Lorega in the News
Publication: Insurance Times
Author: John Sims
Job Title: Chief Executive Officer
Date: 01/12/08
Credit crunch offers the opportunity to build bridges
There is no doubt the controversial bail-outs and unprecedented borrowings that have punctuated the latter half of 2008 will continue to attract criticism and controversy for decades. But, whatever your view on the drastic measures taken by the powers that be, this brings home just how deep the fissures are and the lack of an easily prescribed remedy.
Naturally much debate is being had at all levels about how this will affect our industry. The fervent hope is that underwriters will increase prices to help insurers weather the storm and certainly there are welcome signs already that rates are tentatively beginning to harden in some classes. However none of this addresses the most significant impact, namely the increase in fraud.
According to the Arson Prevention Bureau’ fraudulent fires already cost a staggering £50m a week. Groupama also recently reported £1m of arson claims in July 2008 compared to zero in the same month in 2007. Axa has revealed an 80% rise in the detection of fraudulent claims while Airmic has further warned that “the credit crunch is a breeding ground for fraud”. These figures only show the fraudulent cases that have been detected – the real numbers are anyone’s guess.
Unfortunately the industry is ill prepared for an onslaught by fraudsters. Some classes, such as high net worth, have long since dispensed with warranties and proposal forms to make the process more convenient for the customer. At the same time as the industry dropped these vetting processes, fraud has grown worse over the years which has led to greater insurer collaboration to combat it. However now, because the credit crunch has occurred so quickly, insurers are being caught out and it would not be alarmist or even overstated to say that a fraud epidemic is looming.
Certainly the credit crunch has already forced governments and other sectors into a radical rethink. And if ever there was a time the insurance sector should also seriously reconsider its model – a model prone to hemorrhaging money due to fraud – it is now.
The heart of the problem is not just that there are insufficient resources and safety nets to catch out fraudsters; it’s the public’s utter distrust of the insurance sector that they believe will try to wriggle out of its promise to pay at every opportunity. This in turn engenders the contempt that allows people to feel it is OK to commit fraud at varying levels of seriousness.
One way of addressing this is seen across much of continental Europe where claimants are given an appointed advisor to assist them in preparing their claim. As a result public perception there is greatly improved and levels of fraud far lower than the UK.
Whatever the answer is there ought to at least be debate in the UK as a matter of urgency about tackling the rising tide of fraud by addressing the standoff between the public and our industry. Like community policing or military peace keeping the industry should look at client advocacy and support to bridge the gap between those that are otherwise polarised by an adversarial system. While it is true that hardening rates will plug the hole and stop the ship sinking, how much of that will leak straight back out again through fraud? Surely now is the time to explore ways to address the problems at a more fundamental level and on a more permanent basis.
So while the credit crunch can make for some grim reading I believe it actually presents an opportunity for insurers, and the industry as a whole, to address the longstanding issues around the public perception of our industry and the pressing issue of fraud.
