By Martyn Mathews, senior director of commercial and personal lines, LexisNexis Risk Solutions, Insurance
Aviva warned in May this year that it expects to see more claims fraud, especially on home, small business and liability insurance policies as an outcome of the cost-of-living crisis.
Tackling the risk of fraud up front, prior to policy inception has become a business imperative in small business insurance.
Fortunately, the data enrichment divide between personal and commercial lines is narrowing. This means that brokers focused on the smaller end of the commercial insurance market can do their due diligence to validate and verify the information provided by the customer, at speed for presentation to their insurance partners, safe in the knowledge that the risk of fraud has been assessed to the degree expected.
These developments have happened in good time as commercial insurance fraud risk heightens. This is not just about hunting out those determined to make a fast ‘buck’, fraud is a criminal act and has long-lasting ramifications for a business owner tempted to take desperate measures to recoup their losses. In essence, if a broker can understand more about the business and the risk of fraud at the earliest stage, they are in a better position to remove the opportunity to commit fraud.
Traditionally, the data verification process in small business insurance has been complex, due to the wide scope of data that needs to be gathered and assessed. While commercial insurance relies heavily on duty of disclosure by the proposer, brokers are acutely aware that nothing should be taken at face value. With one eye always on customer service, brokers have needed to conduct their due diligence through Know Your Customer and anti-fraud checks in a swift, time-efficient manner. Understandably, balancing the need for accurate data verification while also offering a streamlined application and quote process has been a big challenge.
As we highlighted in our article for Actuarial Post in September 2021, there is often a wide scope of data to be verified. There is the trading name to confirm; the directors and the owners of the business need to be assessed for their fraud and claims risk; the environmental risks pertaining to business address or addresses if the firm operates from multiple locations. There are millions of micro businesses in the UK that could be operating from home addresses so it’s not just knowing about commercial properties.
Then consider the fact that landlord insurance will require risk to be assessed for every property in a portfolio – whether it’s a series of office blocks or residential flats.
Focusing on the business performance, understanding a small firm’s financial position and potential for failure is clearly important in the current environment. As a strong indication of the financial stress many small businesses are under, Premium Credit research suggests that that six out of ten SMEs are relying on credit to buy insurance . Of those businesses using more credit to pay for their insurance, Covid-19 is the main reason for this, followed by rising premiums.
When businesses are under financial pressures that they could not have anticipated, they may become more susceptible to fraud themselves or to committing fraud. Actionable real-time data can now help paint the full picture of risk, speed up straight-through processing and reduce potential fraud.
In fact, Commercial PreQuote from LexisNexis® Risk Solutions works in just this manner. Through a single integration into a software platform, insurance professionals can quickly authenticate and enrich the data given by the customer prior to quote. This improves the quality of the quote and in turn, helps to ensure the risk presented to insurer partners is as accurate as possible.
E-trading has evolved as a means to bring a greater level of efficiency in small business insurance, but these efficiencies have been lacking at the initial data gathering and validation stage. That’s all changing as data validation solutions start to be adopted in small business insurance. With fears that fraud is on the rise, now is the time for insurance professionals to embrace the swift data validation that is available to help reduce the risk of fraud, keep insurance costs down while speeding up the customer journey for everyone.
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