Published 8 July 2015
Extracting the 'fat' – civil cost reforms
In the last five years, a raft of reforms has been introduced to tackle the spiralling cost of fraudulent claims, including the MOJ reforms in low value personal injury claims, the Legal Aid, Sentencing and Punishment of Offenders Act 2012 and the whiplash reform programme. Most recently, the Criminal Justice and Courts Act 2015 has banned solicitors from offering financial inducements to claim, and introduced a zero tolerance approach to claims which are found to be 'fundamentally dishonest'.
Tackling the 'F' word
But as the whiplash reforms start to bite in the motor claims arena, fraud is growing in other areas such as noise induced hearing loss claims – often dubbed 'the new whiplash'. Outside the volume claims arena, incidents of arson are also on the rise. Absent sufficient deterrents and robust criminal sanctions, fraud continues to inflate the cost of insurance. The reality is that organised fraud is viewed as a low risk, rarely sanctioned area of criminality which provides useful cash flow for other serious crime.
Against this backdrop, the Insurance Fraud Taskforce was set up by HM Treasury to investigate the causes of insurance fraud and recommend solutions to tackle it. Published in March 2015, its interim report identified, amongst other things, a pressing need to promote better data-sharing within the industry and to change public perception of insurance fraud.
Data-sharing is fundamental to preventing insurance fraud. Whilst insurers have shared data to much greater effect in recent years, particularly in the context of motor claims, but with the exception of the Insurance Fraud Bureau's 'Cheatline' there has been very little co-ordinated intelligence gathering of non-claims data. Underpinned by an amalgamation of claims and non-claims data, a larger impact and risks picture is needed at a strategic level.
One of the biggest challenges to the industry is to produce a centralised network for those with significant amounts of intelligence to share their knowledge securely and develop a more complete picture. Such a level of collaboration is yet to be achieved, and the industry is looking to the Taskforce to clear a path for organisations to work more closely together.
A 'victimless' crime?
Whilst tackling organised fraud remains a key priority, other areas of opportunistic fraud which pervade both first and third party claims need to be addressed. These range from artificial embellishment of injuries in low velocity whiplash claims, to fabricating lost or damaged items in household claims.
Nor is the issue limited to claims. Application fraud is another big issue and impacts the overall cost of insurance for the consumer. Initiatives such as 'My Licence' in the motor claims arena, which allows insurers to access DVLA records at the point of quote, is a step in the right direction, but more needs to be done in other claims areas.
As we have witnessed with the monumental rise of whiplash claims frequency over the past decade, the underlying problem is a cultural one. There is a desperate need to dispel the notion that it's okay to make a claim for soft tissue injuries arising from a road traffic accident, despite not having been injured. There is a perception that some claimants and policyholders either do not appreciate that what they are doing is wrong, or else they view insurance fraud as a 'victimless crime'.
To achieve its stated objective of protecting the interests of honest consumers and lowering claims costs, the Taskforce must find ways to encourage the insurance industry to educate consumers as to the adverse financial implications of seemingly 'innocent' misrepresentations on premiums generally. Only when insurance fraud is viewed in a similar vein to benefit fraud will peer pressure help to alleviate the problem.
Peter Allchorne is a partner in the Motor Claims team at international law firm DAC Beachcroft.
This article was first published in Post, June 2015