Carrefour of Fraud in Europe

Pages122-127
Date01 February 1993
Published date01 February 1993
DOIhttps://doi.org/10.1108/eb025613
AuthorJohn Hulbert
Subject MatterAccounting & finance
Carrefour of Fraud in Europe
Dr John Hulbert
Dr John Hulbert
is an information technology consultant
based in Luxembourg.
ABSTRACT
The increasing liberalisation of all forms of
trade,
including the financial services
sector, is encouraging the internationalisa-
tion of the European insurance industry,
making it more vulnerable to fraud.
This paper discusses the current prob-
lem with fraud in the sector, and considers
the implications of moving into new
markets. It then looks at future fraud pre-
vention methods such as screening of
applicants and stresses that there is an
urgent need for the situation to be reviewed.
TWO TRENDS
Insurance is not the marginal commer-
cial activity that many of us perceive it
to be. It is more than a useful safety net
to hedge against trading risks: in a
modern complex society the lack of an
effective and economic insurance struc-
ture will prohibit normal commercial
activity.
The insurance industry in Europe is
approaching the crossroads of two
trends:
1 a general increase in operating costs
attributable to fraud, and
2 the worldwide moves towards the
liberalisation of trade in financial ser-
vices.
This latter trend is particularly focused
in the crucible of the European market.
LOSSES
Types
There are two major operational cate-
gories of insurance fraud: fraud at the
time of application and fraud at the time
of claim.
Although these arc not distinct cate-
gories they provide a fairly good descrip-
tion and roughly equate with the profes-
sional/non-professional classification of
fraudulent activity.
1 The former category is part of the
growing area of application fraud. In
these cases, there is an intent to
defraud from the outset. The insur-
ance company is the principal and tar-
geted victim. Normally this activity
involves larger claims and is certainly
the main fraudulent method of
organised crime.
2 Fraud at the time of claim is probably
by far the largest category in terms of
the funds lost and the number of
claims. It involves either the fraudu-
lent exploitation of
a
genuine loss, the
most frequent case, or the deliberate
instigation of a loss, in cases such as
arson. In this situation the insurance
contract is initially commenced in a
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