The Many-Headed Hydra of Fraud - Catherine Burt & Kate Abrahams, DAC Beachcroft
14/12/16. Organised crime gangs, illegal and unethical practices in the claims industry, and a persistent compensation culture are all combining to create a costly problem for insurers that is to the ultimate detriment of policyholders.
Despite various initiatives by law makers and insurers, motor fraud persists, and recent years have seen criminals and rogue elements within the claims management industry search for new and inventive ways to defraud insurers. The insurance industry has had successes, but the battle is by no means won. Those who make their living from fraud continue to look for new opportunities to exploit,” says Catherine Burt, National Head of Counter Fraud at international law firm DAC Beachcroft.
One of the biggest drivers continues to be the conduct of some claims management firms and claimant solicitors. As reforms have reduced opportunities for referral fees and escalating costs, fraudsters have found ways to build their income through layering profit into multiple heads of loss with fictitious or exaggerated elements of the claim. This has included claims for exaggerated or sometimes non-existent physiotherapy, cognitive behavioural therapy (CBT), interpreters’ fees, recovery, storage and hire, as well as many other types of exaggeration.
“It has become clear that it is enablers who are facilitating this multifaceted approach to fraud, revealing the extensive networks that exist behind many fraud claims,” says Kate Abrahams, Head of Intelligence at DAC Beachcroft.
These networks are still driving the volume claims market, including low speed impact cases.
Some rogue claimant solicitors continue to present fraudulent claims – claims where they have no instruction, where there is no personal injury or even an accident. There is also evidence that unscrupulous claims management companies continue to harass and coerce potential claimants into making a claim, even where they have no merit.
Figures from the Association of British Insurers show that 83% of people have been contacted by a claims management company. Alarmingly, 92% of those were called despite not having been in an accident or taken out a relevant policy.
Deafness claims / slips and trips
Fraudsters have diversified the types of claims they are prepared to submit, such as public liability and disease claims. Deafness claims notifications have grown steadily since 2005, when there were around 10,000 cases, to a peak of 85,000 in 2013, according to the Institute of Actuaries GIRO Deafness Claims Working Party.
Claims management companies and solicitors have been actively targeting deafness claims and public liability claims arising from pot holes and loose flagstones. Stories of fraudulent practices and persistent nuisance calls are emerging – while the sharp increase in low severity deafness claims hints at claims farming, according to David Williams, Partner at DAC Beachcroft.
Data and intelligence are powerful tools in the fight against fraud, and they will become even more so with better analytics and increased industry co-operation.
DAC Beachcroft is using analytic tools to identify emerging fraud hotspots and reveal misconduct of solicitors and other professional enablers. For example, analytics can highlight which firms are bringing the most fraudulent or struck-out claims and those that are inflating costs, or which insurers are being targeted.
“It is about knowing your opponent and getting under their skin,” believes Abrahams. “Through analytics and intelligence it is possible to spot trends and tactics, from sharp practices to out-and-out fraud.”
Planning your response
Slaying the hydra will require a multifaceted response, ranging from tougher regulation of the claims industry, to the sharing of data and intelligence and measures to tackle cultural attitudes to defrauding insurers.
The Insurance Fraud Taskforce report published in January 2016 called for more stringent enforcement of claims management company regulation and a tougher approach by the Solicitors Regulation Authority (SRA) to fraud.
In March, the government announced its plans to subject claims management companies to tougher regulation, transferring supervisory responsibility for the sector from the Ministry of Justice to the Financial Conduct Authority (FCA). The move will make senior managers at claims management companies personally accountable for their firm’s conduct under the FCA’s senior managers’ regime.
The volume claims market and the organised fraud threat both require a sophisticated set of ‘know your opponent’ strategies and the deployment of meaningful sanctions.
There is also a need continually to challenge the perception among some that it is acceptable to defraud insurers. And there are signs that attitudes are changing: research for Aviva found that falsifying injuries on a motor insurance claim is considered worse than purchasing stolen goods and as unacceptable as drink-driving.
The revival of the proposed government reforms to increase the small claims limit and remove general damages for minor whiplash is encouraging and greater enforcement by the courts and the use of sanctions such as restorative justice may change behaviour and act as a deterrent to people who think it is acceptable to exaggerate or bring unmerited claims.
Catherine Burt is National Head of Counter Fraud at international law firm DAC Beachcroft.
Kate Abrahams is Head of Intelligence at DAC Beachcroft.