A study of strategies for detecting fraudulent activities within the insurance industry : the case in Malta

Abstract

Fraud is a worldwide economic hazard that leaves negative impact on organisations and the economy. Insurance fraud is as old as the insurance industry itself, with many insurance organisations compelled to take measures to detect and deter fraud risks. The objective of this study was to determine which strategies are used for fraud detection and deterrence by Maltese insurance organisations, and to identify characteristics of fraudsters that can be revealing indicators of fraudulent intentions. This study also sought to examine whether these strategies depend on the type of organisation employing them. In order to conduct this research, an empirical investigation was carried out, by distributing a survey to a population of 204 insurance organisations in Malta. Descriptive and statistical analysis were used to examine quantitative data gleaned from the closed-ended questions, whereas thematic analysis was employed for qualitative research data gathered from the openended questions in the survey. Findings show that organisations within the Maltese insurance industry made use of effective strategies that were aimed at preventing fraudulent attempts by both internal and external fraudsters. The strategies used pertain to the themes that emerged from this study and the literature review: ‘Efficient Internal Control System’, ‘Strong Anti-fraud Culture’, ‘Sufficient Corporate Fraud Policy’, ‘Proper Handling of Suspicious Fraud’ and ‘Positive Work Environment’. An increase in one of the five listed strategies resulted in an increase in another strategy, whereas a decrease in that same strategy generated a corresponding decrease in the other strategy as well. The strongest relationship amongst these strategies was found between ‘efficient internal control system’ and ‘strong anti-fraud culture’. Given the difference in the type of organisation or the services offered, it resulted that TIIs and insurance organisations selling both life and non-life insurance products lacked efficient internal control systems vis-à-vis other respondents, whereas organisations that sell life insurance only seemed to have the strongest anti-fraud culture. Having financial burdens outside work in the case of employees and asking suspicious questions in the case of clients were found to be the two most likely characteristics that indicate fraudulent intentions. This study builds upon the existing body of literature on insurance fraud and seeks to find effective ways to fight it.