Insurance cases form a major part of a forensic accountant’s work. These can include personal loss of profit claims from instances of business interruption, quantification of stock from accounting records and loss of earnings due to injury. As fraud experts, Mark Jenner & Co are able to assist insurance companies facing major corporate claims that are suspected to be fraudulent, organised or widespread endemic claims for fabricated losses or claims for business losses resulting from the activities of fraudulent directors or employees.
Insurance is a major corporate expense and therefore it impacts the trading of businesses in many ways. A business can insure itself against fire, theft, fraud and many other diverse perils that can disadvantage its operation, but at a significant cost. It is therefore an area that tempts business managers to search out ways of reducing this cost, particularly in a harsher economic climate. This can lead to problems:
- Obtaining cheaper premiums from less reputable insurance underwriters
- Withholding information that would lead to inflated premiums
- Exaggeration or fabrication of claims to compensate for raised premiums
Insurance is a major part of the financial services market and fraudulent insurance claims are estimated to be around £1.9 billion per anum according to the Association of British Insurers. Most of these are claims by individuals and companies that are either inflated or represent losses that have not occurred. The loss adjustment sector is responsible for assessing these claims, but there is also the additional issue of organised or epidemic claims in certain areas that require a more focused financial fraud investigation.
An increasing level of importance is being given to the threat of insurance fraud which is said to add an average of £44 to every home or car policy held. The City of London Police have built up a team of 35 officers to target such systematic insurance fraud and are backed by the insurance industry and the National Fraud Authority. However, the major and organised attempts to defraud substantial sums from the insurance companies often need a more specialised expert approach requiring forensic accounting and more sophisticated data interrogation techniques.
Mark Jenner & Co has experienced matters involving systematic threats to insurers that need to be investigated, quantified and dealt with – either as a civil claim or potentially reflecting the reality that a crime has taken place through the criminal courts.
Examples of forensic accounting experience – demonstrating techniques needed in major insurance frauds:
- It is common for car insurance companies to encourage customers to have minor chips in their vehicle windscreens repairs at a modest cost compared to an expensive replacement. Therefore, they will fund this service without the customer’s claim history being affected. According to a whistle blower windscreen fitters working for a major national company would routinely claim for this service whenever called out to replace a side or rear window, without doing the work but thereby earning an additional commission. Forensic accounting work involved, interrogating a central IT system to identify a suitable population of claims data to investigate, collating claims forms from 100s of depots around the UK and identifying instances where the fitters had been forging customers signatures on the additional “chip repair” forms. The work led to a £2 million repayment by the company on behalf of its errant fitters to the various insurance companies involved. Additional work carried out by Mark Jenner following the investigation involved an internal forensic audit of the other major windscreen replacement companies in the UK – on behalf of the insurance companies represented by the Association of British Insurers – to ensure that all internal controls within the industry were strengthened to prevent this situation reoccurring.
- Individual claims are often submitted for loss of profits when a business is interrupted for some reason. For example, fish farming is a risky business involving delicate livestock and its operation is often insured against any major loss. For example when a trout farm had suffered from an escape of waste fuel oil from a sump on an adjacent industrial site, the magnitude of the losses claimed by the victim were questioned by the insurance company acting for the parties responsible for the leakage. However, a forensic analysis of the claim and the fish farm’s accounting records revealed substantial anomalies which pointed to advantage being taken to profit from the loss. The forensic accounting report allowed a lower more sensible claim to be agreed. Mark Jenner has undertaken several assignments involving the quantification of losses when a business has faced interruption or some influence that has caused it to earn reduced profits.
- A major insurance company was worried that a prominent auto repair business was submitting business claims that were unreasonable and a forensic accounting investigation was instigated. Posing as the insurance company’s auditors, the investigation was conducted at short notice and revealed that a business partner had been exaggerating repair bills that were covered by insurance. During the work the main business partner (who was unaware of his colleagues indiscretions) was being interviewed. Half way through the meeting he piped up with “…you are not really an ordinary auditor are you?” The cover was blown! However, the investigation continued satisfactorily and the matter resolved without recourse to legal action.