Know Your Enemy:
How insurers can understand the evolving threat of financial crime
Executive Summary
Cate Wright
Global Head Insurance Product, BAE Systems
“Corruption, embezzlement and fraud...” the former Chair of the US Federal Reserve, Alan Greenspan, once observed, are “the way human nature functions.”
This rather defeatist approach to financial crime absolves criminals of responsibility. In the face of such a seemingly invincible enemy, insurers might just throw up their hands in defeat.
However that would be to miss real opportunities to tackle a growing problem. Fraud is perpetrated by a minority, thankfully; instinct is probably not the main cause. Therefore who or what is? How can insurers know their enemy?
Initially, we must unpick the motives for fraud - and why they outweigh the risks. Then we can look for perpetrators, study their tactics, and understand how criminal attacks against insurers fit into a broader criminal landscape.
The enemy is not one person. Nor is there a sophisticated conspiracy against insurers. The financial criminal could be anyone. By looking closely at reasons, methods and opportunities, we can assign classifications to those that attack insurance companies. With that insight, we can reduce the scale and impact of our enemies’ threat.
“Corruption, embezzlement and fraud...” the former Chair of the US Federal Reserve, Alan Greenspan, once observed, are “the way human nature functions.”
This rather defeatist approach to financial crime absolves criminals of responsibility. In the face of such a seemingly invincible enemy, insurers might just throw up their hands in defeat.
However that would be to miss real opportunities to tackle a growing problem. Fraud is perpetrated by a minority, thankfully; instinct is probably not the main cause. Therefore who or what is? How can insurers know their enemy?
Initially, we must unpick the motives for fraud - and why they outweigh the risks. Then we can look for perpetrators, study their tactics, and understand how criminal attacks against insurers fit into a broader criminal landscape.
The enemy is not one person. Nor is there a sophisticated conspiracy against insurers. The financial criminal could be anyone. By looking closely at reasons, methods and opportunities, we can assign classifications to those that attack insurance companies. With that insight, we can reduce the scale and impact of our enemies’ threat.
Cate Wright
Global Head Insurance Product,
BAE Systems
"I don't accept that fraud is part of human nature. It is a learned behaviour. If it was human nature, most people would be committing insurance fraud"
Dennis Jay, Executive Director of the Coalition Against Insurance Fraud
Why does insurance fraud happen?
Dennis Jay, Executive Director of the Coalition Against Insurance Fraud, has dedicated more than 25 years to understanding, raising awareness of and fighting insurance fraud and its pernicious impact on society.
Since the early 1990s, the Coalition Against Insurance Fraud has been a leader in defending against insurance fraud in the US, playing an instrumental role in the introduction of anti-insurance fraud laws. These gave insurers the legislative teeth not only to prosecute fraud, but also to bring real deterrence into play.
With a legal framework in place, Jay and his Coalition colleagues turned to investigating the reasons for fraudulent behaviour.
“In 1997 we took a step back and commissioned what was at the time the most aggressive research on people's tolerance of fraud,” he says.
“What we found was that 96 per cent of Americans fell into one of four categories: the moralists (‘insurance fraud is wrong, period’); the realists (‘insurance fraud will always be here and there is nothing we can do about it’); the conformists (‘everyone else is doing it, so why can’t I?’) and the critics (‘I have no problem with people sticking it to insurance companies’).”
Finding these categories was a major breakthrough, says Jay, but a clear picture of which kinds of people were most likely to commit fraud continued to be elusive: “We could find very little distinction between the four groups in terms of age, geography, occupation, education. Fraud goes across all demographics.”
Why does insurance fraud happen?
Dennis Jay, Executive Director of the Coalition Against Insurance Fraud, has dedicated more than 25 years to understanding, raising awareness of and fighting insurance fraud and its pernicious impact on society.
Since the early 1990s, the Coalition Against Insurance Fraud has been a leader in defending against insurance fraud in the US, playing an instrumental role in the introduction of anti-insurance fraud laws. These gave insurers the legislative teeth not only to prosecute fraud, but also to bring real deterrence into play.
With a legal framework in place, Jay and his Coalition colleagues turned to investigating the reasons for fraudulent behaviour.
“In 1997 we took a step back and commissioned what was at the time the most aggressive research on people’s tolerance of fraud2,” he says. “What we found was that 96 per cent of Americans fell into one of four categories: the moralists (‘insurance fraud is wrong, period’); the realists (‘insurance fraud will always be here and there is nothing we can do about it’); the conformists (‘everyone else is doing it, so why can’t I?’) and the critics (‘I have no problem with people sticking it to insurance companies’).”
Finding these categories was a major breakthrough, says Jay, but a clear picture of which kinds of people were most likely to commit fraud continued to be elusive: “We could find very little distinction between the four groups in terms of age, geography, occupation, education. Fraud goes across all demographics.”
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The peer
pressure factor
The peer
pressure factor
The weakest
link
The weakest
link
Know thine
enemy
Know thine
enemy
Creating the
stigma
Creating the
stigma
Building robust
defences
Building robust
defences
Conclusion and
what's next
Conclusion and
what's next
The peer
pressure factor
The peer
pressure factor
The weakest
link
The weakest
link
Know thine
enemy
Know thine
enemy
Creating the
stigma
Creating the
stigma
Building robust
defences
Building robust
defences
Conclusion
and what's
next