Information Exchange

CONFRONTING HOME INSURANCE FRAUD THROUGH CLAIMS DATA

The temptation and opportunity for consumers to commit application and claims fraud in the residential property insurance market continues to be front of mind for insurance providers. The COVID-19 lockdowns have resulted in significant reductions in some forms of crime, including burglary – in fact, ABI data suggests home insurance claims for theft fell 44% in 2020 compared to 2019, and the value of burglary claims reduced by 30%.

However, during periods of economic hardship individuals under financial stress may be tempted to exploit opportunities to commit fraud – whether that’s not declaring a past claim in order to secure a cheaper quote or exaggerating an accidental damage or weather-related claim. With claims losses related to climate change a key concern for the market, it is vital insurance providers know as far as possible, the risks they are taking on.

To better understand fraud risk, at quote and claim, home insurance providers need to understand more about prior claims made by the individual before incepting a policy or paying out a claim. They need to understand when a past claim or claims occurred, what exactly the claim was for, the circumstances that gave rise to that claim and how it was settled. While insurance providers will hold this level of data for their own customers, when it comes to new risks, they are missing information, which creates gaps in their understanding of the market’s claims experience with that individual. Fundamentally, they have no way of putting a new claim in context with what may have happened in the past.

Access to claims data at a highly granular level from across the market could give them this context – showing a new claim as a ‘one-off’ or the latest in a series, as well as providing valuable insight for pricing.

The threat this current lack of full market coverage claims insight poses is evident in our consumer research . We found that home insurance providers have a good record of retaining customers who have previously filed claims, with about seven out of ten choosing to renew with their provider following a claim. This is despite the fact that a majority of customers see their premiums increase after a claim based on our study .

However, the temptation to manipulate information at quote and claim is strong for a significant proportion of those surveyed:

• Two in three consumers think it is acceptable to manipulate the information they provide when using price-comparison websites in order to get a lower quote for home insurance.

• About half of consumers who have recently filed a claim are more likely to consider adjusting or exaggerating a future claim in order to get a larger pay out.

• Nearly 9 in 10 consumers who had filed claims recently thought home insurance providers seek to avoid paying out on claims at least some of the time.

• Consumers who have recently filed claims then seen the premiums increased are more likely to say it is acceptable to manipulate information

Our research certainly suggests that more consumers are tempted to commit home insurance fraud than those who would not. This may stem from a commonly held but mistaken belief that insurance providers actively try to avoid paying out claims at least some of the time. The fact that consumers who have filed a claim recently are more likely to consider exaggerating a future claim suggests they may have been dissatisfied with the settlement they received and/or disappointed with a subsequent increase in their premium.

Clearly the claims experience plays a major role in whether a customer decides to stay or go at renewal. Most consumers who file claims decide to stay with their current insurance providers. However, a poor claims experience was the reason for switching for more than half of recent claimfilers and those who see their premiums increase are almost twice as likely to switch as those whose premiums do not rise .

The market-wide use of a contributory database for home insurance claims could help insurance providers improve pricing, underwriting and claims processing, as well as reduce fraud risks.

Transparency with customers over the use of past claims data to help price and manage claims, along with increased awareness of the consequences of fraud, could reduce the temptation to be less honest with the truth. It may also help reduce the dependence on customer supplied declarations. Ultimately, with more information at their fingertips, insurance providers will have an opportunity to provide cover more tailored to the risk.

Bringing past claims data into the claims management process could drive how a new claim is handled. Insurance providers can quickly identify potential flags for fraud and claims not declared at quote that may warrant further investigation. Also armed with this knowledge, there is an opportunity to deliver a more tailored claims service to genuine customers based on their past experiences - the trauma of being burgled three times in the past five years or a kitchen ruined through an escape of water claim for example.

A market-wide contributory claims database for the home insurance market could clearly play a very useful role in helping the market face the threats of fraud with new vigour while supporting a more empathetic claims service that could reap rewards in customer retention rates.

by Neil Slane, Snr Vertical Market Manager, Claims Insurance, at LexisNexis Risk Solutions, UK & Ireland

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