Fight the good fight

Insurance Times’s latest Claims Clinic centred on the fight against fraud, offering an insight into various types of fraudulent activity within insurance, while providing an update on how the industry is using innovative ways to catch out perpetrators.

Held at Vinopolis on London’s South Bank, the event was chaired by Insurance Times news editor Saxon East. The panel comprised Halliwells partner and head of fraud Damian Ward, QuestGates counter-fraud director John Freeman, head of financial crime operations at LV= Ursula Coulibaly, and Zurich claims fraud and investigations manager, Scott Clayton.

Coulibaly kicked off proceedings by presenting three examples of recently detected fraud, each showing the different faces fraudsters can present. In the first, she explained how LV= had received a multiple-party claim after a policyholder’s car hit a bus from behind. The insurer’s suspicions were roused when this minor accident generated a grand total of 32 personal injury claims.

When the customer said he did not believe he had seen this number of people on the bus before the collision, LV= hired an engineer to carry out a full inspection of the bus. This showed that the impact damage on the bus had happened at no more than 10 miles an hour – and was unlikely to have caused such a large number of injuries.

Further digging compounded the insurer’s suspicions. “We made some investigations with the bus company. We discovered that, on average at this time and day of the week, this bus only carried around eight people rather than 32. So this was either a very busy day or there was something else going on,” Coulibaly said. More probing led to the discovery that the bus driver had previous links to criminal activity, while online research revealed that in excess of 20 of the other claimants were friends with him on social networking sites.

“As a result of that, we wrote to all the claimants just to make doubly sure they really wanted to make a claim. Sure enough, some wanted to withdraw their claims. Then some were asked to make statements and pretty much 90% retracted their claims,” Coulibaly said. The total savings in staving off these fraudulent claims amounted to £294,000. Coulibaly added that there had been a notable recent trend in such scams involving buses in Liverpool and warned insurers to be on their guard.

Not all they seem

The next example looked at a classic case of opportunistic fraud. A woman had submitted a claim for a diamond ring for a value of £9,000 after she claimed to have lost it on holiday. When the insurer enquired further, the policyholder exhibited the typical behaviour of fraudsters by becoming defensive and aggressive. But she was caught out when she failed to put down the phone properly after a heated exchange with the claims handler, and was heard telling her husband that she hadn’t actually lost the ring. Coulibaly wryly suggested that delegates should urge their claims handlers to listen to the end of their phone conversations when dealing with suspected fraudsters.

Coulibaly said her next example showed that fraudsters do not have to fit the profile of familiar stereotypes, such as someone with limited financial means or a criminal background; they could be anybody. This time, the perpetrator came in the respectable guise of a school headmaster, who claimed his BMW was stolen and later burnt out. After carrying out conversation management – a form of investigative interviewing – claims handlers immediately spotted there was something amiss with his version of events.

Coulibaly explained: “The engineer confirmed that, with this type of vehicle, it was practically impossible to steal it without the keys. On top of that, the police and the fire service had concerns over where the car was found and the way it was burned. Plus, the customer’s reports to the police were inconsistent with what he had told us.” Consequently, the claim was invalidated and the insurer saved £15,000.

The little details

Zurich’s Scott Clayton then weighed in with some more insightful case studies. He drew attention to the frequency of claims for accidental breakage to televisions and questioned if this required more scrutiny. “There is a significant amount of damage done to televisions and I would challenge what proportion of that is fraudulent, ie done deliberately.”

He highlighted the importance of good training, explaining that after working with a firm that examined damage to televisions, he and his team discovered that it was exceedingly difficult to smash a screen if it fell face down from a table or even when Wii controllers or other hard objects were thrown directly at them.

Consequently, after the training day the insurer was able to repudiate a claim put forward for a smashed television screen that very day. “The message for me is that low-value, high-volume claims go through the supply chain very quickly. Vigilance is absolutely key.?So if you can get a look at these cases early, then I believe there are quite a lot of benefits to be gained.”

Next, Clayton stressed the importance of using good forensics, pointing to a personal lines case where a policyholder exaggerated a claim following a fire at his house. He insisted that a pile of designer clothes had been left on the bed and destroyed in the fire, and was claiming for more than £300,000.

But a forensic report concluded there was no evidence of clothes either before or after the fire. “We were sued for breach of contact and we defended it, suggesting that this was deliberate exaggeration and ultimately we were successful. It showed the policyholder that if you exaggerate, all policy benefits cease and you get nothing – so it was a good result,” he said.

Legal constraints

Clayton was less than happy with the result of his last case study, however. After sustaining a workplace injury, a fraudulent policyholder claimed he had been left totally immobile and made a claim for £838,000. But the insurer’s investigations produced several films showing that the claimant could indeed walk and only used a cast and crutch when attending medical appointments. “We filmed him walking, driving and doing all sorts. This guy was a crook, so let’s not disguise the fact he was out to exploit as much as we could from this claim,” Clayton said.

While the judge in the liability-only trial in 2008 found the claimant had deliberately lied, he upheld the legitimate part of the claim, arguing that he was bound by case law to do so.

Clayton argued that this aspect of the law is fundamentally unfair. He then revealed the insurer is launching a bid to change the laws so that a liability claim is invalidated if the claimant is revealed to be deceitful during the claims process.

“Whether we are successful or not, it is 50/50. But we are going to have a go because it would change the face of claims handling and it would act as a deterrent. At the moment, we don’t have that many deterrents,” Clayton said.

Halliwells partner Damian Ward said that taking on case law would represent an interesting yet worthwhile challenge for insurers. “I completely understand why the industry is keen to do it. From a common sense ‘what is right and what is wrong’ perspective, there is absolutely no doubt that people who lie, and lie significantly, about the nature of their injury should not receive the benefits of the courts process and should be punished effectively.”

Nonetheless, he pointed out that, in the absence of a suitable legal framework, there still exists legal strategies that insurers can use to tackle deceitful claimants. He explained that insurers could launch a counter-suit against the claimants for wasting time and money if they are found to have lied during the claims process, for the amount equal to or exceeding the value the insurer is liable for. “If the law changes, that’s great. If it doesn’t change, all is not lost. This could be an alternative strategy while the law clarifies itself.”

Threats and opportunities

QuestGates’ John Freeman pointed out that insurers needed to be more vigilant when it came to keeping an eye on potentially fraudulent suppliers in the procurement process, and urged the sector to keep an eye on fraud trends outside the sector. “The more networking we do, the more we listen to people outside the insurance sector, the more we can look at what they do – particularly at what their results are and their methodology for investigating. We should be bringing that back into the insurance sector,” he said.

“Equally, we have to do more to share best practice with the other sectors, because we do some very good things in this area. I’m not really sure we are sharing that information with the DWP [Department for Work and Pensions] and others.”

The debate then turned to the increasing dangers posed by the growth in internet usage. “Using the internet as a means of fraud is becoming the biggest vehicle going forward,” Freeman said.

Clayton echoed this concern. “The internet has changed the way customers buy and sell goods, and that is just one indication of the way insurers have to respond to changing climates,” he said.

To illustrate his point, he explained the recession had fuelled a growth in fraudulent claims for Rolex watches. He said that, as a result, eBay was doing a roaring trade in empty Rolex watch boxes as people cottoned on that these can be used to support their claims in the absence of documentation.

But equally, the panellists agreed that the internet represented an opportunity to stop fraudsters in their tracks. Coulibaly suggested that using social networking sites was becoming increasingly important in establishing connections between fraudsters. But delegates questioned whether this could have potential pitfalls for insurers if they come into conflict with the Data Protection Act. Coulibaly said that LV= tends to use such websites as pointers to suggest a relationship, rather than as a basis for court evidence. She added that the insurer was careful to only use openly available information.

“We don’t set up accounts to go in and make friends with people. We use it as open source intelligence. It is on the internet for anyone to pick up, so we are not going into people’s private lives: it is open to anybody.”

Freeman echoed this justification. “These people do give open access to these things … we certainly don’t go in on a covert basis or anything like that. If they have given permission to the public, then we will exploit that permission and use it to combat fraud.”

Ward stressed that insurers and their suppliers must be aware of the legal standpoint, however. “The legal advice is that you must not coerce somebody into disclosing personal data. The information on a Facebook profile is classified as personal, so you cannot obtain that by illegitimate means.”

He added that while information from open sources could be disclosable in court, it would be more worthwhile for insurers to use them as pointers for relationships and as a guide towards obtaining other disclosable evidence, such as good witness statements.

In addition, he pointed out that if fraudsters became aware that such information could be admissible in court, it could spark a widespread clampdown of sites’ openness, closing off a great potential starting point in the battle against fraud. "We have to be careful about how we use this information,” he warned. IT