Consumer education only way to tackle insurance fraud

With insurance fraud estimated to cost NSW motorists $400m per year, one expert insists that consumer education is the only way to tackle the issue.

David Hertzell, a UK-based insurance fraud expert, spoke about the challenge of insurance fraud at an IAG event in Sydney last week. Hertzell believes consumers need to really understand insurance and how it works in order to better understand the coverage they purchase and to better appreciate the impact of fraud.

“One of the problems we have is that people don’t understand the product they’ve bought, they don’t get paid in the way they expect to get paid, so they immediately feel like they’re a victim and that inclines them to exaggerate and to try and get back what they think they’ve lost,” Hertzell told Broker Buzz.

Hertzell recently chaired a UK Insurance Fraud Taskforce. Last year, the Association of British Insurers estimated that insurance fraud costs the UK £3bn (AUS$5.96bn) a year.

“The government set up this taskforce in 2015 because they were worried about the cost of motor insurance generally. We have one of the highest levels of premiums in Europe,” Hertzell said.

“They were also worried about a more subtle thing, which is they felt, in the end, if there’s so much fraudulent activity, it becomes socially acceptable.”

Hertzell said, reading the recent State Insurance Regulatory Authority (SIRA) report regarding fraud in the NSW CTP Insurance Scheme, the issues discussed were certainly familiar.

“What I think you could learn… is that you may be able to compress what’s taken us 10 years to do into a shorter time frame,” he said.

He emphasised the importance of more effective data sharing between insurance companies – one of the ultimate recommendations of the UK taskforce.

Hertzell also raised the taskforce’s recommendation of stronger dialogue between regulators specifically around insurance fraud.  But he added: “[In Australia] you ultimately have to deal with the same long-term issue which we’re dealing with, which is that this is not really about rules and regulations and changing the law here and there.

“It’s actually fundamentally about changing social attitudes. And if it becomes a social attitude to defraud insurers, it’s going to be much harder to control than if you get the reverse position.

“That’s a public education process. The public has got to understand that they pay for this.”

In early March this year, a NSW Government Taskforce and CTP fraud hotline were announced, as part of a crackdown on CTP fraud across the state.

According to NSW Government figures, the average green slip for a car in Sydney now costs more than $600. Prices have risen up to 70% since 2008, fraud being a contributing factor. The Government data also indicates that fraudulent and exaggerated claims are contributing to a $75 increase for each NSW green slip.