Ghost broking - the new threat to SMEs

A spokesperson for Everywhen said: “Ghost broking is evolving and becoming a growing threat with serious financial and reputational consequences for small business owners. A recent report from Aviva shows a 22% increase in ghost broking cases over the last two years. With the average victim losing more than £2,000, it is a real problem that needs to be taken much more seriously by SMEs.”

Ghost brokers pretend to be a middleman for well-known insurance providers, claiming they can offer discounted cover. Once they have gained a customer’s trust, they commit insurance fraud by forging the cover and policy documents. They give a legitimate insurer fake details about the customer so that the policy looks cheaper and take out genuine insurance on the customer’s behalf but secretly cancel it, immediately afterwards. 

This leaves individuals and small business owners very exposed if they need to make a claim. SMEs can be particularly vulnerable because they are often juggling many tasks at once and want quick, easy insurance solutions. They also want to keep overheads down and are tempted by lower costs. Often, they use social media to raise brand awareness and to network without realising the ticking timebomb threat that these platforms pose.  

Even if the documentation looks official, it may not be. Some victims have said that the paperwork received from the ghost broker was so convincing it fooled the police. However, there are tell-tale signs SMEs should be wary of:  Does the broker have an FCA registration number? Is the price too good to be true? Is the broker only advertising on social media and via messaging apps? Is payment requested via bank transfer? Is the documentation only being provided via screenshots or unverified PDFs? Is pressure being applied to buy quickly by incentives, such as time limited offers?

How ghost brokers can affect SMEs

Many SMEs allow employees to use their personal vehicles for work purposes. This can expose a business to significant risk. If an employee unknowingly purchases a fraudulent motor insurance policy and is involved in an accident while driving on business, the vehicle will be uninsured. In these circumstances, liability may fall on the employer, leaving the SME responsible for the full cost of damages, claims, and associated legal expenses.

To rub salt into the wound, footing the bill for claims isn’t the only problem created by fraudulent insurance policies. SMEs may also experience company vehicles insured through ghost brokers being seized, financial and legal penalties applied for driving uninsured and reputational damage if the incident is made public.

How businesses can protect themselves against ghost broking

There are a number of measures that SMEs can put in place to reduce the likelihood of falling victim to a ghost broker. These include:

• Checking the Financial Conduct Authority register to verify the broker is legitimate
• Reaching out to the insurer directly to confirm that the policy is valid
• Avoiding buying insurance through social media
• Consolidating all business-related insurance, including commercial vehicles/fleets
• Arrange insurance on employees’ behalf for company vehicles 
• Educate staff on ghost broking scams so they are more vigilant 
• Add a second line of approval for insurance, to avoid hasty decisions being taken.

Everywhen’s spokesperson concluded: “A sure-fire way to avoid ghost brokers is to work with a trusted insurance partner. Look for an insurance broker who is upfront about who underwrites the policy, explains cover without lots of confusing insurance jargon, provides clear verifiable documentation and understands the unique risks that SMEs face.”