consider making an exaggerated or completely made-up insurance claim.[4]
Tony Hurl-Hodges, Head of Risk and Security at Lifestyle Services Group says: “The large majority of consumers are honest people but unfortunately, there will always be some consumers that see insurance as cost and in order to get what they perceive to be value for money, try to recuperate their expenses through a false or exaggerated insurance claim. Fraudsters may sell, recycle or give their phone to a friend and claim for a new one. They may alternatively deliberately destroy a working handset, or damage a partially broken handset beyond repair.”
Like many crimes, fraud is fluid, changing as products and technologies develop and migrating to sectors that fraudsters perceive has having the least point of resistance. Mobile phones and gadgets are susceptible to fraud because of the difficulty in proving suspect claims. The need to build fraud detection capabilities at a customer service level therefore, and to share intelligent data across sectors with a collaborative industry approach, is critical to combating this crime. In particular, tackling fraud requires a vigilant claim screening process and a frontline team who are trained to detect suspicious claims. Fraud detection also requires specialist investigator skills and improved communications and cooperation between insurance providers and the police.
Following a 50 per cent increase in fraudulent claims, in 2005 Lifestyle Services Group created a Fraud Investigation team to counteract the number of false claims and act as a deterrent to potential offenders. The group is currently the only administrator of mobile phone insurance that proactively investigates and actively pursues criminal prosecution for false claims. During the last five years, the zero-tolerance award-winning team has saved the industry millions of pounds. Notably, every evidence package the team has presented to the police has led to a conviction.
As Head of Risk and Security at Lifestyle Services Group, Tony Hurl-Hodges is also head of the Fraud Investigation team. He says that an effective fraud prevention operation, which offers the best balance between detection and customer service, has four fundamental requirements:
1. Experienced and highly trained fraud investigators
Tony explains: “Lifestyle Services Group’s fraud investigators are trained in the latest intelligence methods and have worked in the police’s Serious Crime Unit, which ensures they are very experienced, have excellent links and know how to create outstanding evidence packs. Similarly, we train our intelligence analysts in Data Protection and the National Intelligence Model, which sets the standards for recording, evaluating and the dissemination of intelligence information.
“Our senior fraud investigators are also part of a team that trains our frontline and call centre staff, as well as other companies through the Telecoms UK Fraud Forum (TUFF). The team that process claims at Lifestyle Services Group are extensively aware of both organised criminals and casual opportunists, and trained to recognise such cases using Conversation Management and Cognitive Interviewing techniques. Our frontline team always use open questions and never lead a customer. They will also evaluate the claimant’s tone of voice, use of language and the consistency of their story. Should they be suspicious, they pass the claim onto the Fraud Investigation team immediately.
2. Reciprocal long-term relationships
“Reciprocal long-term relationships with key stakeholders such as the police, networks and telecom providers are essential because they help improve the efficiency and effectiveness of fraud investigations. By sharing critical information, there’s no hiding for the fraudster.
3. Sophisticated detection systems
“Sophisticated IT-based automatic trigger processes are also invaluable in aiding the preliminary stages of fraud detection without any compromise to customer service. For example, when a customer calls to make a claim, they will be unaware that we process the claim according to a scorecard that contains 12 rules. Should the claim prove positive to one of the 12 rules, the IT system will automatically send a trigger to the Fraud Investigation team.
“The automatic trigger process is a great tool because it treats every customer fairly and as innocent. The fact that we do not adopt a guilty until proven innocent approach is crucial because the reality is that most consumers are innocent.
“In addition to flagging suspicious claims, the rules help determine whether the claimant is an organised criminal or a casual opportunist. Because the activities of an organised criminal will be more complex, we can then configure the fraud investigation accordingly.
“From July 2011, these rules will also used for post-claim investigations, so if a customer reports their phone stolen and receives a replacement handset, but we later detect the phone is still in use, then an automatic trigger will be sent to our Fraud Investigation team to begin a post-claim investigation.
4. Databases and software
“Finally, commercially available databases and software solutions are necessary to provide intelligence at every stage of the fraud investigation. By working with the police and the wider industry, Lifestyle Services Group gains and shares comprehensive data to create compelling evidence packs. Crucially, this unique and proactive four-pronged approach to fraud investigation is subtle but extremely effective.”
Aside from reducing the cost of fraudulent claims for insurance providers, staying one-step ahead of the fraudster carries an important element of corporate social responsibility, since keeping fraud to a minimum will ultimately help protect honest consumers from rising premiums. As a direct result of the Fraud Investigation team, Lifestyle Services Group for example has been able to reduce the increase in premiums due to fraudulent claims.
By working with the police, Lifestyle Services Group has also found that many of its fraudsters are involved in other crimes. Collaborating with the authorities therefore to trace and reduce criminal activity will bring wider benefits for society.
The message from Tony Hurl-Hodges is clear: “Organised criminals will target areas of weakness so a great fraud intelligence network and sophisticated covert fraud detection systems are essential for combating fraud and ensuring the minor few who make false claims are brought to justice.
“Organised criminals will always be prepared to take a risk, but for the causal opportunist who simply fancies the latest handset, raising the awareness of the severity of the crime and the fact that making a claim will not get an upgrade may be enough to deter. Crucially, a zero-tolerance approach to fraud benefits both insurance providers and honest insurance consumers.”
[1] CIFAS. 2011. Fraudscape: Depicting the UK’s Fraud Landscape.
[2] IFB. 2011. BBC Watchdog – Statement from Insurance Fraud Bureau.
[3] ABI. 2009. General Insurance Claims Fraud.
[4] ABI. 2009. General Insurance Claims Fraud.