An emphasis on detecting insurance scams could leave underwriters and brokers exposed to internal fraud, a leading risk analyst claims.

Employee fraud is now being uncovered by 40% of Australian companies, with insurers fighting a war on two fronts: detection of insurance fraud and prevention of internal fraud.

The findings of a new survey by PricewaterhouseCoopers (PWC) shows internal fraud detection rates are higher in Australia than the rest of the world, with one-third of fraud resulting in losses of more than $US1 million ($1.1 million)

The global financial crisis appears to have provided some employees enough justification to fleece their employers of millions, PWC says, although statistics may not indicate an increase in actual fraud, but rather a rise in fraud detection.

PWC forensic services partner Malcolm Shackell says insurers are at “acute risk” of internal fraud.

“I think that is a real risk and it depends on how the organisation is siloed,” Mr Shackell told insuranceNEWS.com.au.

“For most organisations [fraud risk] might involve payroll and accounts payable, but in insurance companies you’ve also got claims and that sort of thing.

“Internal fraud is still something insurance companies need to watch.”

And Mr Shackell says the number of Australian companies with fidelity insurance is surprisingly low.

Globally more than half of all internal fraud occurs at middle management level, spurred by the cancellation of bonuses, harder sales targets and a fear of retrenchment. Weak internal controls, falling staff levels and entry into new product lines are all contributing factors.

“Closer to home, another trend we saw was the detection of frauds that had gone on for a long time and had been committed by trusted employees, resulting in a larger financial and broader, whole of business impact.”