The key to fraud-busting

Insurance fraud exists in many guises, but motor fraudsters are particularly prevalent and organised. But, insurers are now in a stronger position than ever to stop them in their tracks.

The problem of staged accidents is now receiving coverage in the national press. The News of the World, for example, recently found an "accident management" company in Bradford would stage accidents and offer support with a fraudulent claim.

The scam involved provision of fake witnesses and 'ghost' passengers who would then put in claims for whiplash accidents - these are hard to prove medically, but can add thousands of pounds onto the cost for insurers.

A couple of months ago, The Observer highlighted a scam in Lancashire, where fraudsters tie black and pink ribbons round their car aerials or rear windscreen wipers.

This signifies that the driver is willing to take part in an accident or witness one. Innocent drivers get caught up in the crime. Criminals are hiring mini-buses, crashing into slow moving cars, typically at roundabouts, then claiming their passengers are suffering from whiplash.

While this is a UK-wide problem, hotspots centre on the North and the North West - in such towns and cities as Leeds, Oldham and Bolton. Fraud squad officers say car crooks have added £50 to every driver's cover in the country.

There is no doubt that insurers are paying millions to motor fraudsters.

But, they are now working more closely together and have more tools to help them rebuff the criminals.

And, importantly, the human intelligence to tackle fraud is improving dramatically. No one is saying this is a problem that is going to disappear overnight - and while there remain issues of low prosecution rates and police apathy, real progress is being made.

A number of big insurers now have dedicated fraud teams, led by professionals often with a police background.

John Beadle, counter fraud manager for Royal & SunAlliance, says he is upbeat about prospects. "These cases reported in the national press are not news to us. In fact, we know the names of many of these individuals and are working with the police.

"There is still a lot of work to be done, but we are now in a far stronger position. In the past, insurers have been seen as a soft touch, but those days are gone now."

New database

One major advance for insurers is the arrival of a new database, being produced by Polaris and ISDL. This will offer far more sophisticated analysis of suspicious claims and has been bought by all the main motor insurers.

This is set to go live by the end of the year. But there are other tools available. Voice stress analysis has been a controversial option - it has been on the receiving end of negative press, the argument being that honest policyholders should not be subject to lie detector tests.

What is more, some conventional fraud investigators have claimed that 'switched on' fraudsters are able to lie their way through the questioning in a convincing manner.

One of the main providers in the market, Digilog, has published proven results through work with motor specialist insurers Highway and Provident.

Highway said it saved £2.6m through the successful screening of some 12,000 motor theft claims.

Meanwhile, Provident announced it was expanding its use of the Digilog system following a six-month pilot. Digilog's managing director Kerry Furber said the system is far more than just technology.

Questioning skills

"It includes voice risk analysis, but also applied psychology, conversation management an d advanced questioning skills. We provide ongoing training and support for the insurers who use it and also work with Capita if it wants to outsource claims too."

But, he added the system was particularly suited to weed out opportunistic claims, rather than the major criminal rings. "For those, we need to see insurers sharing data and having a single overall database."

There are numerous screening systems and databases out there and insurers are using a mish mash of these together with varying levels of expertise in-house.

Choosing the right system is far from easy and some remain sceptical.

Mihir Pandya is fraud manager of the claims division at Allianz Cornhill, where around 10% of claims employees have some fraud duties as part of their roles.

Pandya says there is a lack of benchmarking when it comes to the various systems on the market. "The companies supplying them will all say how wonderful they are, but it is often comparing apples with pears. We need to get an academic to do some stress testing and see how they perform against each other."

He says Allianz Cornhill, like a number of insurers, has not introduced routine voice stress analysis for its claimants. "People can be genuinely stressed and those who are fake may be able to swim through the process. Such technology can be a tool, but it is not the key."

His big concern is that technology providers that offer data screening systems will often say these allow honest claimants to be fast-tracked.

But given that fraudsters can be convincing, he says they may well be able to find it even easier to obtain payment.

Pandya's preferred solution is to train in-house staff where possible and to use cognitive interviewing techniques. "We need good people who can challenge fraudsters. There are some who will say 'we don't care if this stinks, just pay me'. In these cases, you need evidence. And for detection rates to be raised, insurers also need to be prepared to turn down claims if they are convinced they are fraudulent."

Rob Smale, claims director for Fortis, comments: "It's vital we train our staff to tackle fraud and many find this rewarding anyway. We also need to be aware of our responsibilities under FSA regulation and its Treating Customers Fairly strategy where we are duty bound to manage fraud."

He adds that Fortis is not using voice stress analysis, because it is "not comfortable" with it, but is in the process of developing its own filter system.

Cognitive interviewing

Apart from technology, a growing number of consultancies are springing up that want to offer insurers expertise in areas such as cognitive interviewing.

These include Conversant Data, Absolute and some of the larger loss adjusting firms also offer such services.

Cunningham Lindsey has a claims investigations unit, which focuses on bigger fraud cases for insurers. Business development director Peter Taylor says his previous job was running a specialist car crime fraud detection agency and he has 10 years experience in the business.

"We first set up in 1988 and insurers said they would not use our services. But, just as shops now prosecute shoplifters, attitudes have changed."

Cunningham Lindsey investigates claims that are presented by insurers with "an element of suspicion" - these are either validated or investigated further.

He says an insurer may well need to turn to a dedicated outside agency because of the growing sophistication of the fraudsters. "Some are career criminals who are making a regular income from this. They put a huge amount of planning into it and know which insurers are weaker in fraud detection."

The work is often time-consuming. If a face-to-face meeting with a potential fraudster is required, Taylor says it is surprising how many visits may need to be made to actually speak to the individual. "Human judgment is crucial. You need highly trained people to repudiate the claims."

Appropriate strategies

Motor fraud covers a wide range of crimes ranging from someone trying to upgrade their vehicle to large gang activity where other crime such as drugs or terrorism are also part of the picture. Insurers need appropriate strategies to tackle each and this may mean greater use of specialists, including those in the scientific field.

Whiplash, for example, is notoriously difficult to prove, but Smale points out that studies into car seats and whiplash are currently being undertaken at motor research centre Thatcham.

And Pandya points out that in Germany, up to 20% of whiplash claims are thrown out by insurers because they feel the medical evidence does not stack up. In the UK, he says the figure is more likely a pathetic 1%.

"I am not saying our judiciary now would necessarily support a much stronger stance, but it is something we need to work on."

Motor insurance fraud remains a serious problem for insurers and one where it still has to change public perception about its damaging effects.

But, there have been advances and fraud managers' optimism is now tangible. The future for fraudsters is far less rosy now than in the past.