At a time when insurers are under greater pressure than ever to deliver value for money for their shareholders, a report published today by PKF Accountants and business advisers and University of Portsmouth reveals that the UK insurance industry could save billions of pounds each year by taking steps to better protect itself against fraud.
Using a 50 point scale, ‘The Resilience to Fraud of the UK Insurance Sector’ survey finds that the insurance industry outperforms much of the corporate world in terms of fraud resilience, achieving an average score of 36.9 points compared with 30.6 points for the private sector as a whole. Whilst this is an encouraging result, the authors argue that there is still scope for improvement.
Combining the report’s conclusions with the results of a separate study by the same authors, PKF and University of Portsmouth estimate that fraud could cost the UK insurance sector up to £10 billion each year.
In response to these findings, PKF, University of Portsmouth and the Insurance Fraud Investigators Group (IFIG) have today launched a free on-line Fraud Resilience Self-Assessment Tool specifically for the sector. The tool can be accessed at www.pkfapps.co.uk/insurancefraud. It enables insurers to judge how well protected their own individual companies are against fraud and provides an indicative level of annual fraud losses. Underpinning the tool is the largest fraud resilience database in the world with data concerning 29 aspects of fraud resilience covering almost 700 organisations.
Jim Gee – Director of Counter Fraud Services at PKF (UK) LLP, Chair of the Centre of Counter Fraud Studies at University of Portsmouth and co-author of the report – said: “Fraud is a serious issue for the insurance industry and one that has far reaching consequences for the health and financial stability of the sector, as well as the size of premiums being paid by customers.
“The results of the survey are encouraging but it would be unwise for bosses to rest on their laurels. At a time when stakeholders are demanding greater value for money, reducing fraud losses is one of the least painful methods for insurers to minimise business expenditure because fraud costs – unlike expenses relating to staffing, property and utilities – are unnecessary and unproductive. Staying a few steps ahead of the fraudsters can have a dramatic affect on a company’s bottom line.
“Separate research undertaken by PKF and University of Portsmouth indicates that average losses to fraud (and error) currently run at 5.7% of an organisation’s expenditure. If this figure is applied to the sector’s 2010 net worldwide premium income of £198.7 billion, it suggests that insurers could be losing as much as £10 billion each year to fraudsters. The good news is that these losses can be reduced. Research shows that fraud can be cut by up to 40% within 12 months.”
David Phillips, Chairman of IFIG, said: “We are always keen to stress to insurers and counter fraud practitioners that you are not alone in your fight against insurance fraud. This report recognises that insurers believe they have good practises and counter fraud strategies. We also note that, as an industry, there is more we can do to provide training to those working in counter fraud and to improve our confidence and capability at combating fraud. This report confirms the need for IFIG and our members to continue the commitment to raising the profile of insurance fraud and providing a forum where counter fraud practitioners can share their experiences and best practise. We would welcome the opportunity to work with the industry to provide counter fraud and specialist professional training and accreditation.”
‘The Resilience to Fraud of the UK Insurance Sector’ is published by PKF (UK) LLP and University of Portsmouth and written by Jim Gee, Dr Mark Button and Graham Brooks.
