There are many ways to measure the impact of fraud on a business. The headlines are usually about the losses, but the public attention can also severely harm companies that expect to be better able to manage their internal affairs. Insurance fraud is a form of fraud that isn’t usually associated with the victim, but the perpetrator.
Insurance is a large part of the economy and a significant part of the financial sector. There are many types of insurance that cover product liability, employee liability and premises liability. Insurers stand to lose if businesses get involved in litigation, which is something that happens quite often. Insurance fraud is a huge problem. Each year, fraudsters lose billions of dollars.
The insurance industry often responds to the problem by raising premiums, which adds to the cost for businesses. The other option is to decrease the amount of claims paid. This can make it difficult for legitimate claims to be processed and leave deserving victims without the funds they need to rebuild their lives. They may have to wait long periods for payment. In order to accept claims at face value, insurance companies often rely on the honesty and accuracy of the insured. Insurance should not exempt the insured from their responsibility to look after their assets. You should not leave your factory door open for thieves just because you have insurance.
Insurance theft cases are by their very nature fragmented. Every customer buying insurance could be able to inflate a claim or leave out information that would result in a higher premium. There is still room for organized criminal attack. Fraudsters often target areas like benefit fraud or art theft.
Insurance fraud can be prevented by having confidence in the internal controls of their customers that are intended to protect businesses. Vehicles are less likely to be stolen, buildings are safer from arson, and directors are less likely to try to defraud the company. It seems that reducing risk to a business through strengthening its controls, especially those that prevent financial fraud, is an effective way to reduce it and allow the company to offer lower premiums to its customers.
A regular review of the records, books and processes will often make an insurance company more confident about the business it insures. A regular forensic accounting audit of anti-fraud controls will help to reduce premiums for directors’ insurance. If physical control of assets can be established, other forms of insurance may be more affordable. Fire insurance premiums can be reduced if sprinkler systems have been installed. Asset insurance is more affordable if alarms have been fitted.
A business that is confident that its insurance will fully cover it when it has a problem will be less likely than to file false claims to try to offset other instances when it may have been hurt. An insurance service that is fair and balanced can be trusted will encourage insured parties to return the favor. Insurance companies and insureds should not be at odds. They are trying to get the best from each other, effectively trying to make a profit.
