Motor insurance fraud has become an increasing problem for the industry and insurers are calling for tougher action to tackle the issue, which is being made worse by the economic recession.
“There is an indication at the moment that there is more fraud around. That’s probably down to the current economic situation more than anything,” says John Reynolds, Fraud Controller at Equity Red Star, the largest motor insurer within Lloyd’s.
“But equally I believe insurers are becoming better at spotting the right cases. We’re detecting more fraud, but it’s difficult to quantify whether that’s down to better techniques or the current economic situation.”
Fraud detection efforts
Insurers have bolstered their efforts to detect fraudulent claims, training staff to identify dubious claims as well as using computer technology to pick up suspicious claims trends.
The Association of British Insurers (ABI) estimates that the insurance industry detected 35,300 fraudulent motor claims in 2008 with an estimated value of £360m.
But the involvement of organised crime gangs in motor fraud is causing a growing headache for insurers. “It’s a very significant part of what we’re dealing with on a daily basis,” Reynolds says.
Crash for cash
‘Crash for cash’ incidents, where innocent drivers are induced into accidents with vehicles driven by members of fraud gangs, are among the fastest-growing forms of motor fraud.
These crashes are caused by fraudsters suddenly braking at junctions, causing other cars to go into the back of theirs. Fraudsters may disengage the brake lights of their cars to make it impossible for other drivers to see they are suddenly stopping.
The fraudsters start to make a string of false claims to the other driver’s insurance company for injuries they did not incur, and even make claims for ‘phantom passengers’ who were not in the car at the time of the accident. These claims are often backed by false witness statements and by faked medical reports.
Tackling the problem of motor fraud
Steps need to be taken to tackle the growing problem of orchestrated motor fraud, says David Powell, Manager of Underwriting at the Lloyd’s Market Association.
“The reason so many of these incidents are occurring is that the system, to an extent, allows them,” he says. “The risks for the criminal are fairly low, while the rewards are fairly high. The average payout for personal injury awards is around £2,500, while the risk of detection and the risk of police action have been pretty low. It adds up to an attractive package for the criminal.”
Insurers call for tougher penalties
Insurers want the police and national law enforcement agencies to do more to tackle financial crime. “We’d like to see much more resource given to tackling insurance fraud. We’d also like to see more prosecutions and tougher sentencing of those convicted,” Powell says.
Part of the problem, Reynolds says, is that apart from the City of London Police, no other police forces’ performance is measured on tackling fraud.
The ABI has run a high-profile campaign to publicise the costs of insurance fraud, saying it adds around £40 to every premium paid by honest policyholders each year.
Using technology to catch the culprits
The Insurance Fraud Bureau (IFB), which was established three years ago, has spearheaded the fight against this crime.
It has used cutting-edge technology and data pooled from across the insurance industry to help cut the size of organised ‘crash for cash’ networks by 11% in the past two years.
The IFB says that in places such as Luton, East London, Harrow and Walsall where it worked with the local police forces, there were fewer ‘crash for cash’ claims.
But in other places, notably Liverpool, Halifax and Ilford and Barking, where there was no joint action between the local police and the IFB, ‘crash for cash’ activity increased, the IFB said.
But the issue goes deeper, says Reynolds. “What we need to do is to change public perception. If we can do that it will impose some degree of pressure on government and law enforcement authorities to deal with it. But that’s not going to happen while the perception of it is ‘innocent crime’.”
