In addition, few organisations actually measure the impact of fraud on their business. This means that any figure relating to the cost of fraud is an educated guess at best and meaningless at worst.
Whatever the figure, you can pretty much guarantee that it’s the thin end of the wedge. Part of the problem is that unless companies have a reliable idea about how much fraud is costing them, any initiatives to tackle fraud will be seen as chipping away at the bottom line.
The good news is that companies are taking the issue more seriously than they used to, and there are certainly better tools on the market to help insurers monitor fraud and track it down. However, progress remains slow. A fundamental problem is that companies simply don’t like washing their dirty linen in public. Until we have cracked the disclosure nut, progress in tackling fraud at an industry level will be sluggish.
It has been interesting to see how the motor industry has embraced the formation of the Insurance Fraud Bureau in tackling the impact of organised crime on motor insurance. Sharing data and using analytics to highlight links has not only proved beneficial, but also resulted in some high-profile successes. But will other classes of insurance follow suit?
At an individual company level, fraud management needs to be considered a profit centre rather than a cost centre. If people think fraud is endemic to insurance and thus reducing it is endemic to profit, then we’ll start seeing a real investment in anti-fraud measures. So far, that change hasn’t happened. There has been a slow evolution. The industry has gone from not caring to caring, but that has yet to result in any meaningful investment in tackling the problem head-on.
There is always a trade-off between fraud prevention/ detection and negatively impacting the ‘customer experience’ but if, for the sake of argument, the ABI’s figure of £2 billion is correct, based on a 10:1 return on investment figure, we should expect companies to be spending somewhere in the region of £200+ million on managing fraud. However, I’m sure companies aren’t spending nearly as much.