The business insurance industry in Australia is under fire. This is because business insurance underwriters are feeling the heat from two opposite sides. And both sides are being aggressively investigated for insurance fraud.
On one side of the coin, an early 2010 survey by PricewaterhouseCoopers (PWC) reveals that Australian detection of internal fraud has a higher frequency than anywhere else in the world. A third of the business insurance fraud is yielding losses of over $US1 million ($1.1 million). On the other side of the coin, Australian businesses have been uncovering insurance fraud in about 40% of employees. So, insurers who underwrite business insurance have to worry about fraud coming from two different directions. Some could come from within their own companies, while other sources could be those who want to rip them off.
It seems that the global financial crisis has motivated some employees to fleece their employers to the tune of millions of dollars. However, the increased detection of business insurance fraud in Australia may just mean that regulators and employers have become better at detecting it, instead of it being proof that more of it is going on now.
PWC forensic services partner Malcolm Shackell labels business insurance underwriters as companies which are exposed to “acute risk” of internal fraud. He says “I think that is a real risk and it depends on how the organisation is siloed.”
In addition to his other comments, Malcom Shackell says of business insurance fraud, “For most organisations [fraud risk] might involve payroll and accounts payable, but in insurance companies you’ve also got claims and that sort of thing. Internal fraud is still something insurance companies need to watch.” Shackell adds that the number of Aussie companies carrying fidelity insurance is amazingly low, too.
On the global scale, insurance fraud happens the majority of the time at the management level. Here, employees feel the pressure of retrenchment, lost bonuses, or elevated sales quotas. Management may be surrounded by diminishing staff, new product lines that are hard to sell because of low recognition, or just weak internal monitoring of their behaviour by the company.
Malcom Shackell further comments on increased insurance fraud detection in Australia. “Closer to home, another trend we saw was the detection of frauds that had gone on for a long time and had been committed by trusted employees, resulting in a larger financial and broader, whole of business impact.”
KPMG national head of forensic accounting, Gary Gill, says of the business insurance fraud epidemic in Australia, “I think what we are seeing in the courts is just the tip of the iceberg. I think we are seeing a few more people being caught due to the global downturn, which has made companies more diligent in looking for internal fraud, but the problem is still very serious.”
