America flies the flag for a tough stance on fraud

"Over there, people know fraudsters are costing the rest of the public money," says DLA senior solicitor and fraud specialist Sarah Hill. "The police also view it seriously - it's on a par with drug trafficking."

Hill argues that the UK could learn a great deal from the US approach to fraud prevention. She says that DLA will be lobbying the government for legislative changes to move the UK towards a US-style approach.

The evangelical attitude to the US model follows a recent trip to New York in which Hill met insurers, police and government officials.

"The US approach was impressive. In the US, insurance fraud is a designated criminal offence, which is not the case in the UK. They are also far tougher on fraudsters; there is a determination to prosecute and the penalties are harsher. In the UK, getting as far as a prosecution is difficult and frustrating, and fines are often derisory," she says.

New York has adopted a joined up and co-ordinated approach to tackling fraud. It has a specialist department, the New York State Insurance Department Frauds Bureau (IDFB), which is divided into a number of units covering areas such as automobile, arson and medical.

As a law enforcement agency, the IDFB has investigative powers and can impose sanctions and fines. Hill says: "In New York in 2002 there were 707 individuals arrested for insurance fraud. The bureau can also impose civil penalties of up to $5,000 - this would typically be for a first offence. This does not happen in the UK."

A significant difference between the US and the UK is the public perceptions of insurance fraud. "The US public see insurance fraud as a crime, whereas in the UK too many view it as acceptable," says Hill.

Hill argues that in the long-term the UK could benefit from a change in law, which could mean a more centralised approach, specialist departments and new legislation specific to insurance fraud.

But in the short term, she is calling on the insurance industry in the UK to work together and for the ABI to concentrate on raising public awareness.

"I'd like to see a better industry wide database. We also need community outreach campaigns to raise the profile of insurance fraud and we need more prosecutions," she says.

Debra Weekes, head of financial crime prevention for the ABI, says that insurance fraud is being taken seriously.

"We estimate that 10% by value of motor claims are fraudulent," she says.

But she emphasises that in the past five years there have been real advances.

"Of course we want to know what initiatives are being used in the US, but there is no doubt insurers in the UK are now working closer together. They realise it is a non-competitive issue and they want to share information.

"We have special committees working on fraud and there are plans for a new database and this should be piloted by early 2005. It is a major advance and will be much better than simply joining together the present databases."

As far as raising awareness among the public goes, Weekes says there has to be a balance. "We do need to attack the perception that insurers are fair game, but we also want insurers to be seen in a positive light and to get across the benefits and value of cover."

The new database is being created by Polaris and Insurance Database Services (IDSL), which recently merged operations. Project manager Fraser Fundell says: "We are working on a proof of concept and the database is probably some 18 months from completion." But some insurers may choose not to access or supply information - leaving fraudsters with a clear run.

Highway Insurance was the first UK insurer to use voice stress analysis software to identify fraudsters. Marketing and special projects manager Michael Lawrence says that the use of the technology has been massively successful - and that insurers not using it are vulnerable.

"We were the first insurer to start using this and developed our product with technology firm Digilog. It has been an outstanding success. We think it has also helped our customer service - honest claimants can be fast tracked to a quick settlement."

Lawrence adds that the UK is ahead of the US in this area and that he is receiving many requests from American insurers looking to install it.

"We can show it works. Before we had this, only 5% of people chose not to proceed with a claim after questioning, now it is 18%."

Neil Drane, head of the Motor Insurers' Information Centre, which operates the Motor Insurance Database (MID), wants to see tougher penalties.

The MID has details on every insured vehicle in the UK and Drane says it has been welcomed by the police. "We are now seeing about 25,000 checks a day and they see it as a big help in the fight against crime. But we need tougher penalties. It is no good fining someone £1 a week as has been the case; I would like to see vehicles confiscated."

While this is a valid point, there is no doubt that UK insurers are more upbeat about moves to tackle fraud in this country. John Beadle, counter fraud manager for RSA, says: "The last two to three years have seen real progress. The single database is one advance, but we are also looking at a publicity campaign, run by the ABI, which will emphasise insurance fraud is not a victimless crime. I also want the FSA to get involved and to encourage anti-fraud measures."

He adds that while he welcomes the opportunity to learn from the US, there are many differences. "It is good they have tough penalties, but we can't expect changes here overnight. What I would say is that the industry here is taking fraud seriously and we're taking a united front to solve this problem."