Working together to fight home insurance fraud

The ABI recently estimated that a huge £1.1 billion in fraudulent insurance claims were detected in 2023. Unfortunately, fraud’s impact reaches everyone. It can lead to inflating premiums and a longer claims process, placing an unfair burden on honest customers who depend on their insurance.

At LV= GI, our expert fraud team are fighting the fight to protect policies and premiums against fraud, for advisers and their insurance clients. In 2024, the team successfully prevented £10.3 million in fraudulent claims pay outs.

What does fraud look like in the home insurance industry?

I caught up with Martin Bates, our claims technical controller who explained some of the most common reasons for claims being referred into our fraud team. The most common reason we see for claims being referred in, is for exaggerated loss. This is where clients inflate a genuine claim or add items that weren’t declared in their policy. It’s a serious issue and can have significant consequences. We had a case where a customer reported a burglary. They claimed a free-standing Victorian safe, £20,000 worth of jewellery, and other valuables were stolen. At first, this seemed straightforward, but inconsistencies quickly emerged. The customer began adding high-value items to the claim after the initial report - many of which exceeded the policy’s single article limit or weren’t declared on the policy at all.

Our fraud team investigated further and uncovered key evidence. Metadata from the photos provided didn’t match the time or location of the alleged burglary. This, along with the undeclared items, confirmed the claim was fraudulent. The outcome? The customer was cautioned under the Fraud Act, their policy voided, and their details added to the Insurance Fraud Register.

Advisers can help reduce the risk of exaggerated claims by encouraging clients to declare high-value items upfront and ensuring they understand their policy limits. This helps to protect everyone involved.

Misrepresentation is where someone deliberately, recklessly or dishonestly misrepresents the insurance risk at inception, amendment or policy renewal, in such a way that affects the policy terms and conditions, premium or acceptance. We saw an example of misrepresentation in a claim recently. One case flagged to our fraud team involved a customer claiming their car had been broken into. They reported over £50,000 worth of jewellery and valuables stolen. But their story quickly raised red flags. Despite claiming to have insured high-value items like a £9,000 ring and a £10,000 watch, the customer had drastically underinsured their possessions overall. 
 
Further investigation revealed they had only listed laptops as missing in follow-up calls, while the supposedly stolen jewellery had been found. The inconsistencies and deliberate underinsurance showed clear intent to exploit policy limits to gain a cash settlement. The policy was voided due to misrepresentation, highlighting the importance of asking appropriate questions at application stage.

Other types of fraud we see often are:

• A change in story to fit the cover - this is where the policyholder changes details of the claim to match the cover i.e. date or location of loss.
• The loss was invented - This is where the loss has been made up and there is no physical evidence to suggest an incident or loss has occurred.
• A staged incident - where an incident has been deliberately caused to lead to a claim.

How can advisers help reduce the risk of home insurance fraud?

When arranging a home insurance policy for your clients, we have some top tips to follow to help ensure your clients continue to count on the fairness and reliability they deserve.

1. It may sound obvious, but double check that your clients are taking out the right level of cover to meet their needs. Making sure that they aren't underinsured can help reduce the temptation to exaggerate claims.

2. Include personal belongings cover in your quote. Talk to your clients about cover for items taken out of the home, like cameras or sunglasses, and ensure any high-value items are specified.

3. Encourage your client to fully disclose any claims in the last five years. When asking the claims question in SmartQuote which is our quote and apply system, it's important to remind clients to disclose all claims in the last five years, regardless of claims status, and to ask the question in full as it also refers to anyone living in the household. This helps provide a clearer risk assessment. 

4. In addition to the questions asked to the customer, as mentioned above, most insurers make some assumptions about the customer and their property. It's important that they are read in full to the client and that they confirm them to be true. This helps reduce the risk of them innocently misrepresenting and a claim being paid on a policy that should be invalid. Another case study highlights the importance of the assumptions. One key assumption we make is that the property is normally occupied at night or during the day and isn't left unoccupied for more than 60 days in a row.

In this case, a customer claimed for water damage from a leaking pipe and shower. But when our contractors arrived, they found the property was unoccupied. The fridge wasn’t plugged in, there was no oven, and minimal furniture. 

The contractor’s notes raised concerns, and the claim was referred to the fraud team. Further investigation revealed the house had been empty for months. Utility bills confirmed only standing charges had been paid for the past year, and the customer admitted the property hadn’t been lived in. This breached the policy’s occupancy clause, which is a key assumption. So, what was the outcome here? The claim was rejected, and the policy cancelled, backdated to the earliest known date of unoccupancy.