The City of London’s Insurance Fraud Enforcement Department has detected 1000 insurance fraudsters in the past two years, arresting 600, according to an Association of British Insurers report.

The police unit provides a centralised response to tackling fraud, it says.

The first industry-wide database of insurance fraud criminals was also set up in 2012.

The report, carried out by Perpetuity Research, says tackling insurance fraud was a low priority for police but these new measures are helping to deal with the problem.

The researchers interviewed a number of insurance fraudsters, to gauge how they think.

“It is important to remember that insurance frauds vary enormously, from the petty and the unplanned to the serious and the organised,” the report says.

In one case a man identified as Lee got “smackheads and crackheads” to launder his money through their bank accounts after he set up as a fictitious, or “ghost”, insurance broker.

“He paid them about £1000 each ($1926) to open the account, then he controlled all the plastic cards relating to the account.”

The report says insurance fraud is considered easy, and some criminals see insurance companies as legitimate targets.

Organised fraudsters look for weaknesses in insurers’ defences and often exploit public ignorance, such as with “ghost broking” scams.

There are three main types of insurance fraud: exaggerated and fabricated claims in retail insurance, organisational scams in commercial insurance and gang fraud.

“Insurers may also be victimised by their own staff,” the report says.

Insurance fraudsters are now more likely to be caught, due to common mistakes that can be identified by well-trained, vigilant insurance staff.

People would be less likely to commit fraud if they knew the consequences, such as criminal records, jail time and adverse effects on family relationships, job prospects and access to mortgages and loans.

Many insurers decide against official action, sometimes to protect their reputations. “However, some insurers may pursue civil remedies.”

Some fraudsters think insurers are not committed to investigating low-value scams, and their desire to process claims quickly leaves little time for fraud management.

“Moreover, in some cases it is cheaper to pay out than to investigate.”

Fraud can result from insurers’ technology weaknesses, such as inadequate database management. Other issues are poor intra-department relationships and cross-referencing, lack of staff awareness of danger signs and lack of commitment to knowing customers.

Insurers need to publicise the fact fraudsters will be caught and punished, the report says.