Police in Northern Ireland are investigating a massive public liability insurance fraud which has left victims with a potential uninsured risk of £1 billion sterling.

Some 1,400 small businesses, organisations and individuals may have fallen prey to the fraud, the Police Service of Northern Ireland said.

Inquiries by the Serious Fraud Office, supported by the PSNI Fraud Unit, indicate that as much as £3.5 million in premiums could have been lost. Det Chief Insp Larry Cheshire said that equated to a potential uninsured risk of almost £1 billion.

Police investigators have already searched the offices and home of one insurance broker in Northern Ireland and a series of associated searches of eight insurance brokers was conducted by the SFO in South Yorkshire and Leicestershire yesterday, he said.

In a separate investigation, PSNI Fraud Unit members are assisting colleagues from the Central Scotland Fraud Unit to investigate a similar Scottish-based fraud involving some 400 victims in Northern Ireland with a premium loss estimated at around £500,000 and a consequent uninsured risk of some £150 million.

Det Chief Insp Cheshire said there had been no arrests to date but that the fraud was widespread and business people in the North needed to be made aware of it. "This has a huge potential to impact heavily on the economy of Northern Ireland, which is why we are taking it so seriously." He said industry insiders warned it had "the potential to be the biggest insurance fraud to hit the industry in the UK in 20 years".

He stressed that insurance companies themselves were not involved but appeared to have been "duped" by rogue brokers.

He said: "It is entirely possible that some business people throughout Northern Ireland are not insured for public or employee liability, even though they have paid premiums and, in some instances, have even received an insurance certificate."

Det Chief Insp Cheshire said the fraud appeared to be targeted on small businesses, such as firms in the construction industry, and other organisations needing liability insurance for public halls and social clubs.

The Scottish end of the scam appeared to have been directed particularly at the Orange Order, the Masons and social clubs.

Police believe there have been a number of claims submitted that will not be paid out. The liability would then fall on the business or organisation affected.

Investigators have also uncovered an industry practice known as "grossing up". Grossing up occurs when a broker secretly adds a fee to the insurance company's quoted premium, despite the fact that the broker's commission was already included in the premium quoted.