We need to regain their trust

The bail-outs and borrowings that have punctuated the second half of 2008 will provoke debate for decades. Whatever your view on the drastic measures taken, they bring home just how deep the fissures are – and the fact that there is no easily prescribed remedy.

Naturally, there is much discussion about how this will affect our industry. The fervent hope is that underwriters will increase prices to help insurers weather the storm. There are already welcome signs that rates are beginning to harden in some classes. However, none of this addresses the most significant impact – the increase in fraud.

The Arson Prevention Bureau says fraudulent fires already cost more than £50m a week. Groupama also recently reported £1m of arson claims in July this year, compared to none in the same month last year.

Meanwhile, AXA has revealed an 80% rise in the detection of fraudulent claims while Airmic warns that “the credit crunch is a breeding ground for fraud”. These figures only show the fraudulent cases that have been detected – the real numbers are anyone’s guess.

The industry is ill prepared for an onslaught by fraudsters. Some classes, such as high net worth, have long dispensed with warranties and proposal forms to make the process more convenient for the customer.

Fraud grew at the same time as the industry dropped these vetting processes, which has led to greater insurer collaboration to combat it. But the speed of the credit crunch has caught them out. It would not be alarmist – or even overstated – to say that a fraud epidemic looms.

The economic downturn has already forced governments and other sectors to rethink. And if ever there was a time for the insurance sector to reconsider its model – a model prone to haemorrhaging money due to fraud – it is now.

It is not just that there are insufficient resources and safety nets to catch out fraudsters; it’s the public’s utter distrust of an insurance sector that it believes will try to wriggle out of its promise to pay whenever it can.

This engenders the contempt that allows many people to feel it is acceptable to commit fraud at varying levels of seriousness.

Much of Europe addresses this by giving claimants an appointed adviser to help them to prepare any claim. Public perception is greatly improved as a result, and levels of fraud are far lower than in the UK.

Whatever the answer, there ought to be an urgent debate here about tackling the rising tide of fraud through addressing the stand-off between the public and our industry.

Like community policing or military peace-keeping, we should look at client advocacy and support to bridge the gap between those otherwise polarised by an adversarial system.

While it is true that hardening rates will plug the hole and stop the ship from sinking, how much of that will leak straight back out again through fraud? Surely it is time to explore ways to address the problems at a more fundamental level and on a more permanent basis.

So while the credit crunch makes for grim reading, I believe it gives insurers the chance to address the long-standing issues around the public perception of our industry and the pressing issue of fraud.