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How misselling feeds fraud

Desperate times breed desperate measures, as we all know, and nowhere is this more evident than in the connection between recession and crime.

Let’s face it, unemployment means low incomes and poverty for many. The Government has officially dismissed any connection between being out of work and crime, probably because it fears being blamed for any increase in lawlessness but, as jobless totals grow, statistics tend to show this is indeed the case.

A survey by senior probation officers a few years ago found 70 per cent of serious offences are committed by those out of work. Even research by the Home Office itself found a link between teenage offenders and unemployment.

Last year, a report by Allianz Insurance found around 75 per cent of people feel they are more likely to fall victim to property crime, such as burglary, car theft or vandalism, as a result of the credit crunch and rising unemployment. The figures also reveal that one in four feel unsecure in their homes at night.

Given the current climate, with anything up to three million people predicted to be out of work by Christmas, perhaps we should not be too surprised at the fact that, according to the Association of British Insurers last week, its members are detecting record levels of fraudulent insurance claims.

The ABI says anything up to 2,000 would-be fraudsters are being caught every week, with the attempted amount of fraudulent claims hitting £14m every seven days. During the course of 2008, ABI members “exposed” 107,000 fraudulent insurance claims, a rise of 17 per cent on 2007. The actual value of these claims, at £730m, rose by 30 per cent on the previous year.

Dishonest claims on home insurance were the most common, with 55,000 false or exaggerated claims detected. By value, fraudulent motor insurance claims were the highest, with £360m prevented last year.

Delving through individual cases of attempted fraud is instructive, in that it appears to suggest a lack of sophistication among those involved. For example, the ABI highlights a policyholder who claimed his car had been stolen after a mugging. Investigations revealed he had actually sold the car to a friend.

In another case, a car was reported stolen and recovered burnt out. It then transpired that the vehicle had been set alight before the policyholder reported it stolen. Or what about the woman who claimed for a lost engagement ring and was told that her policy did not cover her outside of the home? She extended the cover and claimed for the loss of the same ring the next day.

It is impossible to know what this alleged increase in the number of prevented frauds actually means. It could simply reflect better detection – and some people I spoke to about it last week suggested this was indeed the case.

Either way, whenever cases of fraud or attempted fraud of this nature crop up, financial institutions are quick to tell us how wrong it is, that it costs all policyholders a lot of money and those who get caught ought to have the book thrown at them.

But there is a more important aspect to this kind of research that gets ignored. What insurers – and other financial institutions – never seem to be able to tell us is how many tens of thousands of genuine cases are rejected every year by insurers who are, in effect, defrauding policyholders out of tens if not hundreds of millions of pounds.

We all know about claims made to the Financial Ombudsman Service which are so blatant that you wonder how on earth a financial provider could have rejected it in the first place. What we rarely hear about, precisely because they drop into a black hole where complainants give up in the face of provider intransigence, is how many cases will never be considered by the FOS every year.

Providers also seem incapable of understanding the extent that their own misselling contributes to the attitude of some sections of the population where it is deemed perfectly acceptable to try to defraud an insurer or a provider.

Last week, Money Marketing published the incredible story of Park House Financial Services partner Richard Davis who says six of his clients across the UK, all Barclays’ customers, were advised to cash in or liquidate their savings and transfer them into the Aviva balanced global income fund. In each of these cases, this investment was not part of a balanced portfolio but a single unit trust investment.

Where a written reason has so far been given for such astonishing advice by a Barclays’ salesman, the excuse provided beggars belief – because the person in question had £8,500 worth of shares in windfall shares, he was deemed to be an experienced investor. The fact that the fund pays trail commission of 1.05 per cent had nothing to do with it, of course.

In a poll for the ABI, despite the likelihood of being caught, facing trouble in obtaining financial products in the future and getting a criminal record, one in five people would still be tempted to cheat on their insurance. After reading that story, I find myself wondering why the percentage is so small.

Nic Cicutti can be contacted at nic@inspiredmoney.co.uk

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