The insurers are fighting back
Liz King says that honesty is the best policy as increasingly sophisticated methods are used to catch out those who make fraudulent claims
http://business.timesonline.co.uk/
Insurance fraud is far from a victimless crime, with the estimated £1.6 billion a year in bogus claims adding about £40 a year to every insurance policy.
These figures, produced by the Association of British Insurers (ABI), relate to general insurance – motor, home and travel cover – and to false claims on business policies. Fraudulent claims for personal policies alone amount to a whopping £800 million.
The average fraudulent claim was for about £800, says the ABI, and of the one million fraudulent claims in the year to March, nearly 90 per cent related to exaggerations of genuine claims. The remainder were invented, but they account for almost 30 per cent of the value of fraudulent claims.
While many people may be tempted to inflate a claim or add on a little extra to cover the excess when they have a car accident, for example, the reality is that you are more likely than ever to get caught out. Not to mention, of course, that you are breaking the law. Insurers are becoming increasingly sophisticated in spotting fraudulent claims. Last year Norwich Union, one of Britain’s biggest insurers, investigated about 60,000 suspect claims and denied 20,000 of them – worth approximately £150 million.
Certain types of fraud are becoming increasingly common, such as “fronting”, where parents take out a policy on a car that only their children are likely to drive, in an attempt to reduce premiums. They are committing fraud but may not realise it. Chris Hill, head of fraud at Norwich Union Insurance, says: “Parents buy their 18-year-old son a car for his birthday. But when they look into the cost of insuring a newly qualified driver, aged 18 and without a no-claims discount, the cost looks high. So they insure the car in the mother’s name and include the son as a named driver, even though he will be the principal user.
“The son has a crash while away at university and the insurer twigs that he is the principal driver. The policy is declared void with two implications: the insurer will not compensate the policyholder for damage to the vehicle and, under insurance law, if damage or injury is sustained by the other vehicle or driver involved in the crash, the policyholder may also be liable for this. Suddenly the cost of properly insuring the 18-year-old does not look so expensive.”
By knowingly giving false information, or failing to disclose something when you take out a policy, whether it is motor, home, travel or other types of insurance, such as medical, you may invalidate it. Mr Hills says: “Let’s be clear what that means. You may not have insurance cover to drive. Your home and contents may not be insured. Under insurance law, if any material part of a policyholder’s claim can be shown to be fraudulent, then the whole claim is potentially invalidated.
“Put another way, if your house burns down and you lose everything, and you try to add £5,000 fraudulently to an otherwise genuine claim, then you seriously risk receiving no compensation. This is not widely appreciated by most opportunistic fraudsters and it can be heartbreaking to see the subsequent impact it has on them and their families.”
Of course, fraud occurs on a range of policies, and travel insurance is no exception. Perry Wilson, managing director of Insure & Go, the web-based insurer, says: “We tend to deal mainly with travel insurance fraud, which is broken down into three categories. First is blatant fraud by the customer, such as claiming to have lost a suitcase that was never lost. Then there are instances where the suitcase was lost, but the items inside have changed from George at Asda to Armani. This is called ‘upping the case’. But surprisingly, the fraud that seems to be increasing most quickly is from clinics abroad. We had a customer who had some treatment and was given a €9 (£6.30) bill for a cold-sore cream, and we were billed €240 by the hospital.”
The insurers, understandably, are reluctant to reveal their counter-fraud measures, but the barriers between insurers are being broken down, especially since the Insurance Fraud Bureau was set up last year. Susan Evans, of Admiral, another insurer, says: “Intelligence gathering is now more focused and the bureau can lobby the Government and the police more effectively than a lone insurer could.”
Admiral is one of a number of insurers that use “voice-stress analysis equipment” – essentially a lie detector – to help to weed out false claims. Ms Evans says: “Technology is now far more available to help in the fight against the fraudster. When we find a claim to be fraudulent, an investigation is begun to obtain evidence to the criminal standard. Once we are satisfied that we can substantiate the high burden of proof needed, we will refuse to pay, try to get back any money spent on the investigation and, where possible, prosecute.”
The sheer volume of insurance fraud means that insurers need to investigate bogus claims themselves rather than involve the police, at least in the early stages. But helping customers to understand the importance of disclosing information is one weapon in the armoury, says Allan Clare, of Direct Line Insurance: “If a visit is required after a loss, we talk the customer through the claims process. It is important that we manage their expectations at what can be a time of high anxiety for them.”
But the insurers are not the only victims. Organised criminal gangs prey on the general public to get money out of the insurers too. Mr Clare says: “Our customers can become the target of scams such as induced motor accidents, where gangs target motorists and slam on their brakes unnecessarily when in front of them. We see a high level of organised criminal activity in these staged accidents, which are often called ‘cash for crash’.”
Despite all of this, it is important to remember that the percentage of people trying to make a fraudulent claim may not have increased. Dave Perry, financial crime prevention manager for Halifax General Insurance, says: “Not everybody is that way inclined. That more fraud is getting picked up is not necessarily because more people are trying to defraud, but because the systems of investigation and the quality of investigative staff are improving.”
