President of the General Insurance Association, Mr Derek Teo,
Mr James Schweitzer, of the National Insurance Crime Bureau,
Our Distinguished expert speakers and participants

Introduction

1        Good morning. I would like to thank the GIA for inviting me here today.  This inaugural seminar on combating insurance fraud is a great initiative by the GIA.  To our distinguished speakers, a warm welcome to Singapore; and thank you for taking the time to travel and share your valuable experience and knowledge with us.

Why Battling Insurance Fraud is Important

2        As a regulator, MAS looks at the implications of insurance fraud from two main perspectives.

3        First, how policyholders are affected.   One of the most common types of fraud committed against an insurer is through fraudulent claims. These include claims for events that may not have actually happened, but also genuine claims which have been exaggerated. Since insurance works on a pooling mechanism where premiums are priced to cover costs, an increase in claims costs would lead to higher premiums. And therefore it is the policyholders who ultimately end up bearing the cost of the fraud.     

4        Second, how insurers are financially impacted.  Other than fraud committed against the insurer, fraud may also be committed within an insurer.  Depending on the nature and extent of fraud, this can affect an insurer’s financial viability. We note that in a 2010 A.M. Best study on the causes of financial impairment of insurance companies in the United States, fraud contributed to 8.1% of the failures  over a 40 year period.    

Current Levels of Fraud in the Industry

5        From the experiences of other insurance markets around the world, fraudulent claims are generally estimated to account for up to 10% of the total claims costs incurred by the industry.  In addition, the United States’ Insurance Research Council has estimated that, in the US, insurance fraud may inflate motor insurance premiums by as much as 13-18%.  In Singapore, a 2011 study by KPMG of companies across a range of industries found that one in four respondents were aware of fraud occurring within their organisation at least once in the past two years.

6        Given the financial impact of fraud on policyholders and insurers, it is important for the insurance industry to take firm and effective actions to deter, detect and mitigate the risk of fraud.  

Battling Fraud Committed Against the Insurer

7        It is not easy to battle fraud that is committed against the insurer. Very often, it is difficult to prove that fraud has taken place especially when there is collusion amongst various parties. The Singapore insurance industry has recently stepped up its co-operation with the enforcement agencies, and the results are encouraging. Over the last two years, at least three masterminds of motor insurance fraud scams were sentenced to jail¹.  Each of these scams involved six to nine other accomplices who were also convicted.  The closer co-operation with enforcement agencies is a step in the right direction.  But more can be done. The industry needs to take a more collaborative approach in tackling the problem than it currently does.
 
8        One area where collaboration can be increased is consumer education. Consumers are critical stakeholders in the fight against insurance fraud. Surveys carried out in other countries have shown that many people think it is acceptable to exaggerate insurance claims.   Insurers will need to educate consumers to remain vigilant against bad and misleading advice from third parties, and to raise their awareness that the victims of fraudulent claims are ultimately the policyholders themselves. 

9        Another area for collaboration is to have greater sharing of information relating to fraud. Unless insurers have an effective way to share their suspicions, the perpetrators of fraud can simply move from one insurer to the next.  In many countries, the establishment of industry databases on suspicious claims and the use of powerful analytics have proven beneficial.  These have enhanced the ability of insurers to identify potential fraudsters and fraudulent transactions at an early stage, and to take the necessary remedial actions, including co-operating with enforcement agencies.

Battling Fraud within the Insurer 

10        Fraud that occurs within an insurer may be less common, but it can be more devastating when the integrity of the insurer is undermined and trust cannot be regained.  The insurance business model is fundamentally built on honesty, trust and good standing.  Therefore, we must not tolerate fraud within an insurer. 

11        Strong risk governance within an insurer is critical for this.  MAS will be refining our risk management guidelines on fraud risk, to better define the key roles expected of the Board and Senior Management in countering fraud . They are responsible for putting in place a robust risk management framework, and for building a strong risk culture and awareness within the insurer.

12        Establishing the right risk management culture is always a challenge.  We believe this needs to start from the top, with the Board and Senior Management continually setting the right tone and taking firm actions to ensure that internal processes, procedures and controls are supported and adhered to. We see the recruitment of fit and proper persons, especially for management positions, as a necessary component in strengthening the integrity of the organisation. Providing the necessary training to board, senior management and staff to understand and be alert to fraud risk is another important element.

Conclusion

13        We will hear from very well qualified speakers over the next two days. The sharing of their experiences of the strategies and approaches adopted by the other insurance markets will be very useful. The GIA may identify some approaches which could be appropriate to consider for Singapore.  MAS will support good suggestions put forth by the GIA which can help to reduce fraud against, and within, the insurance industry.    

14        I wish all of you a very fruitful seminar.  Thank you.

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