Fraud in trade and ocean

marine insurance

15 May 2013
Markus Spielmann

Agenda

1. Definition of terms
2. History
3. Fraud loss figures
4. The persons involved
5. Types of fraud
6. Countermeasures
7. Future outlook

Fraud in trade and ocean marine insurance, Markus Spielmann

15.05.2013

Definition of terms

What is fraud ?

Distinctions and definitions vary, depending on relevant legal system

Often difficult to prove in court
In maritime trade / marine insurance, English legal definitions frequently used
due to traditional focus on English law

Fraud in trade and ocean marine insurance, Markus Spielmann

15.05.2013

Definition of terms

What is fraud ?

Difficult to distinguish from other types of theft such as

secret taking of third-party property
violent appropriation, i.e. robbery / piracy
Fraud is theft through deception
property is handed over "voluntarily"

Fraud in trade and ocean marine insurance, Markus Spielmann

15.05.2013

History

Historical accounts are rare, but fraud was documented even in

ancient times

> written evidence dates back to 360 B.C.

> sporadic local incidents up to the 1960s
> disproportionate increase since the 1970s
> more violent offences / piracy since 2008/2009
Cartel of silence among villains and victims

Fraud in trade and ocean marine insurance, Markus Spielmann

15.05.2013

Fraud loss figures

An estimation of the exact cost of insurance fraud is difficult:

According to the American Insurance Information Institute, the insurance

industry estimates insurance fraud at about 10 percent of the
property/casualty/marine insurance industrys incurred losses and loss
adjustment expenses.

Titel der Prsentation und Name des Redners

15.05.2013

The persons involved

Seller / purchaser
Shipowner, charterer
Master / crew
Banks / lenders
Insurance companies
Brokers / agents
Original Assured

Fraud in trade and ocean marine insurance, Markus Spielmann

15.05.2013

The persons involved

Methods of committing fraud

Use of false / forged documents regarding the cargo / carrying vessel
Supplying false information or concealing information/ facts
Fraudulent bankruptcy / breach of contract
Setting up bogus firms to conclude contracts
Issue of blank, but signed, B/Ls
Issue of two differing B/Ls for one cargo

Fraud in trade and ocean marine insurance, Markus Spielmann

15.05.2013

Types of fraud

Basic patterns of (insurance) fraud

Documentary fraud
Container fraud
Scuttling / arson
Deviation, charter fraud, phantom ships

Fraud in trade and ocean marine insurance, Markus Spielmann

15.05.2013

Types of fraud

Documentary fraud

Fraud in trade and ocean marine insurance, Markus Spielmann

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Types of fraud

Documentary fraud

Perpetrator is typically the seller

Agrees sale of goods on Letter-of-Credit basis
Submits manipulated documents to the bank
Ships
worthless materials in the correct weight
goods of a lower quality than agreed
absolutely nothing

Fraud in trade and ocean marine insurance, Markus Spielmann

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Types of fraud

Documentary fraud
On the consignee side:
false authorization to take delivery is presented
imposters pose as lawful consignees

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Countermeasures

Fraud in trade and ocean marine insurance, Markus Spielmann

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Countermeasures

for Insurers:
Careful underwriting
do not get blinded by premium expectations
check into local economic conditions
watch out for "critical signals"
check facts and plausibility of the offer
dare to query facts with broker/policyholder

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Countermeasures

for Insurers

Careful claims management

refuse to be pressurized
request and check the relevant documents
look out for critical signals
make plausibility checks
check facts on route / means of transport, cargo
utilize independent investigators

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Countermeasures

for insurers
Monitor worldwide claims tendencies
Cooperate with organizations such as IMB, national / international police forces
Exchange information with other parties
Exchange information with insureds

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Countermeasures

for reinsurers
Careful underwriting
avoid being blinded by premium expectations
take local economic conditions into account
look out for "critical signals"
check facts and plausibility
Query facts from brokers /ceding company

Fraud in trade and ocean marine insurance, Markus Spielmann

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Countermeasures

for reinsurers
Monitor worldwide claims tendencies
Cooperate with organizations such as IMB, national / international police forces
Exchange information with other insurers and reinsurers
Exert pressure on ceding companies for more critical underwriting

Fraud in trade and ocean marine insurance, Markus Spielmann

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Future outlook

People who want to make money through fraud employ modern methods
and are willing to explore new technologies.

Titel der Prsentation und Name des Redners

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Thank you very much

for your attention

Markus Spielmann
2010 Mnchener Rckversicherungs-Gesellschaft 2010 Munich Reinsurance Company