Ghost Broking – The Hidden Risk in Insurance Fraud

What is Ghost Broking?

Ghost Broking is a relatively new term, referring to the sale of fraudulent insurance policies, particularly within the car insurance industry. Unsuspecting consumers are scammed into believing that they are purchasing genuine insurance from a broker, and then unknowingly drive their vehicle with no legally valid insurance protection at all. These consumers have fallen victim to ‘Ghost Broking’.

How Does Ghost Broking Work?

Ghost Broking scams work in three different ways:

Falsifying information – The Ghost Broker begins by purchasing a policy from a genuine insurance provider. They either use accurate information from the consumer, and then change it shortly after the purchase, or they falsify the details to begin with. The false details provided generate a lower premium than would be obtained by the consumer’s true details. The Ghost Broker then sells the insurance policy to the consumer for a much higher price, making a tidy profit from the sale.

Forging documents – The Ghost Broker completely forges the insurance policy. Usually, they do this whilst acting as a broker, falsely claiming the policy is from a genuine insurance company. In some instances, however, scammers go as far as cloning an insurance company, duplicating all of the details of the business including website, address, etc. Either way, the policy documents sold to the consumer are fake and worthless.

Cancelling policies – Using accurate information, the Ghost Broker purchases a genuine insurance policy and sells it to the consumer. Not long after, usually within the ‘cooling-off’ period, the Ghost Broker cancels the policy.  The consumer is unaware of the cancellation and continues driving, believing they still have valid insurance. In this instance, the scammer makes a profit on the initial sale of the policy, and shortly after retrieves a refund upon cancellation, making a double fraudulent win.

Who are the Top Targets of Ghost Broking Scams?

Insurance policies provided through the fraudulent Ghost Broking process, look genuine, and anyone can fall victim to the scam. In the current financial crisis, the cost of car insurance is on the rise, and most drivers are on the lookout for better deals.

To avoid detection, the fraudsters often advertise on social media, on money-saving forums, through classified ads, or by word of mouth, and in this way, they can target particularly vulnerable, high-risk drivers.  Young adults who have recently passed their test may be inexperienced in purchasing car insurance and are regular visitors to social media sites. The elderly, who may be less familiar with technology, may see an advertisement in the back of a newspaper, or on a noticeboard in a local shop. Through these rudimentary methods of advertising, both high-risk groups are likely to feel attracted to what looks like the perfect deal.

The Consequences of Falling Victim to a Ghost Broker

Most victims of Ghost Broking are totally unaware they are being scammed until they are either pulled over by the police, or they attempt to make a claim through their bogus insurance policy.

Driving without insurance is against the law, and from a legal point of view, owning a fake insurance policy is as good as having no policy at all. This comes with serious consequences, which could involve the following:

• Fixed Penalty Notice – A £300 fixed penalty notice is given to those who are caught driving a vehicle they are not insured to drive
• Points on Licence – 6 penalty points are applied to the licence of those uncovered
• Seizure of car – In some cases, the driver’s vehicle is seized and impounded or even destroyed
• Cost to release car – up to £150 is usually charged to reclaim a seized car
• Cost of new insurance – A new insurance policy will need to be purchased should the driver to continue to drive
• Cost of damage – The cost of any damage to either the driver’s vehicle or that of another vehicle involved in an incident will need to be covered by the uninsured driver

What to Watch Out for: Signs of Ghost Broking

It is important to know the signs of Ghost Broking when purchasing car insurance.

To remain vigilant, keep an eye out for suspicious advertisements, surprisingly low prices, cold calling, and limited contact (usually over social media or unknown phone numbers). Above all, the most important sign is a good deal—if the deal seems too good to be true, be aware that it probably is!

Top Tips on How to Avoid Ghost Broking Fraud

In addition to looking out for the signs of Ghost Broking, further checks can be made to avoid the risks of insurance fraud.

• BIB – If a consumer purchases a car insurance policy through a broker, they can check the validity of the broker through the British Insurance Brokers Association
• MIB – If a consumer purchases a car insurance policy directly through an insurance company, they can check the validity of the company through the Motor Insurer’s Bureau
• FAC – Consumers can check the validity of both brokers and insurance companies by checking that they are registered with the Financial Conduct Authority
• Navigate – Consumers can check if their car is registered as ‘insured’ on the central record of all insured vehicles in the UK using the Navigate website
• Ratings – Consumers should look at ratings of either brokers or insurance companies on reputable review websites such as TrustPilot or Which?

The Cost of Chargebacks as a Result of Ghost Broking

It is not only consumers who fall victim to Ghost Broking. In cases where a fraudulent broker uses a legitimate insurance company as a front, the company also becomes a victim.

If, when purchasing an insurance policy (whether legitimate or not), the consumer uses a debit or credit card, the retailer’s name that appears on their statement will be the ‘merchant of record’. Essentially, this means when a dispute arises, a chargeback will be raised against this party.

In the case of Ghost Broking, legitimate Insurance companies are likely to lose out on chargebacks due to the reason ‘service not provided’. However, if the Ghost Broker used bogus company details, then it will be the merchant’s acquiring bank who will end up picking up the cost when the chargeback is raised, so long as this is done within the rightful timeframe of the bank.

Furthermore, Section 75 may come into play if the transaction (on a credit card only) was between £100 and £30,000 and if the customer can prove their case for breach of contract or misrepresentation.

As legitimate insurance companies must stay on guard against Ghost Broking fraud tactics. To effectively combat Ghost Broking related chargebacks, they should proactively address potential issues and stay vigilant at every stage of the transaction process.