No more Mr Nice Guy

Insurance fraud is changing. Nobody will deny that it is - within the industry at least - firmly on the agenda. However outside of the industry it is doubtful whether much of a ripple is felt. It was, for example, astounding to learn of an article run in the Daily Mirror describing the new phenomenon of staged accidents.

However, insurance fraud is not clever or sexy or exciting. It is a menace. In the context of Baroness Scotland's foreword in the Fraud Law Reform consultation paper of May 1994, which discusses fraud as a £14bn cost to the UK economy each year (of which personal lines insurance fraud alone represents over £1bn according to ABI), one wonders why it does not seem to be further up the political agenda. Fraud Law Reform, given the ABI's research, is unlikely to be much of vote-winner.

Looking at the findings of the ABI research this is hardly surprising: research in 2003 revealed that 7% of the sample questioned had committed insurance fraud - the same number as would be prepared to steal a towel from a hotel room. Nearly 50% would not see exaggerating or falsifying a claim as a crime.

Sea change
So if the revolution is not happening in the eyes of the Government or the general public, where is it happening? Within the industry - and perhaps within the minds of the organised groups who target the industry.

What of this "sea change"? Is it perceived or real? Certainly, within the insurance industry fraud is taken seriously and tackled - for the most part - in a controlled, systematic and well-planned way. This is a step change from a decade ago.

We now have MIAFTR2, CUE PI and the new Insurance Fraud Bureau. At the micro level, we have improved detection methodologies, process driven investigations, and better partnerships with industry professionals (lawyers included).

At macro level we have better strategies and data /ideas sharing. This means that, although the industry still has some way to go, the entire emphasis of fraud detection and prevention is quite different to how it was a few years ago.

The career fraudster, however, has responded. One suspects that outside of the industry it is generally "business as usual".

We know about organised gangs nowadays because we spot their activities earlier and far more effectively than in the past.

So the sea change is not, we suspect, within the fraudster's realm, but in the industry's.

There can be absolutely no doubt that the concentration of some criminal gangs on the targeting of the insurance industry - notably in the arena of contrived or staged RTAs - presents a real challenge.

This is particularly apparent when taking into account that: the industry operates within the confines and deadlines of the PI Pre Action Protocol; without the co-operational support of the government or police; and when it has, quite naturally and properly, fewer powers and access to information than law enforcement agencies.

It is not without irony that I suspect that if the general public, interviewed as part of the ABI's research referred to above, were aware of the problem with organised crime gangs, their perception of fraud as a victimless crime might change.

However, the gangs continue to operate. Whether this is for terrorist funding activity at one end of the scale, through to fronting drugs, people trafficking or career fraudsters, it is clear that for some criminals insurance fraud represents an easy target.

Criminally ignored
The reality is that, for the most part, unless criminals are being watched by the police for other crimes, the insurance fraud element of the crime is unlikely to attract attention. In other words, criminals do not tend to get prosecuted for committing insurance crime.

This has to change. One might also cite the disappointingly adversarial approach that lawyers can take in civil fraud cases. Entrenchment and distrust is the name of the game. This needs to change. Without change the fraudster will still often be able to walk away without consequence.

There are, of course, many subtle differences in the way these gangs operate, but generally we see staged or contrived road traffic accidents, claims for fictitious hire storage and recovery, or cars involved in genuine RTAs which sustain minimum damage and which are represented to have sustained more serious damage.

These cars will be hidden away or "ringed". An alarming trend involves fraudsters targeting innocent members of the public,

by slamming on their brakes for no reason whilst in front of their vehicle, inviting an inevitable rear-end collision.

Damage is later exaggerated, false passengers claim to have been in the car, and of course the obligatory storage and recovery and hire claims follow. Individual speculative fraudsters are equally a problem.

So what of the cost? The financial cost to the industry per false RTA can be around £50,000. However, the financial cost to the industry - while alarming - is only part of the picture.

The irony is that the financial cost of fraud has to be passed onto the consumer, so those 50% who see nothing wrong with insurance fraud are paying for their folly. Sadly, so are the honest remainder.

Social cost
The costs to the public sector are equally worrying. Local authorities are fighting false claims and this cost diverts funds away from other essential public services.

The social cost of fraud is thus a concern. This does not appear to have been addressed by the government. Not only does insurance fraud represent a relatively easy means of money laundering to the organised criminal, the organised gangs once again target the lowest socio economic groups to participate in the fraud.

The lack of prosecution, and the generally lenient sentencing, means that this tacit legalisation of insurance fraud does nothing to reverse this perception and is damaging to both the fabric of society and the UK economy.

So perhaps most damage is done to the reputation of the insurance industry. Often, through no fault of its own, the industry is seen as a soft target, no matter how much fraud is prevented and no matter how many initiatives and data sharing agreements blossom. As long as organised gangs are able to continue unencumbered by the process of criminal law, then even if individual claims are defeated or fraud rings are smashed, the fraudsters will simply move on and start again elsewhere.

Britain can learn from both America and the Republic of Ireland in terms of tackling and meaningfully criminalising insurance fraud. Until this happens the industry

continues to fight the fraudster and the organised criminals with one hand tied behind its back.

In the meantime, the FOIL SIG is committed to working with industry groups to explore ways in which the process of dealing with fraudulently presented claims can be improved. IT

Damian Ward is the Head of the Fraud Special Interest Group of the Forum of Insurance Lawyers (Partner at Keoghs)