Insurance Fraud: Terminology, Typologies and Scale
This domain tests whether you can name, classify and size insurance fraud accurately. Examiners reward precise vocabulary and a critical reading of statistics; they penalise loose use of the word "fraud" for any inaccuracy.
Core definitions
- Fraud is a dishonest act or omission intended to make a gain or cause a loss; the Fraud Act 2006 framing is the reference point.
- Insurance fraud is deception intended to obtain an insurance advantage - at underwriting, at claim, or in the premium chain.
- Detected fraud is what insurers and the Insurance Fraud Bureau (IFB) record; undetected fraud is estimated, not measured.
Typologies
- Application/underwriting fraud, claims fraud, premium and asset-stripping fraud (often intermediary-driven), and internal fraud.
- Opportunistic versus organised; exaggeration versus fabrication; premeditated versus spur-of-the-moment.
- Named behaviours the syllabus expects: fronting, ghost broking, crash for cash, phantom passengers, claims farming, staged theft, arson for profit, double dipping and fabricated slip-and-fall.
Scale and cost
- ABI-published figures put detected fraud at over £1 billion a year, with application fraud a large share by number.
- Costs fall on honest policyholders through premiums, and on insurers through reputational and conduct harm.
Worked example
A policy is taken out nine days before a theft claim. The Claims and Underwriting Exchange (CUE) shows a declined theft claim at another insurer seven months earlier, and the address differs from the driving licence. Classification: application fraud (non-disclosure) with a possible premeditated claim, not an opportunistic claim. Reasoning: inception-to-loss timing, prior declined claim and identity inconsistency together shift the case from error to deception.
Traps that cost marks
- Calling every inaccuracy fraud; genuine mistakes and non-disclosure without dishonesty are different.
- Quoting total fraud as if it were detected fraud.
- Mixing categories: fronting is application fraud, not a claims typology.