Credit hire fraud explodes, shows report

The volume of of credit hire claims involving ‘staged accidents’ but no personal injury more than quadrupled over the past year, Beachcrofts has revealed.

An analysis of fraudulent credit hire claims handled by the law firm shows that the number of staged accidents that involved no personal injury increased by 412% in the year ending May 2011.

The analysis also shows that 85% of firms involved in fraudulent credit hire claims did not subscribe to the ABI’s general terms of agreement.

And over 46% of suspicious claims had a “phantom” element, including hirers, hire vehicles and even companies which did not exist, according to the company. 

The report recommends that insurers should align their credit hire and insurance fraud strategies closely in order to better match their successes in tackling the latter.

The report identifies nine different types of credit hire fraud. The largest individual credit hire fraud claim seen by Beachcroft exceeded £250,000, while the most expensive credit hire ringed/network fraud claim was for over £1m.  

It also reveals ‘sharp practices’ by some credit hire organisations, particularly over the recovery of interest and prolongation of repairs.  Between February 2010 and January 2011, Beachcroft defended claims for interest worth over £1.3m to which the credit hire companies were not entitled.

Beachcroft head of credit hire Craig Dickson said: “Approximately 80% of credit hire claims, which insurers face, emerge from the ‘volume’ credit hire market.

 “Consequently, insurers tend to focus their credit hire strategies on limiting indemnity spend by establishing accelerated processes to avoid penalties for late payment.  Fraudsters understand these systems.

“Insurers’ fraud strategies, by contrast, concentrate on preventing and detecting fraudulent claims; this is the approach insurers need to take against fraudulent credit hire claims.”

“While it’s impractical, and usually undesirable, to treat every credit hire claim as potentially fraudulent, best practice should be designed around validating genuine claims, and where fraud is suspected challenging those claims in the courts if necessary.  Improving the knowledge and skills of claims handlers to detect and handle credit hire fraud will be essential, given that more than 80% of those questioned for the report felt that their knowledge of this area was insufficient.”

The report was based on an analysis of data from credit hire claims provided by 22 general insurer clients, including personal lines, commercial, composites and Lloyd’s market motor insurers.

Beachcroft used its specially designed analysis tool, the Intelligence and Behavioural Analysis Toolkit (iBAT), which enables it to investigate and analyse trends in credit hire claims and credit hire fraud