Long Term Problem
18 months ago, as the world was beginning to full feel the effects of the recession, there were warnings from the ABI (Association of British Insurers) that the recession was likely to lead to an increase in the volume of fraudulent claims. Figures released for 2009 have suggested that this prediction was realised.
In 2009 there were no fewer than 122,000 fraudulent claims (or more accurately, fraudulent claims that were detected). The value of these claims was estimated at around £850m for the year, a 14% rise from the previous year’s figures.
The suspicion is that people have been choosing to submit false information on things like car insurance and home insurance applications in order to retain the cover, but not have to pay so much in premiums in a bid to save pennies. This is, of course, a false economy, and only effectively saves money if you don’t need to claim (in which case one may as well have not paid for insurance at all).
The ABI was keen to point out that the rise in figures may not solely be down to an increased effort to fill out policies fraudulently, but rather than the insurance industry has tightened up its practices and accordingly, detected more instances of fraud.
The greatest value of frauds was committed in relation to motor insurance fraud, accounting for nearly half of all the fraudulent claims. A large proportion of this is estimated to be due to ‘fronting’ a practice where parents name themselves as the principal driver on their children’s insurance to try and save pennies.
The largest volume of cases, however, came through home insurance, where people commonly undervalue the contents of their home in order to get cheaper premiums, or over-estimate the value of their possessions after an event like a fire.
The irony of insurance fraud is that more often than not people fill out inaccurate information on their applications in order to get a cheaper policy, however, the cost of insurance fraud is always born by the whole industry in the form of higher premiums for customers. So their own fraud is actually contributing to the high prices that they’re being quoted.
Of course, a better way to get a low quote on an insurance deal is to shop around and make sure you do your research before getting a policy. Companies like Legal & General are offering excellent value home insurance rates at the moment, so instead of casually underestimating the value of your home, for example, it might be a good idea to spend a bit of time hunting for a good value policy.
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