According to the research the frequency of financial fraud is also on the rise, with 21,122 identity fraud cases reported in the first quarter of 2007 up 12 percent on the previous year. Small businesses are also increasingly likely to be targets of application fraud with CIFAS reporting a 21 percent rise to 19,239 cases detected in the service in the first quarter.

As financial and regulatory pressure piles on small businesses, insurers are reporting a sales boom in directors’ and officers’ (D&O) insurance. The proportion of SMEs buying D&O policies has almost tripled in the past five years, according to AIG Europe (UK) report.

Business consultancy Experian said London was the identity fraud capital of the UK, with the top 25 most-at-risk areas located inside the M25.

Meanwhile, the Association of British Insurers (ABI) warned that fraudulent claims were now costing insurers £4 million every day. The ABI said its research had showed that one in ten adults admitted to having cheated on an insurance claim.

Honest policyholders are paying up to £40 extra in premiums to compensate for the scheming behaviour. Nick Starling, director of general insurance and health at the ABI, warned: “'Honest customers should not have to pay for the cheats. Insurers are committed to reducing the fraud