FRAUDULENT CLAIMS:

DECEPTION & WHY PEOPLE LIE By

Tim Richardson ACII ACILA ACFS Head of Technical Claims

Direct Group Limited WHERE INSURANCE AND INNOVATION COMBINE

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Learning Objectives

1. Why People Lie

2. How Memory and Emotional Attachment helps identify truth tellers

3. The Investigative Interview Process

4. Fraud and the FOS

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D Is it a Victimless Crime? Why bother detecting it?

Annual fraud losses across the UK, through all the different

industries, now estimated to top £70 billion. Within this, insurance

fraud has risen by 23% in the last three years.

More than 2,500 fraudulent claims, worth over £18 million, detected

each week – around £1 Billion, detected & prevented annually

BUT - Insurance fraudsters are estimated to successfully obtain

over £2 billion a year, in bogus claims.

Insurance fraud is not victimless

-insurers pay out higher sums

-on average extra £50 added to every insurance premium

Why Bother?

FCA requires all financial institutions, including insurance companies to have effective counter fraud policy. Public need – reduce premiums, less stringent policy terms, deny criminals benefit & improve society

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D The Cause of Fraud?

Figures from a recent Gallup poll reveal:

49% believe the value of most claims is inflated by >1/3rd

76% agreed that fraud is “common” in insurance claims

69% said they would make a dishonest claim and think they will get away with it.

25% said insurance fraud is “understandable, acceptable, proper or praiseworthy”

These figures suggest that the main cause of insurance fraud is policyholder attitude & inclination.

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YING

Why do People Lie?

People are not born liars. It is not normal behaviour.

So why do we lie?

• To avoid punishment

• To obtain advantage

• To make themselves look good

• To benefit another

• To be socially acceptable

Admitting to lying is often highly traumatic, as it can

destroy personal credibility and trustworthiness

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Why Do Lies Work?

We are lied to everyday!

- by our colleagues, staff, bosses, friends, our children and

by our spouses/partners....

So, why do lies work?

We prefer to believe what we are told

- in everyday life, people do not like asking awkward questions or

confronting potential issues

- we avoid seeking information which might turn vague concerns into

specifics that require action

As a result, most fail to ask the right questions at the right time!

LIES

Are Lies Always Bad?

•Altruistic

•“You look great” or “you haven’t changed a bit”

•Boasts

•“I’ve done that thousands of times”

•Jokes

•Pranks, wind-ups, etc.

•Deflecting

•“He’s in a meeting” or “The cheque is in the post”

•Embarrassment

•Lies about non-material issues to hide an embarrassing

reality

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Non-Verbals of the Legs & Feet

Honesty decreases as we move up the body.

Your feet are more honest than your Head!

• Bouncing feet – high confidence, happy, elated

• Toe point – happy, elated (gravity defying)

• Leg/foot splay – control, intimidation, threaten, territorial

• Leg crossing – leg direction dictates emotions

• Shoe dangle – comfort, courtship

• Foot lock with chair – freeze behaviour, nervous, threatened

Watch for the signals

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Non-Verbals of the Face

Raised eyebrows – surprise, disbelief

Biting lip – nervous, fearful, anxious

Direct eye contact – confident, positive

Avoiding direct eye contact – uncertain, wary

Head nod – positive messages (not always agreement)

Eye blink increase – troubled, nervousness, suspicious

Furrowed forehead (frown) – uncertainty, disagreement, resentful, angry

Lip licking – nervous, stressed, anxious

Face pale – fear, shock

Face blush – stress, got caught

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Generally Shifty

Deception and/or lying initiates a stress reaction in

most people. The stress is the fear of being detected

or caught.

Stress can be further induced by guilt.

• Nervous fingers

• Eye contact shifting

• Rigid/defensive posture

• Sweaty palms/face

• Variations in pitch, amplitude, and rate of speech

• Abnormal speech errors and hesitation (thinking)

• Increased embellishments of story or parts of the story

LIES &

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Y Understanding Memory

Truth tellers effectively replay mind recordings of past

events, because they can remember those events.

Easier to remember important /traumatic events than

routine, non-important ones.

Whereas

Liars have no mind record – only the vacuum of their own

imagination in which to create a picture.

A created, imaginary, memory is difficult to maintain and

to answer detailed questions about.

Questions are key

The more questions that are asked, the more difficult it is

for a liar to maintain the lie.

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Responses from the Brain

The Limbic System controls: • Emotions

• Emotional Responses

• Hormonal Secretions

• Mood

• Motivation

• Pain and Pleasure Sensations

• the ‘honest’ part of the brain, giving

off true responses

• reacts instantaneously in real time

and without thought.

• In the non-verbal world, it is where

the ‘action’ is.

• the other parts of the brain are the

thinking, creative parts - which can

deceive and often do

Gut Feeling – The ‘Hunch’

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The 3 ‘F’s

The 3 ‘F’s - Freeze, Flight and Fight.

1. Freeze - movement attracts attention.

2. Flight - when threat is too close, natural reaction is to run, get out of

harm’s way.

3. Fight – a last resort tactic. Survival through aggression.

The limbic brain has assured our survival as a species. It regulates our

natural behaviour during times of threat and danger with a view to self-

preservation.

But it has no concept of deceit .......

The 3 ‘F’s transferred into the world of deceit and fraud.

1. Difficult question silence, gathering thoughts

2. When fraudster believes investigation is getting close drop out!

3. If things become difficult complain.

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The TRUTH

Truth Tellers Usually:

Are consistent and can easily repeat story

Connect to story using first person pronouns

(I, Me, My, We, Our etc.)

Connect story to other events

Reveal lots of useful detail

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The LIE

Liars: Do not act normally – cognitive conflict

Struggle to build stories from their imagination

Struggle to commit to detail or to past event

Do not connect to incidents beyond the incident in

question

Move goalposts when they need to invent cover stories

for cover stories

Filter memory – pick out bits from real past

experiences

They:

Do not want to ‘own’ or ‘commit’ to their lies

Do display visual and verbal indicators of deception

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How to Spot Potential FRAUD

What to watch out for:

SCREEN

Story problems

- Gaps, missing steps

Credibility

- Improbable, Implausible, Impossible

Resistance

- Uncooperative, Angry, Threatening

Effort to give detail

- Struggles to develop, repeats minimal detail

Evasion

- Answers a question with a question, changes subject

Non Verbal issues (Vocals)

- Hesitation, Broken speech, pitch & tone

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Emotional Attachment

“People who have not actually experienced an event will lack the cognitive and emotional experiences associated with it.” Undeutsch 1982

What is Emotional Attachment? How does that translate to loss of an item? What are “YOU” emotionally attached to? How would you feel if you were without it?

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The Interview Process

Set the Scene – ‘meta-messages’

“Uberrima Fides”, the principle of Utmost Good Faith: Insurers are

entitled to accept that what they are told by the Customer is correct.

If you assume guilt, there is a danger you will not test for it.

THE INTERVIEW

• Making The Appointment

Key messages

• Create Escape Routes

Throughout process

• Management of the Conversation (PEACE) Prepare and Plan the Interview Introduction to build rapport Scene Setting/Obtain Account Question & Response/Clarification Pauses/Summarising Create Escape Routes Challenges?

EVIDENCE IS ESSENTIAL BEFORE ANY CLAIM CAN BE REFUSED

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The Financial Ombudsman Service

The Ombudsman examines all the facts and uses their

own guidelines to help reach an overall assessment • When considering Fraud, the FOS needs to: have evidence that an answer is a wrong answer (a misrepresentation) know why it is wrong understand what impact that wrong answer might have on the Underwriter or claims handler ....before they can accept an allegation of fraud and/or uphold a repudiation for fraud. FOS accept their decisions do not always agree with insurers. Opinions will differ, particularly when the decision is based on the balance of probabilities. Jury decisions rarely unanimous - even Court of Appeal judges often disagree, many decisions being made on 2 to 1 basis. EVIDENCE OF THE FRAUD IS ESSENTIAL BEFORE A REPUDIATION BASED ON FRAUD WILL BE ENDORSED

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TCF – The Right Balance

Prompt and

Efficient

Service, to

retain our

Client’s Honest

Customers

Proportionate

Counter Fraud

Measures to

Protect Honest

Policyholders and

Identify

Fraudsters

QU

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Techniques

I keep six honest serving men,

(They taught me all I knew).

Their names are what

and why and when and how

and where and who.

Rudyard Kipling 1865-1936

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Summary

Presentation on

Fraudulent Claims:

Deception & Why People Lie by

Tim Richardson ACII ACILA ACFS Head of Technical Claims

Direct Group Limited

10th December 2014

Email: dgis@directgroup.co.uk

Tel: 0844 8542043