Insurance Need to improve fraud detection standards

By DALJIT DHESI
daljit@thestar.com.my

Insurers must adopt international best practices and share data, information

KUALA LUMPUR: Insurance fraud will continue to be a threat unless fraud-detection standards are improved and the public are made more aware of this menace.

Deputy Home Minister Datuk Lee Chee Leong said insurers must continue to improve their standards in fraud detection by adopting international best practices and share data and information relating to fraud activities among insurers.

“The regulators and law enforcers have to continuously assess the effectiveness of the law as to whether they are adequate and can at least discourage people from committing insurance fraud.

“Strong cooperation has to be extended to other jurisdictions, too, especially Asean, as organised crime operates in multiple countries and locations. With concerted effort by all parties, I am confident that this activity can be successfully minimised,” he said in his speech at the International Insurance Fraud Conference 2010 yesterday.

Datuk Lee Chee Leong ... 

‘Insurance fraud pushes up the cost of everything one buys.’

 

Lee urged all agencies, from the private and government sectors, including the public, to play their roles effectively in combating insurance fraud.

He said the relevant associations and the Malaysian Insurance Institute (MII) could take the lead by educating society on the consequences of promoting insurance fraud and how they could help to combat it.

Lee said some authorities estimated the cost of insurance fraud ran as high as 10% of the total claims cost. An estimate done in the Unites States by the Coalition Against Insurance Fraud showed that the cost of insurance fraud was about US$80bil a year and this trend would keep escalating.

Insurance fraud, he said, pushed up the cost of everything one bought and used as every company that produced goods or services paid for insurance as a cost of doing business.

Phillip K.F. Fong, who is Crawford Group director for global markets-Asia Pacific and managing director for Malaysia, said based on global figures, it was estimated that about 3% to 5% of total gross premiums worldwide had an element of fraud.

He said during difficult times, as in the case of an economic downturn, the tendency for insurance fraud would be on the rise, for example, in property, household and motor-related claims.

Fong said insurers needed to upgrade their skills and improve their fraud-detection capabilities.

Phillip K.F. Fong ... ‘The insurance industry needs to be vigilant at all times.’

 

“Loss adjusters like us are the eyes and ears for insurers. If we detect glaring cases, we will notify them immediately. We also need forensic scientists and those with strong expertise to handle fraud cases as fraudsters are becoming more innovative. The insurance industry needs to be vigilant at all times,” he told StarBiz.

Fong categorised fraudsters into three different types – opportunistic, repeat and organised ones. He said to have an effective fraud strategy, three golden rules should be upheld – detection (identification of high risk/suspicious claims), investigation (management and customer-focused investigation of claims once labelled “high risk”) and articulation (production of accurate management information).

Apart from making people more conscious of fradulent claims, insurers must not be publicity-shy as those who fear adverse publicity are invariably the subject of a greater proportion of dishonest claims. MII CEO Khadijah Abdullah said a more structured way of capturing information on insurance fraud was needed via cooperation from Bank Negara, insurers and other relevant parties.

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Insurance fraud in M'sia estimated at RM1.74bil last year

KUALA LUMPUR: Insurance fraud, estimated at RM1.74 billion in Malaysia last year, is clearly a "big business" and more alarming is, the public apathy surrounding it.

"This apathy at times, unfortunately, even finds its way into our criminal justice system," Deputy Minister of Home Affairs, Datuk Lee Chee Leong said on Monday.

Research on the public perception of insurance fraud concluded that on average, 30 per cent of the public respondents believed, it is acceptable to pad an insurance claim, he added.

"(Hence), there seems to be a great willingness among normally law abiding people to tolerate low levels of insurance fraud.

"However, the burden of combating such crime should not merely rest with the public sector alone, but also the private sector, particularly, the insurers themselves," Lee said in his opening remarks at the International Insurance Fraud Conference 2010, here, on Monday.

He also said that the Association of Malaysian Loss Adjusters (AMLA) and the Malaysian Insurance Institute (MII) should perhaps take the lead to educate society on the consequences of promoting insurance fraud and how they can help combat the issue.

According to the National Insurance Crime Bureau of the Unites States, fraud inflates the cost of each consumer's insurance premiums by US$200 to US$300 annually.

"Insurance fraud pushes up the cost of everything you buy and use because every company that produces goods or services, pays for insurance as a cost of doing business.

"Going forward, the insurers must also continue to improve their standards of fraud detection by adopting the international best practices and share data and information relating to fraud activities among themselves," Lee said.

Meanwhile, the MII's Chief Executive Officer, Khadijah Abdullah suggested that there should be a unified statutory body to oversee fraud in the industry and compile appropriate data.
"Currently, associations and Bank Negara Malaysia, have their own supervision over the issue but there is no single body that can help compile the information," she said. - BERNAMA