Concerns that fraud could be leaving businesses exposed have been downplayed by the insurance industry, after a broker was banned from providing financial services for stealing client funds.
In early August, ASIC permanently banned an insurance broker from providing financial services after he pleaded guilty in court to seven counts of stealing from his clients.
Commenting on the story, one reader asked about what happens to the client – the insurance policy holder – in the event that they need to lodge a claim against a policy that may not exist.
“What happens i[f] a client needs to claim, has a policy document and a (falsified) receipt from the broker, but money was never paid to the insurer? While the broker may have insurance themselves to cover it, it will still end up with the lawyers and possibly courts instead of a simple claim form.”
My Business subsequently received an anonymous tip from a reader suggesting that one way a broker can commit fraud is to immediately cancel a new 12-month policy and then reinstate it for 10 months, without the client’s knowledge. This would enable the broker to pocket two months’ worth of premiums.
Broker fraud is ‘rare’
Campbell Fuller of the Insurance Council of Australia told My Business that fraud carried out by an insurance broker is “rare”.
“There have been very few cases in Australia,” he said.
“In the scenario [above], each insurer would assess it on a case-by-case basis. However, if a policy has not been purchased, the insurer can’t be expected to accept responsibility for a third party’s criminal act.”
Mr Fuller said that any business owner suspecting their policy has been the subject of fraud should first verify directly with their insurer whether they are covered. If not, this would then be escalated to involve the police.
“Business owners can take some simple steps to minimise the risk of unknowingly being without insurance cover,” he said.
- “1. Ensure receipt in writing of all documentation and policies;
- “2. Invest time in reading and understanding the insurance products purchased; and
- “3. Independently verify the documentation with the insurer or insurers and that payments have been received.”
While broker-specific fraud is rare, insurance fraud is a major problem for Australian insurers, costing the industry almost $2.2 billion annually.
“Though this does have an impact on premiums, the actual effect would depend on the type, class and the product being insured, which can vary depending on the insurer and how they mitigate risk overall,” said Mr Fuller.
“The NSW government estimates insurance fraud adds about $75 to household policies.”
Adam Zuchetti is the editor of My Business, and has steered the publication’s editorial direction since early 2016.