During recession there are some organisations that are tempted to consider reducing their risk management activities. However, this is exactly the time when they should be looking to continue with and even expand their risk management activities. Failure to do so could be storing up 'trouble' for the future. The skills, tools and information at the disposal of the risk manager are needed to create reassurance and to enable organisations to continue to take decisions with confidence.
A number of professional organisations and insurance sector companies have suggested that in times of recession there is often a corresponding correlation in levels of crime, including fraud and burglaries. To reduce vigilance at such a time would be to open the doors to a flood of potentially fraudulent claims and other losses.
So why does the recession have an impact on the risk of insurance fraud?
The fraud risk is ever present and people from all ages and walks of life can be attracted to making a fraudulent insurance claim for a variety of reasons such as necessity, greed or jealousy.
Whilst the overall risk may remain constant, the extent of the threat can vary depending on the motives and need to commit fraud. Many members of the public and businesses are facing unprecedented financial pressures and are responding in various ways. See below how the recession can have a direct effect on the frequency of people committing fraud:
Most families rely on income from secure employment. A loss of income can have devastating consequences as bills accumulate with no funds available to pay rent or mortgages.
As domestic debt increases, so does the pressure to meet financial commitments. Until recently, credit was easy to secure with many people attracted to 0% interest and free balance transfers. Times have changed and these debts still have to be paid but potentially at higher interest rates with less income.
Homeowners with negative equity find it almost increasingly difficult to move house and in some cases are trying to pay mortgages which they can no longer afford.
If a number of mortgage payments are not met, repossession is likely. Some homeowners in these circumstances will see repossession as an indication of their failure to provide for their families. This is an extremely emotive situation and some will turn to crime as a last resort in an attempt to prevent their home being taken away.
Many pension funds and investment portfolios rely on the performance of shares. The volatility of the stock market has seen share prices plunge as confidence falters so the value of such funds will have diminished. The drop in interest rates affects savers, particularly those who rely on the interest on savings as their income.