Experian®, the global information services company, today published a new report revealing that frauds attempted against financial services providers increased by 11 per cent in 2010. 20 in every 10,000 applications for credit and other financial products made last year were discovered to be fraudulent, up from 18 in 2009.
Experian's fraud report uses information collated through the National Hunter and Insurance Hunter fraud data sharing schemes to detail the evolving nature of fraud in the UK's financial services sector. It shows that in 2010 there was a significant rise in attempted first-party mortgage and automotive fraud, much of which was attempted by young, professional people.
2010 also saw a 25 per cent increase in fraudulent applications for current accounts, with almost half of new cases down to identity fraudsters. Experian's experts suggest that that organised criminals could be increasingly looking to open fraudulent current accounts to launder money or provide a more convincing platform for targeting credit products offered by the same organisation.
Identity frauds targeting personal loans increased for the first time in four years. Seven in every 10,000 loan applications were flagged as fraudulent in 2010, up from five in 2009. Identity fraudsters were responsible for 60 per cent of these cases. Levels of identity fraud attempts to obtain new credit cards also stabilised at 19 per 10,000 applications in 2010, having fallen each year since 2006.
Experian's analysis reveals that identity fraudsters continue to misuse the identities of the wealthiest sections of society most frequently. However, young single people living in shared and rented accommodation from all sections of society are also amongst those most targeted.
London remains the identity fraud capital of the UK, with residents Woolwich and East Ham recording the most incidents per head of population, although the fraudsters are migrating west into the Thames Valley, with areas such Reading and High Wycombe firmly on the radar.
First-party fraud boom
First-party fraud, where an individual falsely portrays their personal circumstances to obtain services to which they are not entitled, now accounts for more than half of frauds attempted against credit and other financial service providers. 56 per cent of fraud detected was down to first-parties last year, up from 39 per cent in 2009. Experian's fraud experts suggest that lower take home pay, wage freezes and unemployment may have contributed to this increase.
The biggest first-party fraud culprits emerged from the Upper Floor Living Mosaic demographic, young singles living on limited incomes, renting small flats from local councils or housing associations. This group was almost four times more likely than the UK average to attempt first-party fraud, with automotive, credit card and loans the most commonly targeted services.
There were also higher than average incidents of attempted fraud from other parts of society, in particular those classified as Liberal Opinions, a Mosaic group that contains many young, professional people who have benefited from a university education. This group attempted first-party fraud at nearly twice the average rate in 2010, primarily targeting credit cards and loans.
Experian's geographical analysis reveals that Londoners have attempted more first-party fraud than residents from anywhere else in the UK. There were seven first-party fraud attempts for every 10,000 adults in Greater London during 2010, more than twice the rate recorded in the north west of England, the next busiest region. The London borough of East Ham was the busiest area of the UK for first-party fraud overall, experiencing 30 attempts for every 10,000 inhabitants.
Surge in attempted mortgage and automotive frauds
Experian's analysis of fraud data reveals that automotive finance and mortgage providers were most frequently targeted by first-party fraudsters. Automotive fraud rates were up 31 per cent on 2009 levels, with 38 in every 10,000 applications for car finance discovered to be fraudulent in 2010. More than 80 per cent of automotive fraud is first party, with more than half of it underscored by an attempt to conceal adverse credit histories.
Mortgage fraud attempts increased by 14 per cent to 32 in every 10,000 applications in 2010, with first-party fraudsters responsible for 97 per cent of cases. Attempted mortgage frauds typically involved individuals inflating the prospects or status of their employment and personal finances or not disclosing previous addresses attempting to conceal an adverse credit history.
Insurance sector continues to face first-party challenge
Fraud rates in the insurance sector remain in line with full year figures for 2008 and 2009. Nine in every 10,000 policy applications and claims were detected as fraudulent, with first-parties responsible for the overwhelming majority of attempts. In 80 per cent of cases, frauds were due to non-disclosure of previous claims or other relevant information.
More than a quarter (27 per cent) of fraudulent home insurance claims made in 2010 involved a staged incident or items added to a list of otherwise genuinely stolen goods. For motor insurance, non-disclosure of claims or convictions accounted for half (48 per cent) of attempted frauds. Eight per cent of frauds involved 'fronting', where a parent or lower-risk friend was falsely named as the main driver.
Evidence has also emerged of identity fraudsters targeting motor insurers. More than a fifth (21 per cent) of fraudulent claims involved staged accidents where the fraudster then attempted to claim on insurance policies previously obtained using someone else's identity.
Nick Mothershaw, Director of Identity and Fraud at Experian, comments: "Fraud in the UK is a growing billion-pound illegal business with fraudsters resorting to innovation and inventiveness, targeting any perceived weaknesses in the system. Fuelled by the recession's aftermath, it is likely that financial services providers could see fraud attempts rise during 2011.
"To manage the financial and reputational risk fraud presents, organisations must ensure they have the right defences in place that allow rigorous validation and verification of identities and information while still being able to provide the convenience and experience genuine customers expect."