Insurers must change their approach to fraud post-whiplash reform - Kennedys

Following the implementation of part one of the whiplash reforms on 31 May, insurers will need to change how they tackle fraud in order to adopt a more “proactive and front loaded” approach, said Martin Stockdale, partner and head of fraud at law firm Kennedys.

Speaking during the firm’s whiplash-themed webinar earlier this month, Stockdale said: “Fundamentally, I think we will have a change to the way in which insurers approach fraud and the way in which [insurers] target fraud.

“The greatest challenge I see at the moment is that existing fraud processes and strategies are going to be turned on their head by these reforms.

“Compensation fraud responses [now] need to be proactive and front loaded.”

Explaining the drivers behind his viewpoint, Stockdale continued: “The basic level of cost and the claims being reduced means that you are going to have to target them differently because the cost per claim is going to have gone down in many of these claims and, therefore, the level of savings that a fraud team may achieve may change as a consequence.

“That may be offset by the volume of fraud, depending on how efficient you can be in your fraud detection. That fraud detection now needs to be front loaded.”

Plus, he added, “full disclosure exits or deemed admissions are going to [place] an onus on the compensator laying their cards out before fraudsters really commit themselves and, as a result, we’re going to see increased satellite litigation”.

A continuing challenge

Stockdale’s warning links to his belief that fraud opportunities will remain the same post-reform, despite the initial intentions behind the changes.

“The reforms themselves were founded on an intent to reduce fraudulent and frivolous claims, as well as seek other efficiencies for both sides and to reduce friction in the whole process,” he explained.

“For me, the opportunity for fraud remains the same. Fraud is a covert and hidden behaviour, so it remains a challenge.

“When we’ve got a new reform like this and we’re looking now at process efficiencies, which are greater than the controls or measures built into them from a fraud perspective, then I think it’s absolutely right that the volume of fraud is likely to remain.”

Although the new lower tariff amounts for whiplash claim payouts may “[reduce] the attractiveness of a basic whiplash claim”, the potential to exaggerate or add other injuries remains.

Stockdale said it very much depends on the fraudster’s ambitions – for a quick payday, criminals may decide to stick with simple whiplash claims that they can manage themselves via the new portal, intending to attract less scrutiny.

However, if fraud is being driven by “professional enablers”, then Stockdale thinks “exaggeration gaming the system” and “layering” could be potential problems.

Furthermore, Kennedys senior associate Lewis Thompson added that the whiplash reform rules have not been “given the teeth they really need” to tackle potential disputes.

He said: “Claimants are usually afforded the benefit of the doubt and I think given the likely prevalence of overplayed injuries and perhaps speculative claims for special damages, there’s nothing to me at this stage that suggests that the rules are going to be given the teeth they really need to avoid a huge amount of additional costs disputes.”