The trend for fraudulent employers liability insurance claims

Insurance fraud has been around as long as insurance itself, with the first recorded case - the Phantom Ship claim – taking place in 1862.¹ A serious crime that can lead to criminal conviction, insurance fraud is essentially the act of making claims for invented or inflated losses and can ultimately lead to higher premiums for honest insurance customers.²

A persistent issue for the insurance industry and law enforcement, insurance fraud tends to spike at times of economic turbulence – for instance rising by around 17% in one year during the 2008 financial crisis.³

It does not come as a huge surprise, therefore, to learn that the economic turmoil created by the COVID-19 pandemic has once again seen insurance fraud on the rise. In fact, some estimates suggest that general insurance fraud grew by 10% during 2020,⁴ an upward trend that many believe will continue in 2021.³

However, early indications suggest that insurance fraud is spreading beyond home and motor insurance claims, to increasingly target business and liability insurance.⁴

Employers liability fraud on the rise

Early indications suggest that fraudulent employers liability insurance claims grew by 5% in 2020, compared with 2019, with issues related to COVID-19 often cited as underlying causes.⁴

Indeed, one in four of those fraudulent claims related to slips and trips at work, caused by hand sanitiser on the floor, while others have attempted to capitalise on safety measures that businesses have put in place to prevent the spread of COVID-19.⁵

The bad news for the vast majority of employers is that a continuing rise in fraudulent claims may eventually force employers liability prices higher² at a time when premiums were already rising, albeit it slowly when compared to other business insurances.⁶

What is causing the rise in fraudulent claims?

As pointed out earlier, it is well known that insurance fraud cases tend to multiply in times of economic hardship, but in 2021 there are other forces at play too.

COVID-19 has provided fraudsters with new opportunity, but in a further development, there are signs that ‘claims farming’ organisations are turning their attention to business insurances and COVID-19, as well as their traditional motor claims heartland.⁷

A claims farmer is essentially a middleman who encourages people to make compensation claims – often via cold calling - and who then sells these claims on to a lawyer.⁸ Sadly, however, the practice has long been linked with fabricated and exaggerated claims⁹ – both of which constitute insurance fraud.

In fact, research carried out at the onset of the pandemic, in March 2020, demonstrated just how quickly these organisations reacted in an attempt to gain from the COVID-19 crisis. It found that, between February and March 2020, 45 newly incorporated businesses had the words ‘corona’ or ‘COVID’ as part of their names – some of which appeared to be claims farmers.⁷ In addition, it found firms advertising in respect of employers liability claims, targeting those who may have contracted COVID-19 due to a lack of personal protective equipment (PPE).⁷

Finally, there is some concern that the rise of home working during the pandemic will lead to further employers liability insurance fraud. For instance alleging illness or injury arising from an employer’s failure to carry out home working risk assessments or provide appropriate equipment.⁷

Keeping the insurance fraudsters at bay

The sheer scale of insurance fraud is bad news for all honest insurance policy holders, and the most recently available figures give us an idea of the true cost of insurance fraud – by outlining the scale and impact of just the fraud attempts that were detected by insurers. In 2019, insurers uncovered 107,000 fraudulent insurance claims worth £1.2 billion – that’s a new scam detected every five minutes at a potential cost of £3.3m every day.¹⁰

Given that insurance fraud can exert upward pressure on insurance premiums, it is in everyone’s interests to stop the fraudsters in their tracks – insurance companies, brokers and customers – and, for its part, the industry has long worked in close collaboration with law enforcement to identify, prevent and prosecute insurance fraud.

Meanwhile, the Insurance Fraud Bureau – a not-for-profit organisation working with insurers and the police to detect and prevent fraud – has set up a hotline number allowing businesses and the public to report suspected fraud, and provides guidance on how to avoid falling victim to insurance scammers.

Help is at hand

You can find out more about employers liability insurance solutions here.

 

^Source:

<sup>1. https://kennedyslaw.com/thought-leadership/blogs/a-short-history-of-insurance-fraud/
2. https://www.abi.org.uk/products-and-issues/topics-and-issues/fraud/
3. https://www.insurancebusinessmag.com/uk/news/breaking-news/a-perfect-storm-for-fraudulent-claims-227487.aspx
4. https://www.belfasttelegraph.co.uk/business/uk-world/proportion-of-bogus-insurance-claims-jumped-by-10-in-2020-says-aviva-40494817.html
5. https://www.independent.co.uk/business/proportion-of-bogus-insurance-claims-jumped-by-10-in-2020-says-aviva-b1858099.html
6. https://www.marshcommercial.co.uk/articles/how-cost-conscious-uk-smes-are-finding-best-value-insurance-protection/
7. https://kennedyslaw.com/thought-leadership/blogs/fraud-blog-fundamentally-honest/covid-19-claims-farming-risk-level-high/
8. https://www.collinsdictionary.com/dictionary/english/claims-farmer
9. https://kennedyslaw.com/thought-leadership/blogs/fraud-blog-fundamentally-honest/claims-farming-part-1/
10. https://www.abi.org.uk/news/news-articles/2020/09/detected-insurance-fraud/</sup>