FSA starts probe of how insurers use private detectives

The FSA has launched an investigation into how insurers use private investigators when examining claims.

The regulator said it had started the probe because it was concerned about possible poor practice, such as insurers using private eyes as a tool to slash valid claims payouts.

FSA head of general and wholesale insurance Simon Green (pictured) said: “Insurance claim fraud is an ever-increasing problem being faced by the insurance industry and private investigators can have a role to play as part of a firm’s legitimate anti-fraud strategy. We are, however, looking at whether insurance companies have appropriate oversight when using external private investigators.

“At the moment, this is a piece of work designed to help us better understand market practice, but we are not ruling out undertaking further work or using the regulatory tools available to us should we find that firms are not complying with their regulatory obligations.”

The regulator said it might order a more detailed second probe.

It said that some other examples of poor use of private investigators were:

• private investigators incentivised to produce findings that reduce payments on valid claims through profit share/over-riders or long-term contract retention; and
• the oversight by insurance firms about the proper appointment and control of private investigators. 

The regulator said it had become aware of the issue through market intelligence, sources, media reports and customer experiences.

The rules that the FSA will test insurance firms on are systems and control (SYSC) 13.9 outsourcing, ICOBS 8 – claims handling and the relevant FSA principles.