ISO's David Smart says the industry must do more in the fight against fraud.
The Actuarial Profession recently published research highlighting the growing compensation culture in the UK. It estimated that it now costs the economy about £10 billion a year. This figure is increasing at a rate of 15% a year.
The largest element of this relates to insurance claims, with the cost covered by insurers and the majority of claims settling out of court. Over a third of the total cost of compensation goes in legal and administrative expenses.
A growing number of companies are advertising "no-win, no-fee" legal services that offer "easy routes" to getting thousands of pounds in compensation. This so-called compensation culture has fuelled dramatic rises in personal injury claims, which in turn have caused insurance premiums to rocket.
To determine fair and equitable settlements; legal costs, fraudulent claims and inconsistency in claims payouts need to be addressed.
Legal costs
Legal costs, which can represent up to 40% of compensation payouts, are one of the biggest contributors to claims costs. Arriving at a fair settlement offer sooner enables legal costs to be controlled.
To achieve this, claims handlers need to access expert information as soon as a claim has been notified. Being proactive in the management of each claim from the first notice of loss means that insurance companies can stop the claim payout from being swallowed up by legal costs.
Fraudulent claims
Britain certainly isn't alone when it comes to fraudulent claims. A variety of measures exist in the United States, for example, that could also be applied in Britain. These include the use of internal fraud recognition training, manual red flags or indicator cards, and external databases such as ISO ClaimSearch.
To effectively combat fraud, the insurance industry must work together with the Government and the public to educate people about the cost of fraud. They must also devise and implement effective anti-fraud programmes and use technology that makes committing insurance fraud as difficult as possible.
Consistent claims management
It's in the interests of both insurers and claimants to settle claims fairly and equitably. A small number of claims do go "way off the scale" and insurers may not have the means to assess whether their settlements are consistent with industry norms.
By providing claims handlers and managers with access to tools that accurately assess settlements, it's possible to achieve a far greater degree of consistency.
David Smart is business development director at Insurance Services Office.
He can be contacted by e-mail at dsmart@iso.com
