Guidance Note on Deterring, Preventing, Detecting, Reporting and Remedying Insurance Fraud

Summary

This guidance note from the Guernsey Financial Services Commission sets out expectations for insurers, captive insurers, insurance managers and intermediaries on preventing, detecting, reporting and remedying insurance fraud. It describes the main types of fraud affecting the insurance sector (internal fraud, policyholder/claims fraud and intermediary fraud) and explains the risk assessment, controls, training and reporting practices the Commission expects licensees to have in place.

• Risk assessment: Insurers should assess fraud risk based on size, group structure, products/services and market conditions, and tailor procedures to distribution methods including online channels.
• Policies and controls: Establish policies requiring high standards of integrity, realistic objectives, management information on fraud, and an audit function to test controls.
• Training: Directors, management and staff should receive training on anti-fraud policies and reporting duties, with more extensive training for higher-risk roles; a specific person (eg compliance officer) may be designated responsible for anti-fraud measures.
• Captive insurers and managers: Insurance managers of captives should apply the same fraud-risk awareness, considering parent company strength, ownership structure and third-party involvement.
• Intermediaries: Intermediaries should ensure staff are fit and proper, maintain integrity policies, and provide anti-fraud training.
• Reporting suspicions internally: Firms should have procedures for staff to report fraud suspicions to a designated individual and maintain records of fraud cases.
• Reporting to authorities: Suspicions of complex fraud should be reported to the Financial Investigation Unit; suspicions of related money laundering or terrorist financing should be reported to the Money Laundering Reporting Officer.
• Notifying the Commission: Insurers, managers and intermediaries should notify the Commission of fraud matters in specified circumstances, such as where internal controls failed to detect fraud, where there is significant reputational or financial risk, or where an employee is suspected or dismissed for fraud-related breaches.
• Information sharing: Insurers are encouraged to share information about fraudsters and fraud trends with each other, other financial institutions, and bodies combating fraud.

The note is guidance rather than binding rules, but it links fraud controls to existing requirements such as the Finance Sector Code of Corporate Governance and the minimum licensing criteria on systems of control, so licensees are expected to align their fraud procedures with the practices described.

Key obligations

• Insurers, captive insurers and intermediaries should establish and maintain risk-based procedures and controls to manage internal fraud, policyholder/claims fraud and intermediary fraud
• Insurers should establish an audit function to test fraud risk management procedures and controls
• Directors, management and staff should receive training on anti-fraud policies, procedures, controls and reporting duties, with enhanced training for higher-risk roles
• Insurers, managers and intermediaries should have procedures for staff to report suspicions of fraud to a designated individual and should keep records of fraud suspicions and cases
• Suspicions of complex fraud should be reported to the Financial Investigation Unit within the Guernsey Border Agency
• Suspicions that fraud proceeds are being laundered or relate to terrorist financing must be reported to the firm's Money Laundering Reporting Officer for possible Suspicious Transaction Report
• Insurers, managers and intermediaries should notify the Commission of fraud matters meeting specified criteria (eg control failures, reputational or financial risk, employee involvement or dismissal for fraud)
• Insurers are encouraged to share information about fraudsters and fraud trends with other insurers, financial institutions and bodies combating fraud

Applies to

insurers, captive insurers, insurance managers, insurance intermediaries