BASEL, Switzerland, May 21 – Insurers and regulators understand the importance of tackling insurance fraud, but need to increase cooperation in order to see better results, according to a report that detailed the results of an International Association of Insurance Supervisors (IAIS) survey.

According to IAIS, the survey was designed to compliment and enhance a guidance paper written last year by the IAIS Insurance Fraud Subcommittee (IFS). IFS wrote the guidance paper to assist the supervisors in evaluating fraud risk management in insurance, and to assist insurers and intermediaries in the prevention, detection, and remediation of the potential risk of fraud. To improve the draft guidance paper, IAIS said, a survey questionnaire was developed and sent to IAIS members and observers, and to the members of the International Association of Insurance Fraud Agencies.

The IAIS reported that it received 106 responses to the survey questionnaire. Of the respondents, 52 were insurers, seven were trade associations, 42 were supervisors, and five were classified as other organizations. The respondents came from close to 50 countries or regions of the world, according to IAIS.

The guidance paper and survey defined fraud in insurance as an act or omission intended to gain dishonest advantage for the fraudster or for the purposes of other parties, and fraud was separated into three categories: internal fraud, policyholder and claims fraud, and intermediary fraud.

The survey showed that both insurers and supervisors have made efforts to combat fraud for a variety of reasons, including the direct costs of fraud, supervisory requirements, and reputation risk.

Various strategies are employed by those combating fraud, including creating awareness, implementing anti-fraud measures, and checking for red flags, particularly if that process can be automated.

The report adds, In addition, for each fraud category some specific anti-fraud measures are important. Physical and procedural safeguards and elimination of potential conflicts of interest are important to prevent internal fraud.

For policyholder and claims fraud, product development, client acceptance, and claim assessment are all important stages that should be addressed by anti-fraud measures. Information technology seems to play a growing role.

For countering intermediary fraud it is crucial that insurers have clear procedures and that they know their intermediary. Communication, training, screening, and auditing are crucial elements.

Fraud-Fighting Hurdles Analyzed

Respondents also described obstacles that remain in the fight against fraud. Those commonly cited include:

Inadequate risk management (listed by 34 percent of respondents). The report notes, This category deals with different aspects of the risk management system: priority at board level, culture, an effective anti-fraud policy, fraud awareness, knowledge and training, and internal control and internal audit;

Ineffective regulation (provability and privacy laws), and law enforcement (priority and capacity) (22 percent);

Lack of information sharing and cooperation between insurers, and between insurers and law enforcement (15 percent).

Public attitude was also cited, with respondents believing that the public still largely views insurance fraud as a victimless crime.

The report explains that the insurance industry can influence and tackle some of the mentioned problems: inadequate fraud risk management, commercial interests, and a lack of information sharing and cooperation. In many cases, individual insurers cannot do the job alone, but together they can make improvements. Also, the public attitude can be influenced when insurers cooperate. When the insurers join forces, they also have a higher chance to influence regulation and the effectiveness and priorities of law enforcement. The supervisors can play a supportive role in these areas.

The IAIS was established in 1994, and represents insurance regulators and supervisors of about 180 jurisdictions from more than 130 countries. For more information on the IAIS, visit www.iaisweb.org.