Bad medicine: fighting fraud in PMI

From doctored documents to suspect symptoms, private medical insurance fraud is on the rise. But what can be done to prevent the spread of cases? asks Chris Marshall

A Yorkshire man, who was struggling financially, took out medical insurance policies in nine different names with three insurers. He used computers at home and in his local library to forge receipts for medical treatments, before making 100 bogus claims totalling some £24,000. To collect his ill-gotten gains, he set up bank accounts in his grandmother’s name, without her knowledge.

But his carefully constructed scheme came crumbling down when insurers detected the suspicious pattern of claims and alerted the police, leading to a 12-month jail sentence.

While such brazen cases are rare, the increasing use of private healthcare by both the public and the NHS provides an increasingly tempting target for fraudsters.

Figures from the Association of British Insurers (ABI) show 4.7 million people had a private medical insurance (PMI) policy through their employer in 2023 – the highest in more than 30 years of data collection. In the same year, the amount paid in PMI claims also hit a record high, totalling £3.6 billion.

The rising popularity of PMI, coupled with economic hardship and cost-of-living challenges, and even the rise of agile working, has increased the risk of employee fraud within private healthcare providers – a threat that often garners less attention than markets such as motor, property and even travel.

“The perception that low value claims won’t be subjected to the same scrutiny, and at a time of increased financial pressure on households, has driven a rise in fraudulent cash plan claims,” says Dan Martin, protection and health lead at Altus Consulting.

Cases of deliberate fraud in PMI aren’t as common as in other lines of insurance. But the industry is alert to emerging risks and evolving fraud tactics.

Adrian Nye, supply chain director at Aviva UK Health, says: “We have a robust supplier management process in place.” He notes that paying benefits directly to hospitals and providers plays a key role in fraud prevention. “This dynamic helps to mitigate the risk of fraudulent claims being made by policyholders.”

Vital signs

Paying benefits directly to hospitals and providers helps to mitigate the risk of fraudulent claims being made by policyholders.

Adrian Nye, supply chain director, Aviva UK Health

As PMI grows in popularity and fraud tactics evolve, insurers must remain proactive in spotting suspicious claims. But what does PMI fraud actually look like?

Fraud in PMI takes many forms. While some policyholders alter invoices or misrepresent their medical history, others collude with healthcare providers to inflate or fabricate treatments.

There are tell-tale signs of medical insurance fraud. The greatest risk from claimants comes through invoice altering or providing false information, says Jo Tressler, director of employee benefits at the Clear Group. “Often this would require the individual to be in collusion with the healthcare provider or broker.”

For Martin, financial pressures, a reluctance to use the NHS and even a degree of entitlement to taking some benefit in exchange for the premiums they’ve paid, have driven an increase in customers seeking to claim for pre-existing conditions.

A healthcare provider may also be behind a case of fraud. In one method, known as ‘upcoding’, clinicians deliberately misrepresent a patient’s medical condition as more serious than it is. Another practice, unbundling, involves providers breaking down medical billing codes in creative ways that push the boundaries of legality.

In other cases, tests and treatments are conducted purely to inflate claims and generate additional insurance payments.

Falsifying medical treatments is also a concern. Martin says: “Anecdotally, insurers have seen receipts for shop-bought items, spa massages and membership for weight loss groups erroneously presented as claimable items, as well as receipts relating to another family member.”

Catching medical fraudsters

Insurers are working hard to ensure their systems can accurately flag suspicious claims for manual assessment, as well as using additional checks for claims made soon after joining, or where a customer has previously had their claims declined.      

They typically take a consistent approach across both individual and group PMI policies, as Aviva’s Nye says: “Our approach to fraud management is common across all our customer segments. We don’t assume that certain policy types only have certain fraud characteristics.

Brokers also play a key role in preventing fraud. This includes clearly explaining the underwriting associated with the private medical insurance plan which they are recommending.

This helps to manage client expectations at the claims stage. Also, says Nye, it can “make a big difference when an insurer is investigating potential insurance fraud if we know that their broker has thoroughly explained how the policy underwriting works as part of the sales process”.

Tressler agrees brokers play a crucial role. She argues that if insurers were to offer flat commissions to brokers, it could eliminate the incentive for brokers to churn business or give poor advice to maximise their earnings.

Insurers are also working closely with the police, including the City of London Police’s Insurance Fraud Enforcement Department (IFED), to share intelligence and tackle emerging fraud patterns.

Collaboration is key too when it comes to identifying behaviours and trends that may require further investigation, says Nye. “It’s important that all stakeholders closely collaborate to help prevent, spot and respond to potential issues,” he says. “This is particularly true when it comes to investigating why we’ve been charged more than expected for treatment, or why a customer has undergone a procedure that we wouldn’t typically expect from their course of treatment.”

Data diagnosis

AI can allow insurers to review huge amounts of data and is great at anomaly detection.

Dean Standing, chief revenue officer, Sagacity

AI and data analytics can increasingly play a key role in detecting fraud. In tandem with traditional claims assessment tools, these technologies enable insurers to more effectively identify and screen potentially suspicious claims.

Multiple risk indicators – including claim details, submission timing, policyholder history and unusual patterns – can be analysed to quickly evaluate potential risks, before any payment is made to the claimant.

Dean Standing, chief revenue officer at data consultancy Sagacity, says: “AI can allow insurers to review huge amounts of data and is great at anomaly detection – it can then flag up any suspicious cases that require further investigation, allowing insurers to investigate far more cases.”

Data analytics play a crucial role in the identification and prevention of insurance fraud at Aviva. Nye says: “Our wealth of data enables us to look at things like private medical insurance claims patterns and to spot potential anomalies.” This might include looking at red flags which could indicate that a customer is claiming for a condition that they had before they took out their policy, but didn’t declare on the health declaration at the application stage.

Beyond fraud detection, AI and data analytics help insurers optimise claims spending, ensuring policyholders receive appropriate, high-quality treatment while keeping premiums sustainable.

While AI and data analytics can help in the battle against fraud, Standing adds notes they’re only as good as the data they are given. “Data is the key to taking a stand against fraud,” he says. “By getting access to as many data sources as possible and regularly checking it is up to date and accurate, insurers can pinpoint fraudulent activity and take action.”

There may be untapped sources of data and intelligence that insurers could make use of to better detect fraud. For example, Standing says, “If a policyholder logs high levels of physical activity via their smartwatch while simultaneously claiming treatment for an injury that limits mobility, it could be an indication of fraud.”

Incorporating data from the likes of doctors’ notes with wider data sets could help insurers seek out inconsistencies between notes and billing codes and other indicators of fraud, Standing suggests.

As PMI fraud tactics evolve, the industry is working hard to stay one step ahead. By combining technology and data-driven insights with industry-wide cooperation, insurers can continue to protect policyholders and maintain trust in the system.

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