Fraud Charter: Insurers need to engage with supply chain to avoid fraud temptations

Attendees at this month’s virtual Fraud Charter roundtable, hosted by Insurance Times and Carpenters Group, warned that motor insurers need to maintain close relationships with their supply chain vendors because the detrimental economic impact of the continued Covid-19 pandemic could tempt suppliers to commit fraud.

Donna Scully, director at Carpenters Group, outlined the potential fraud threat by informing webinar attendees about scenarios occurring in the US. She said: “In the US, some supply chains are getting involved in fraudulent activity because they were desperate because they weren’t being paid.

“Some repairers over there were taking a car in for repair and then saying they needed to clean it, fumigate it because of Covid-19, so that would take extra money. And then they were storing it for 14 days because the car had to go into quarantine, like a human. So, they charge for that. They had all these extra Covid-19 charges, which people didn’t know about. There’s desperation beyond just policyholders.”

Carpenter Group’s legal director Alan Hayes agreed: “One of the areas of focus is going to be around repairs and extended hire, particularly non-drivable vehicles. There’s a backlog of repairs outstanding, so if your vehicle’s undrivable, you’ve got to pay for storage, you’ll have longer hire periods and all of that feels like [a] potential breeding ground for exaggerated claims.”

Credit hire

From the insurer perspective, it is currently credit hire costs that are being bumped up because of the coronavirus crisis.

James Burge, fraud manager at Allianz, said he was seeing credit hire periods being extended by 72 hours so that cars could be fumigated and left in quarantine.

“It’s now just how we monitor that situation, be on top of those cases where we think [fraud] might occur,” he added.

Clare Lunn, director of GI fraud at LV=, noted that the insurer has been seeing “a massive loss in frequency but severity going up on credit hire”.

Lunn continued that in order to mitigate suppliers’ potential fraud motivations, insurers need to be supportive and pay invoices quickly to help improve vendor cash flows that have been stunted by the virus outbreak and associated measures, such as social distancing and the lockdown regime.

She said: “I’m working with and protecting our own suppliers; I think that’s absolutely right. We need to make sure that we are supporting suppliers, that we are making sure that they’re paid quickly and moving to Bacs where you can so suppliers are in a good position because once we come out of lockdown, that’s when suppliers will need our support even more to get back on their feet again.

“It is a partnership so that people don’t feel tempted to get into bad habits and bad traits. That partnership and striking that balance actually supports your customer journey and makes sure that customers are feeling secure and happy with how the supplier’s treated them as well, so I think there’s a great benefit of working pro-actively with your supply chain.”

Lunn added that extra cleaning charges related to coronavirus are not necessarily a bad thing, however these have to be agreed with the insurer and should not be exaggerated.

“We need to make sure that consumers can see that insurers, and suppliers are part of that, that we are doing all we can to make sure that we’re dealing with the claims as fast as possible, but in a safe environment,” she explained.

“The cleaning of cars, that extra due diligence around cleaning, I don’t think that’s an issue as long as people are not exaggerating it and it is in their partnership with us.”

Crash for cash opportunities

Exaggerated repair costs or credit hire are not the only fraud threats motor insurers need to be aware of. Paul Holmes, partner at law firm DWF, added that ‘crash for cash’ incidents or staged road traffic accidents will still occur, and could even increase as dodgy firms look to recoup revenue losses caused by the Covid-19 outbreak. He added that staged accidents, where unsavoury companies will recruit drivers to crash into each other, have been gaining prominence over the past six months.

“If people go out and stage road traffic accidents, it’s very rare it’s just two friends. Normally, there’s a dodgy credit hire company or a repairer behind it. Now, these people are not just going to sit back. They are not going to sit back and just watch their business, livelihood disappear. Why should they? They don’t need a genuine person to be driving around anyway. That, in the long-term, isn’t going to go down. In fact, we think it could go up,” he explained.

“You’ve got to remember it’s driven by mainly the credit hire companies, management companies. So, they’re going to want to be making up, perhaps with a higher amount of staged accidents, their lost revenue. They’re not just going to sit down and watch their revenue disappear. I don’t think it’s going to go down. In fact, it could go up.”

Scully compared this environment to the US, where industry commentators believe staged accidents are occurring between friends, family members or neighbours in a desperate attempt to jointly receive money from a claim pay out. Holmes, however, feels this trend won’t gain popularity in the UK as the majority of staged accidents are arranged by fraudsters working with credit hire or claims management companies, which do not typically operate in the US.

Medical services

In terms of settling claims, Hayes raises a concern around the increase in pre-medical offers by third party insurers. In part, this is driven by social distancing measures and the inability for claimants to attend medical appointments in person, however Hayes worries this could also increase opportunities for fraudsters.

He explained: “One of the risks arising from Covid-19 comes from the measures that we’re all trying to put in place to try and make sure that claims keep moving and the business can continue, customers can be looked after, and that increases the risk of fraud in some areas.

“For example, we saw in the motor space, third party insurers, an increased interest in pre-medical offers. In the scenario where customers can’t go out for medical examinations or for whatever reason, they wish to settle the claim. But of course, we know historically that pre-med offers are associated with wrong behaviour in some aspects of the claim community so it’s interesting that in trying to solve the problems created by Covid-19, there’s a risk that we’re increasing opportunities for fraudsters to take advantage.”

However, Susan Brown, director at Medco Registration Solutions, added that virtual medical examinations and virtual rehabilitation appointments were now being offered in regards to personal injury claims and associated treatment routes – but that this news has received a mixed response.

Brown told roundtable attendees that some professionals were pleased to still be able to work and make a living, while others within the personal injury sphere were shocked that doctors were spending time on this genre of appointments rather than assisting the NHS with Covid-19 cases. Others showed confusion about how to physically conduct a virtual medical examination.

The main issue for Brown, however, is managing the return to face-to-face appointments.

She said: “It’s probably a bit early days for us to have any issues. Initially, people were a bit worried that insurers were just going to be saying ‘we’re not going to accept this report because it’s done on a virtual basis’. Obviously, the ABI have gone out to their members saying you shouldn’t be objecting to these reports solely on the basis that they’re done remotely.

“What we’re worrying about at the moment at MedCo is when do we stop this, because assuming we’re looking at a gradual opening up of things, we probably won’t have a clear cut point at which we can say ‘ok we now revert to face-to-face’.”