Fight the fair fight

In July 2009, the downpour reflected the nation’s mood: it was the wettest July on record, with thundery showers and localised flooding commonplace – and we were officially in the depths of a recession.

Petty theft and small-scale fraud were increasing as more people resorted to crime. In one office, a corporate adviser and a fund manager walked in to find that an £1,800 laptop computer had been pilfered, perhaps by a former employee. They submitted an insurance claim, only to find that it was rejected because of a policy exclusion stipulating no payment for theft by “persons lawfully on the premises”. Stunned, their broker took the case to the Financial Ombudsman Service, which deemed that the policy exclusion was unsupportable. They were awarded the full £1,800.

This case is not unique when it comes to people struggling to get money from an insurance policy: there is the claim for water damage to a kitchen where a settlement of £4,500 eventually became £20,000 when the insurer properly looked into the incident; then there’s the flood damage that required £17,500 of repairs but for which the policyholder was offered barely half the sum, and also the fire that cost a business £400,000 but for which the insurer was willing to hand over just £170,000. So are they playing fair?

Tough response

Earlier this month, Biba published a survey of 132 brokers that showed how hard they are having to fight to get claims paid. Biba believes that the downturn has led to insurers making stricter policy interpretations and introducing fearsome anti-fraud systems so that they pay out less and reduce the risk of being duped.

More than 90% of brokers said they were regularly negotiating 20% increases on settlements, while two-thirds said they had to “get tough” with insurers, up 10% on the previous year.

Biba chief executive Eric Galbraith says: “I recognise that there is a need for insurers to validate claims. However, these statistics seem to suggest a too-frequent reduction in the amount offered in claims settlements.”

Biba technical and corporate affairs executive Graeme Trudgill chuckles when he is told that these findings have caused more than a little outrage among insurers. Their opinions vary only between the survey being disingenuous to just plain wrong.

“This is practical information from our brokers,” he argues, pointing out that several insurance companies came up in broker complaints time and again. “It’s who you would expect – those that feature in queries to Biba every day. We understand that insurers have to deal with issues or fraud, but it’s about getting the balance right.”

So, as a group insurers stand accused of not acting responsibly to customers, treating every claim with too much suspicion and not handing over what they owe according to the policy.

“I don’t believe that this is true,” says AXA director of customer experience Paul Meehan. “I’ve been a broker and now I work at an insurance company: I’ve seen both sides. Some of the smaller companies might tighten up definitions [in a downturn], but the bigger guys like AXA, Aviva and Allianz find other ways of reducing costs.”

Downturn tactics

Bigger insurers may well have the scale to make savings through redundancies and integrating departments. AXA, for example, made staff cuts of at least 1,350 in 2008-09, while RSA announced plans to reduce its headcount by 1,200 last year. However, such cost-cutting might be one of the major causes of the problem: there are suggestions that lower staffing has delayed payouts.

Jardine Lloyd Thompson’s claims managing director, Richard Gurney, says: “Sometimes insurers are understaffed rather than there being a conscious effort to not pay out. Two years ago there was a high number of financial lines claims because of the credit crunch. This put a particular strain on the market with a lot of complicated claims, and people struggled to come to terms with it. There has also been a high volume of claims in areas like flooding coinciding with lower staff numbers – and that does slow the process.”

On the issue of fraudulent claims, Meehan hints that it is insurers who have been losing out, with travel and household accidental damage policies hardest hit. “We have seen more fraud,” he sighs. “People get made redundant and are in trouble financially and that’s what they do.”

Meehan’s argument is backed by statistics from the ABI and the Insurance Fraud Bureau. An average of £44 is added to the annual cost of policies owing to an estimated £1.9bn of insurance fraud on general insurance. In 2009, 122,000 fraudulent claims were uncovered, up 14% on the previous year. One striking example is a young woman who claimed for injuries sustained when she tripped on a loose paving stone. In fact, she hurt herself jumping down a flight of stairs while trying to evade security guards who suspected her of shoplifting. Another claimant demanded compensation for severe head injuries caused by falling over; in fact they had been whacked with a baseball bat during a fight.

It is no coincidence that the worst areas for cash-for-crash fraud – where a driver performs an unnecessary emergency stop so that another motorist hits them from behind – are Birmingham, Liverpool and Blackburn. These cities have suffered badly in the recession, all three having above-average youth unemployment.

ABI director of general insurance and health Nick Starling says that insurers are monitoring fraud far more carefully as they combat more than 2,300 bogus claims every week. “Our honest customers rightly object to having to pay higher premiums to subsidise the fraudulent minority, which is why insurers continue to up their game in the war on the cheats. Whether claiming against a third party for bogus personal injury or on their own insurance, fraudsters are more likely than ever to get caught.”

In the first half of last year, Aviva announced that fraudulent claims had increased by around one-third, while Admiral’s chief operating officer David Stevens said: “There is some evidence that people are either creating fictitious claims or lying about the number of people in their cars.”

RSA managing director of commercial Paul Donaldson makes a subtle distinction, saying that the group has not changed “one iota in terms of paying out genuine claims”. However, RSA has been clamping down on fraud, introducing stricter checks: “In a recession, fraudulent claims tend to rise and there is a proven link between the two. We make sure we are not paying out the fraudulent claims; it’s important that we do not change those that are valid.”

Broker concerns

Donaldson insists that RSA has not noticed brokers getting tougher with the group as they try to get the best settlements for policyholders. However, a rival insurer admits: “Brokers have told me that they have concerns that insurers are using the crackdown on fraud as an excuse to reduce settlement offers.”

However, other insurers believe that they would not be foolish enough to use a ploy that would ultimately backfire, costing them business. “The implication is that there are difficulties [getting claims paid out] because of the recession,” says Brit Insurance director of market management and regional operations Simon Cooter. “If this were the case, it would be ridiculous. It would not do an insurer’s reputation any good at all. If brokers and their clients don’t think claims are being dealt with properly, they should move to insurers where everything is fair.”

Fortis insists it is trying to pluck out the fraudsters before it has to pay out, making criminal record checks so that legitimate claims are not delayed. A spokesman said: “We continue to invest in anti-fraud measures at point-of-sale and pre-settlement stage.”

Insurers believe that their precautions are vital to stop fraud affecting honest customers. However, brokers are more frequently frustrated in trying to get a quick, full payout for clients. There is a sense that working on trust is simply not feasible at a time when people are short of cash and even big business needs to cut costs.

Perhaps, though, it is just a few insurers at fault. Biba’sTrudgill made an interesting aside that it’s “who you would expect” offering reduced settlements, merely stating that they are a mixture of “big, medium and small firms”. What a pity he won’t reveal their names: maybe then the other players could rebuild trust with their customers. IT

Mark Leftly is deputy business editor at The Independent on Sunday