Insurance News

PwC Says Insurance Sector In Top Tier Of Fraud Impacted Businesses

Posted on: November 24, 2009

NEW YORK ?The insurance industry was the second most fraud-prone industry sector behind communications according to a global economic crime survey released yesterday by PricewaterhouseCoopers.

In a massive wide-ranging report based on information from 3,037 respondents, the consulting firm also found that companies in their efforts to head off crime have more than tripled their use of fraud risk management.

At a news conference reporting their findings, PwC executives said they were surprised to find that on a global basis fraud against companies had not increased for those in financially weakened condition. In the United States, however, companies with economic difficulties were found to be more subject to fraud.

Among more than 16 listed industry sectors, 46 percent of communications firms reported an impact from fraud followed by 45 percent of those in the insurance sector, 44 percent in financial services, 42 percent in hospitality and leisure and 38 percent in transportation and logistics.

The numbers represented a slight decrease for the insurance sector, which in 2007 was in first place with a 46 percent fraud level. Sixty-five percent of the fraud against insurers was reported to be perpetrated externally.

PwC?s report said the most heavily fraud-impacted industries were targeted because of their type of product or service. It said these same industries have more robust and proactive anti-fraud measures, so they both suffer and detect more fraud than other sectors.

Due to the nature of their business, ?insurance and financial services have reported consistently high levels of fraud over the last 10 years,? the report noted.

PwC?s 2009 survey also showed financial services as the sector with the largest increase in fraud with 56 percent of respondents reporting an increase in incidents in the past 12 months.

When firms in the survey listed their fraud detection methods, use of an internal audit remained in first place at 17 percent. Seeing a major increase into third place was fraud risk management, with 14 percent of firms listing that as a detection method, up from 4 percent in a 2007 survey.

Steven L. Skalak, PwC partner in forensic services, said more firms now have a fraud risk management group and he noted ?companies that look for fraud are more likely to find it.?

He added that more companies are adopting a risk assessment approach and there is a group in the financial arena that do it on a monthly basis. More businesses practicing risk assessment ?do it more frequently and they are doing it more wisely.?

Almost two-thirds of those firms that sustained economic crime in the last 12 months believed that the opportunities to commit fraud have increased with reduced resources deployed in internal controls, PwC reported.

Asked about the type of fraud they were experiencing, 67 percent of respondents mentioned asset misappropriation, such as inventory theft, 38 percent mentioned accounting fraud and 27 percent bribery and corruption.

Accounting fraud while less frequent is far more expensive to companies, said Mr. Skalak and Sandra Maria Parrado, a PwC director, said there is also the collateral damage from stockholder suits that can result.

Settlements of such actions amounted to $3.6 billion last year and 90 percent were related to accounting fraud, she said.

The PwC studies found that there has been an increasing number of cases being brought against companies for violations of the Foreign Corrupt Practices Act with bigger fines and individual prosecutions.

Bribing of foreign officials used to be a low level issue for companies, ?it?s now an issue at the board level,? said Manny Alas, PwC advisory partner.

John Donker, leader of PwC?s Asian Forensic Services, noted that respondents in the survey are often less than forthcoming and ?the numbers typically understate the problem? and for every crime that is uncovered ?there?s one that hasn?t been discovered.?

© Copyright 2009 National Underwriter Property & Casualty. A Summit Business Media publication. All Rights Reserved.

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