Fraud Risk Management and Controls
This domain tests governance, not just detection. Examiners expect a control framework, a risk appetite and measurable outcomes, and they reward awareness that controls can harm honest customers if poorly designed.
Framework
- Three lines of defence: operational controls, risk and compliance oversight, internal audit.
- Board-level fraud risk appetite, fraud policy, fraud risk register and a fraud response plan.
- Controls: underwriting validation, claims triage, supplier and repairer oversight, segregation of duties, quality assurance and referral criteria.
- Whistleblowing under the Public Interest Disclosure Act 1998; training; tone at the top.
- Data-sharing governance under DPA 2018; use of CUE and the Insurance Fraud Register.
Measurement
- KPIs: detection rate, fraud savings, false-positive rate, referral conversion, cycle time.
- Use of the Fraud Investigation Model to structure triage, investigation and resolution.
Worked example
An insurer sees rising slip-and-fall claims in one city. The response is not simply "investigate more": add geospatial analytics, check third-party data, set referral criteria, train claims handlers, and monitor false positives and customer outcomes.
Traps
- A detection-only mindset that ignores prevention and customer harm.
- Unmanaged outsourcing of investigations or repair networks.
- Controls that generate false positives and poor conduct outcomes.