UK insurance fraud taskforce to investigate 'drivers' of fraudulent claims

Out-Law News | 24 Mar 2015 | 3:11 pm | 2 min. read

Insurance industry representatives will seek to challenge the perception by some customers that insurance is "fair game" for fraud as part of a UK government-commissioned programme of work to investigate ways to reduce insurance fraud.

The Insurance Fraud Taskforce, which was established in December 2014, published its first report alongside last week's Budget. According to the report, the group will focus on "four broad topics" in order to keep its work "focused and manageable"; including the encouragement of fraudulent claims, fraud deterrents in the claims process, policyholder behaviour drivers and the role of fraud data.

The Association of British Insurers (ABI) and British Insurance Brokers' Association (BIBA) have agreed to update existing guidance on the prevention of application fraud by the end of 2015, in response to a single early recommendation to the industry contained in the group's first report. The taskforce will now "explore the issues in more depth before making final recommendations" later this year.

The Insurance Fraud Taskforce is being chaired by David Hertzell, one of the commissioners at law reform body the Law Commission; and is made up of representatives from the ABI, BIBA, Insurance Fraud Bureau, Financial Services Consumer Panel, Citizens Advice and Financial Ombudsman Service. It was set up to investigate the causes of fraudulent behaviour and recommend solutions to reduce the level of insurance fraud, with the ultimate intention of lowering costs and protecting honest consumers' interests.

As part of its work, the taskforce said that it would explore ways to reduce "opportunistic" fraud and "tackle the perception that insurance fraud is victimless, without consequences or even justifiable". It said that "informal sanctions, such as peer pressure" could be more effect than a formal preventative remedy; and suggested that the insurance industry could play a role in influencing policyholder behaviour by raising consumer awareness of fraud and its impact.

"There can be a fundamental misunderstanding of insurance among some consumers, who do not realise it is designed to cover the risk of an event occurring and instead believe that they deserve a refund of premiums paid where no claim has been made," it said in its report. "It is in this context that consumers generally find exaggeration of a genuine claim to be more morally acceptable than out-and-out fabrication of a claim ... On the other hand, academics have found that those who commit fraud often feel able to justify the action by considering it a victimless crime."

The taskforce noted that the process of making third-party claims through claims management companies (CMCs) had become "increasingly complex and opaque" and that there were some concerns about practice and regulation in this area. These concerns included the practice of "encouraging claims ('claims farming') where there is no evidence that an injury has been caused", in some cases through the use of cold-calling and "pressuring" consumers to make a claim. The taskforce said that it would consider "further steps", beyond those already taken by the government, to cut down on these practices while recognising the role played by intermediaries in "assisting people to bring claims who would otherwise not be inclined to".

The potential for the expansion of existing industry data-sharing mechanisms, potentially to third parties involved in the claims process, would also be explored by the taskforce in its work, according to the report. However, its work in this area would also consider any impacts on privacy and the likelihood of additional costs. The insurance industry "has increasingly recognised the importance of collaboration and sharing data on fraud", according to the report. However, the taskforce found that many in the industry were under-utilising available initiatives and that there was "still capacity for fraud data to take a bigger role in preventing" fraud.

The taskforce is seeking feedback from interested parties about its interim report, which should be submitted by 13 May 2015. Among the questions it has asked are ideas of the practices by those involved in the claims process that it should target, and whether any changes to the regulation of those involved in the claims process should be considered.