Arab Reinsurance Company: a new dimension
Home   |   Sitemap   |   Contact us
Follow us on
Natural Disasters Cost Global Economy $32B in Q1, With Only $14B Insured: Aon - SCOR Warns of Ukraine Conflict Impact on Q1 2022 Results - AM Best turns negative on French life and non-life sectors - Lockton launches Insights & Innovation Lab - Howden Acquires 2 Italian Brokers Nord Est Insurance Broker and ASI - UK Brokerage Group Jensten Simplifies Corporate Structure, Brands - AUB Group confirms Tysers discussions ongoing - New capital requirements in Japan are credit positive: Moody’s - AM Best assigns positive credit ratings to Fortitude Re - P&C reinsurers see profit & premium improvement: RAA - MAPFRE outlines new strategy, targets 6% premium growth - Insured losses from Australia floods now above $2bn, says ICA - India’s State-Run Insurer LIC Set to Launch Record $8 Billion IPO on March 11: Sources - QBE returns to profitability in 2021, helped by premium growth - Mosaic activates more capacity to meet transactional liability risks - Bahrain: Insurance market expected to grow at faster pace in 2021-2026 compared to 2015-2020 - Tokio Marine triples international profits through Q3 - Marsh McLennan appoints new director - Sompo International Opens German Headquarters in Cologne - Qatar: Several favourable factors fuel insurance market growth - AXA Completes Sale of Singapore Business to HSBC - UK Insurer Beazley Sees Opportunity (and Risk) in Cyber Market - GCC: Insurance industry predicted to grow at CAGR of 3.2% in next 5 years - GAIF: Insurance players discuss 3 major challenges at Rendez-Vous de Carthage - Aon’s Reinsurance Solutions contributes to robust revenue growth in 2021 - Beazley’s Digital Division Launches, Aiming to Transform Brokers’ Access - LMA Announces ‘At-the-Box’ or ‘In-the-Office’ Availability for Lloyd’s Underwriters - Natural Disasters Cost Insurers $116B in 2021, or 63% Higher Than Average: Gallagher Re - QBE Launches Sustainable Energies Unit to Support Clients’ Transition to Lower Carbon - Insurtech MIC Global Receives ‘In-Principle’ Approval to Launch Lloyd’s Syndicate - FERMA Launches Risk Management Tool for Remote Working - Allianz and UniCredit Expand Longstanding Multi-Country Bancassurance Agreement - UK Insurer First Central Weighs Sale That Could Value Business at £600M: Sources - UK Business Closures Jump 14% as Pandemic Takes Brutal Toll on Small Firms - Everest Re Group Signs UN Principles for Sustainable Insurance - Climate Risk Is Top London Market Challenge, IUA Survey Shows - In Both Hard and Soft Markets, Zurich Aims to Maintain Focus on Underwriting Discipline - UK Insurtech Zego Expands in Europe, Targeting £20B Fleet Insurance Market - Cyber MGA Resilience Becomes Lloyd’s Coverholder - Lloyd’s Weighs Future of Headquarters as Market Embraces Flexible Working - Reinsurers’ 2022 Profit Outlook Better Than Primary Insurers: Fitch - ‘Cybersecurity Failure’ Named a Critical Global Threat in WEF Survey Report - UK Cyber Insurtech KYND Receives £3.25 Million Investment from BGF - Canada’s Insured Catastrophe Losses Exceed C$2 Billion in 2021: CatIQ - Global M&A to Remain Strong in 2022 as Valuations Reach Record Highs: WTW - Fortitude Re Forms Bermuda Multi-Line Reinsurer, Buys U.S. Life Insurer - Canada’s Insurers and Banks Rethink Return-to-Office Plans Amid Omicron Concerns - Allianz completes $35bn reinsurance agreement with Resolution Life - January Renewals ‘Orderly’ but Loss-Affected Programs Saw More Challenges: Carpenter - Tokio Marine Appoints Hirai as CEO for Asia Region - Zurich Insurance to Sell Italian Life and Pensions Back Book to Portugal’s GamaLife - China Approves HSBC Acquisition of 100% of Insurer Joint Venture - Reinsurance leaders see real-time data tools as ‘game-changer’ - Aspen implements e-placing platform Whitespace - Marsh Increases Shareholding in Marsh India from 49% to 92% - Global Shipping Industry Faces Growing Pressure to Cut Greenhouse Gas Emissions - AM Best Upgrades Ratings of Canada’s Co-operators General and Sovereign General - Exor, Again, Agrees to Sell PartnerRe to France’s Covéa for $9 Billion (€7.8 Billion) - Swiss Re Reorganizes Group Operations, Names Ladva Group CTO, as Bronder Exits - Life insurers to see return pressure, manageable losses in 2022: Fitch - Rising Reinsurance Prices and Demand Help to Create Stable Sector Outlook: AM Best - Global: Primary insurers' quest for capital efficiency boosts reinsurance growth - Marsh McLennan Agency acquires InSource - Libya: Insurance regulator vets applications for reinsurance licence - Willis Towers Watson Acquires Sydney-Based Aviation Broker Aerosure - Arthur J. Gallagher Completes Minority Investment in MENA Specialist Broker ACE - UK Broker Aston Lark Acquires Client Book of Choice Benefits - Bahrain: Medical and life insurance business drive growth in insurance market in 1H2021 - Rise in Insurance Demand Likely to Break Premium Records in 2022: Swiss Re - Convex Europe Receives UK Regulatory Approval - Willis Towers Watson Launches Industry Risk Forum for Ports and Terminals - Algeria: Takaful agencies set to open by yearend - Insurtech Startup Kettle Raises $25M to Expand Wildfire Reinsurance Protection - Claims Services Provider McLarens Forms Strategic Alliance With Polish Firm Saltex - Allianz COO Stephanie Smith to depart - Reinsurance pricing expectations high across lines, survey shows - Guy Carpenter and Marsh to Combine South Africa Facultative Reinsurance Businesses - Guyana Weighs Raising Requirements for Insurance Cover for Oil Spills: Official - Apollo’s Syndicate 1971 to Open for Trading in 2022 - Climate models are becoming increasingly critical: Aeolus - Willis Appoints 4 New Directors, Including Former Lloyd’s CEO Beale - China’s Ant Group Reports 39% Rise in Profits on Investment Gains - Finance System Is Getting More Dangerous, Not Safer: Allianz CEO - Update: Zurich Insurance Will No Longer Underwrite New Oil Exploration Projects - Rise in Insurance Demand Likely to Break Premium Records in 2022: Swiss Re - Allianz Becomes First Wholly Foreign-Owned Life Insurer in China - Essent secures $439mn mortgage reinsurance transaction - WhenFresh partners with Ambiental on FloodScore Climate data - People Moves: Allianz Global Corporate & Specialty Appoints 5 to Leadership Team - U.S. Severe Weather Insured Losses Surpassed $20B After Rough October: Aon - Big Europe Reinsurers See Strong 9M Earnings Despite High Natural Disaster Losses - Berkshire Hathaway General Reinsurance Unit Launches Mideast Office in Dubai - Aston Lark Acquires UK-Based Innovation Broking - Reinsurers will find common ground on pricing at renewals: TigerRisk’s Gulbransen - Markel adds three to renewable energy team - Zurich acquires Special Insurance Services in Texas - Ardonagh Group Closes on Acquisition of BGC Partners Insurance Units - Aon Founder Ryan Retired at 71, Then He Built a New $10B Business - AXA Tightens Policy for Insuring, Investing in Oil & Gas Ahead of COP26 Summit - Generali Acquires Italy Insurer Cattolica to Boost Domestic Market Leadership - Guy Carpenter Launches Global Insurtech Center of Excellence - Aon and Cybereason Form Alliance to Help Protect Clients From Cyber Attacks - Bermuda’s Tax Advantage for Re/Insurers to Be Cut With 15% Global Minimum Tax: Fitch - Swiss Re CorSo adds Favorito as exec risk head of North America - Coverys Launches European Casualty MGA, AEC Europe - Re/Insurers Need a Data Strategy to Build Underwriting Transformation Programs - Lockton Launches Silent Cyber Property Solution for Businesses - Munich Re Doubles Q3 Profit Despite Big Storm Losses in Europe, U.S. - Lloyd’s Re/Insurer Apollo Receives $90M Investment From Alchemy Partners - China’s Anti-Graft Watchdog to Inspect Financial Regulators, State Banks, Insurers - Howden Acquires Norwegian Broker Aneco Forsikringsmegling AS - Financial Services Groups Urge G20 Leaders to Set ‘Clear, Credible, Ambitious’ Climate Goals - Chubb to Buy Some of Cigna’s Asia-Pacific Businesses for $5.8 Billion - India Plans to Let Foreign Investors Hold 20% Stake in Life Insurance Corp.’s IPO - Germany’s Getsafe Raises $30M, Led by Swiss Re; Eyes Becoming Full Carrier - Egypt: 3 agencies agree on optional insurance cover for locals working abroad - Broker New Dawn Risk Group Launches Europe Subsidiary in Malta - Hub International Completes Purchase of Canada’s National Home Warranty Group - Singapore Plans to Review Cybersecurity Strategy and Laws - EU reinsurers urge UK regulator to delay Solvency II changes - Climate Reckoning Is Coming for the World’s Government Debt - Gallagher Acquires Grand Cayman’s Briat, UK’s Manchester Underwriting - Boutique Broker McGill and Partners Launches Bermuda Operation - Aston Lark Acquires UK Insurance Broker S. Johnson & Co. - Allianz Transfers Legacy Life Portfolio to Resolution Re, Using Quota Share Reinsurance - Re/Insurance Cyber Rates Could Double Before 2023, as Attacks Skyrocket: S&P - Willis Re Launches Flood Model for MENA Region - UK Financial Services Sector Calls for Eased Visa Requirements to Keep Competitiveness - Australia Insurtech Startup Cover Genius Raises Funds, Boosting Valuation to A$1 Billion - Allianz in Talks to Transfer Block of Life Assets to Free Up Regulatory Capital: Sources - UN Launches Disaster Insurance Program for Developing Countries - Mexican Insurtech Startup Offers Quick Claims Payments for Earthquake Damage - Is Climate Litigation Covered by Insurance? - Social Inflation or Science: What Is Fueling Climate Litigation? - Fortegra Europe Opens Branch in Czech Republic - Vantage launches Construction and Political risk business - UK Insurers Cautiously Willing to Underwrite Fire Safety Risks - Insurtech Foxquilt Raises $8M to Expand Small Business Offering in U.S. and Canada - Speciality Re/Insurer Convex Launches European Subsidiary With A- Rating From S&P - Debt surge in emerging markets may hurt insurance outlook: Swiss Re - Zurich Insurance Weighs Selling Some Australian Non-Core Assets - Reinsurers Face Major Claims Uncertainties, but Reap Benefits of Pricing Tailwinds - Corvus, SiriusPoint announce investment & underwriting capacity partnership - Munich Re backs energy storage systems provider ESS - Climate Change Could Force 200 Million People to Leave Their Homes by 2050 - Work of the scientific community and re/insurers needed to assess climate change: Lloyd’s - Gallagher Re Touts Advanced Integrated Reinsurance Analytics Platform - London Financial Employees Return to Offices Despite Rising Virus Cases - P/C Reinsurers Maintain Underwriting Discipline, Despite Rising Capacity: Guy Carpenter - Britain Looks to Revisit Data Privacy Regulations - WTW, Applied Systems target real-time pricing enhancements - Reinsurance environment “most attractive in a decade”: SCOR’s Launay - Willis Towers Watson’s New CEO Says It Has $5 Billion for Possible Acquisitions - Lloyd’s Reports H1 2021 Profit of £1.4B ($1.9B), with 92.2% Combined Ratio - Global Reinsurers Shoulder ‘Considerable Burden’ of COVID-19 Claims - “Inflation is the enemy of the re/insurance industry,” says Swiss Re CFO Léger - Global Reinsurance Rates, Demand to Continue Rising in 2022: Moody’s - Prudential’s Michael Koller joins MS Amlin as Chief Risk Officer - Rates need to and will harden further: Swiss Re CEO Mumenthaler - Russia’s Renaissance Insurance Plans $1 Billion IPO in Moscow: Reuters
Search Search
Moebius Newsletter & Publications
Enlarge Font Minimize Font

Fraud – The dark side of insurance

Going back to the basic insurance idea, the motive to buy insurance is clear. In order to cope with unexpected negative events, people invest in insurance policies to mitigate the risks facing their health and assets. They will purchase a policy from an insurance company detailing all conditions, deductibles and exclusions under which they shall receive an indemnity following the occurrence of a real, unexpected and genuine claim under the moral insurance principle of “utmost good faith”. At the heart of the insurance concept, an insurance risk has to be random and unintentional.

Additionally, the insurance claim whenever it occurs has to be accurately reported in order not to distort actuarial calculations.Therefore,

insurance optimally performs and is meant to operate in the absence of any insurance fraud, which is intentional.

The challenge transcends into a nightmare for the industry when insurance companies unintentionally pay and compensate policyholders for doubtful, staged and fake claims.
 
Insurance fraud is an intrinsic phenomenon of global insurance markets. It has been estimated that fraud adds an extra £50 to every household’s annual insurance bill in UK. The UK insurance industry confirms that it is facing yearly £1.3 billion of detected fraud, with a further £2.1 billion undetected1. In the United States, according to the “Coalition Against Insurance Fraud”, insurance fraud costs at least $80 billion every year; this figure compared with the U.S. insurance industry’s net premiums written of $1.2 trillion in 20152, represents 6.7% of premiums. By analogy,



Source: Arab Re estimates

the General Arab Insurance Federation reported USD 33 billion insurance premiums for year 2015 in the Arab market of which USD 2.2 billion are channeled to fraud


assuming the same rate of fraud occurs in the Arab markets. However, we should bear in mind that the anti-fraud capabilities of US insurers must be stronger than Arab peers, which means that Arab insurance fraud could largely exceed USD 2.2 billion, given weaker resources to combat fraud.

Patterns have shown that fraudulent claims are increasing the cost of insurance as well as premiums for insured. When gross premiums increase, policyholders switch to other competitors. By paying huge cost, the insurer is compelled to increase premiums on policyholders (current or future ones) to compensate the inflated claims. To restate,

the amplified costs following settlements of fraudulent claims deprive the insurance company from the possibility of providing policyholders or targeted markets with affordable premiums.

Practically, the fraud phenomenon has many facets. Generally, the insured public tends to perceive paid premiums as lost money unless an amount greater than the premium paid can be claimed from the insurer.

Thus, many insureds would tend to believe that an insurance fraud is not a dishonest act.

This natural tendency toward insurance fraud therefore emanates from a low awareness on how insurance works and the role it plays in protecting assets and people in return for the paid premium.

Fraudulent claims are directed towards obtaining financial benefits after a claim occurs (or after reporting an invented claim) during the legal period of a signed contract between the policyholder and the insurance company. In general, we can identify two types of fraud status in any fraudulent claim activity: soft and hard fraud.

On one hand, soft fraud is when the insured reports a higher value than the market value intending to receive higher indemnity upon claiming. For example, when a doctor or a car shop bills more than usual for his own financial gain or when claims are exaggerated.

On the other hand, hard fraud is when an insured reports a claim that did not even occur. For instance, in property insurance, fraud can occur when an individual purchases a fire policy and overstates the property value at contract inception in order to later induce a loss, an act called arson. Moreover, in marine insurance, scuttling a ship, or deliberately causing it to sink, is another form of fraud. In medical insurance, fake claims are billed when a physician operates and performs unnecessary tests, surgeries or services that patients did not receive.

In this context, Mr. Abdel Raouf Kotb, Chairman, Insurance Federation of Egypt confirmed that abuse and fraud is practiced by all parties including hospitals, clinics, patients and urged the establishments to use unified electronic database3.

The same problem of abuse and fraud was largely experienced in compulsory health insurance in Saudi Arabia and triggered huge losses for insurers over the past decade.

When there is more than one individual who commit together a range of insurance frauds, the group of fraudsters is called a fraud ring, which represents an exacerbation of the insurance fraud phenomenon. These entities collaborate to make sure the amount paid from the insurer is justified and reasonable. More than 20,000 staged automobile accidents from 1999 to 2006 were reported by the Insurance Fraud Bureau in the UK.  The latter gathered data and exposed a total of 74 fraud ring members.

Looking for solutions, there are many attempts and efforts to fight fraud. For instance, training staff members of an insurance organization helps to investigate, monitor, and audit fraud when dealing with clients. Engineer Saleh Bin Rashed Al Dhaheri, Chairman of the Executive Council of the GCC Insurance Federation (GIF) and Chairman of the Emirates Insurance Association (EIA) said that

new regulations could compel insurers to document all fraud and abuse cases with compulsory reports.


 He added that specialized units should be established at insurance companies to combat fraud with the necessity of adopting suitable technology. Moreover, he advocated the development of procedure manuals to fight fraud as well as introducing regulatory fines on fraudsters4.

In 1993, the USA gave birth to the “Coalition Against Insurance Fraud Organization”. In 1973, a peer was founded in Canada. In general, these organizations aim at promoting awareness, resistance, information and fraud fighting. The Organization's central operation consists in collecting data, researching and analyzing past patterns of fraudulent act in insurance as well as predicting any attempt or symptoms of intent inducing the fraud. Similarly, in France, “ALFA” is an agency with scientific capabilities fully dedicated to the investigation of insurance fraud cases. “ALFA” is financed and commissioned by French insurers. Against the phenomenon of motor insurance fraud,

 a few Algerian insurers joined efforts to create an agency specifically dedicated to fight motor insurance fraud “Alfa”.


Each insurance market should rather build a central insurance intelligence database linked to all insurance companies in order to cooperate industry-wide against fraud. There have been attempts in Egypt and Lebanon to build such databases. The Insurance Federation of Egypt confirmed that it is building a “black-list” database in order to identify customers who commit insurance fraud and that it will first be implemented by life insurance companies5.

In Lebanon, the insurance sector’s Motor Risk Center (MRC) is seeing increasing participation of Lebanese vehicle insurers and is already being used by motor insurers.

Insurers upload claims information to the MRC and can search the database when receiving a new client request to insure a vehicle.

Furthermore, law can be enforced in case of conviction in addition to ceasing and suspending any insurance benefits to any current interest insured on all insurance lines related to the convicted policyholder. An insured involved in a fraud in a specific line of business is more likely to commit fraud in other insurance lines. Judicially, referring to the US States code, a ten years sentence is charged to any insured attempting to engage in fraudulent action altering the indemnity of any insurance contract as stated under Section 1347 of Title 18.

At a country level, a systematic electronic transformation can radically transform the insurance fraud phenomenon.

In order to control electronically insurance contracts and better control fraud, the “Insurance Repository System” as an electronic insurance database was pioneered in India in 2013 by the Insurance Regulatory and Development Authority6. This “Insurance Repository System” stores personal information, insurance data according to a single e-insurance account for each policyholder. This account will help in filling a different proposal or quote and will allow to analyze claims history, loss ratio as well as any fraudulent trend.

As a comparison in the Arab world so far, digitalization was first directed at fighting fake insurance contracts through a controlled nationwide electronic database in order to ensure complete implementation of compulsory insurance laws such as health insurance in Saudi Arabia.

However, digitalization can also help control motor insurance claims through the electronic integration of different parties such the traffic departments of the police and insurance companies as was the case in Qatar. Therefore,

an optimal streamlined electronic management can significantly reduce abuse in two major lines of insurance such as motor and health, which suffer traditionally from adverse profitability and large claims in the GCC and other Arab countries.

Finally, the insured can be controlled at the micro risk level given the availability of new technologies. In the motor insurance field, “telematics” work like a black box in the vehicle and enable an accurate risk assessment for every driver and vehicle and offer a powerful control mechanism to control motor insurance fraud given the precision of the tracking device7.

As a concluding note, increasing digitalization and electronic insurance such as “Insurance Repository System” developed by India or the use of telematics in motor insurance will certainly help fight fraud along the process. Insurance industry blacklists and shared electronic databases can thus be exploited through simple or complex analytics to identify fraud cases.

Arab insurance markets have to also boost investments in technology and launch specialized industry bodies to fight fraud to help recover more than USD 2.2 billion of premiums lost on a yearly basis through fraud.




  1 Insurance Fraud Taskforce: interim report – March 2015 – United Kingdom
  2 http://www.iii.org/fact-statistic/industry-overview
  3 http://www.vetogate.com/1160501
  4 http://www.alkhaleej.ae/economics/page/e8b40360-48c1-4bbd-bffa-a5913b78f46c
  5 http://www.almalnews.com/Pages/StoryDetails.aspx?ID=316286
  6 http://www.livemint.com/Money/XwDYFInshzoS5MWRtO08HM/Digitization-of-insurance-documents-will-help-check-fraud.html
  7 https://www.chill.ie/blog/telematics-and-car-insurance


    
All copyrights reserved, Arab Reinsurance 2016 ©