There are at least three different types of fraud being perpetrated within the claims-handling sphere today. There is fraud by policyholders against their insurers, corporate fraud and insurers' fraud against policyholders.
In all three cases, insurers are often complicit in allowing fraud to occur or to be seen to occur.
Presumably, the first category comprises claims that are merely considered to be fraudulent. If insurers could prove they weren't genuine, they would not be paying them. I believe the situation is nowhere near as bad as the Association of British Insurers' (ABI) and other bodies would like us to believe. And part of the problem is inexperienced claims handlers.
Recently in Insurance Times, Jeremy Baker of The Claims People asked where the next generation of technical claims managers would come from. It's a valid point. There is a major knowledge and experience vacuum in the claims departments of major insurers, as well as in their outsourced call centres and/or in their loss adjusters.
Policyholders are, I understand, treated ac-cording to an informal points system. They are awarded one point for having a policy, two for having the gall to claim, three for having a claim in the first year of insurance, four for querying something said by the claims handler, five for not having a receipt for a 12-year-old pen and so on. Once a policyholder receives a given number of points, the claim is considered fraudulent and presumably is logged as such when the statistics are compiled.
Yet, I have successfully represented many policyholders unjustifiably accused of fraud by inexperienced claims handlers and former police officers who do not fully understand the nuances of the law.
Ripped off by contractors
Corporate fraud is what happens when parties entrusted by insurers to look after their interests do not do so. Such practices also affect insurers' shareholders and policyholders.
In its simplest form, this type of fraud can arise when insurers have a “preferred contractor” deal with, for example, a double-glazing firm, where the company will give the insurers a retrospective discount each time it is awarded a contract. For example, if the double-glazer is awarded a contract worth £1m, it will give the insurer a 5% discount.
Although this looks like a bargain, if insurers did a proper analysis they might find the competitive cost for the work carried out was, say, £800,000. And if these hypothetical glaziers had three such contracts with major insurers, then the insurers, their shareholders and their policyholders have been defrauded of almost half a million pounds.
In a recent case I handled, insurers insisted upon introducing their preferred contractors who quoted £8,000 plus VAT, as opposed to the price of £2,500 plus VAT quoted by the policyholder's preferred contractors. There was over-specification and over-measuring on a grand scale but, of course, the reduced unit rates agreed between the insurers and the contractors would have been correct, so that a half-baked audit would not reveal anything amiss.
When adjusters were entrusted to “police” the system, the work was accurately measured and correct prices agreed. However, the costs in most, if not all, cases where insurers instruct preferred contractors directly do not appear to be being effectively checked by insurers.
I have come across many similar examples of insurers granting licences to “print money” in the spheres of flood/fire restoration, contract cleaning and, of course, the replacement industry.
The third type of fraud, by insurers against policyholders, seems to be on the rise. I am finding more and more cases of insurers refusing to pay out a policyholder's entitlement on the pretext of the policyholder not being able to provide documentary evidence of purchase or ownership.
Insurers seem to conveniently overlook the fact that policyholders can be requested to provide only reasonable proof. If a policyholder bought a video camera a week before making a claim, they should be able to produce a purchase receipt, but it's unreasonable to expect them to have one for a shirt bought three years ago.
Yet insurers often demand such things and get away with it. They realise the average policyholder is unaware of how to deal with the problem or does not think the aggravation is worthwhile.
A variation on this third type of fraud occurs when all claims settled on an indemnity basis are reduced by one third. I had a bizarre discussion with a claims handler recently. He told me if
I bought a cooker and it was destroyed that night (before it had been used), I would get two-thirds of the replacement cost if I chose not to replace it. The handler suggested this was a market-value figure, but did not know which market value.
He said the ombudsman had issued such edicts.
I suggested the ombudsman must have been sending different literature out to insurers and loss adjusters.
I attempted to show him the error of his ways by posing another example, but the claims handler still insisted the insurers would pay two-thirds of the replacement cost of an identical two-year-old carpet in each lounge of three identical semi-detached houses. This was so even when one hypothetical house was occupied by a husband, wife and four small children, one by a young single woman and the other by my 76-year-old mother, who lives alone and never sets a foot onto the carpet unless she's wearing slippers.
At this point, the claims handler seemed to get exasperated and explained that the insurer had to adopt this attitude “for consistency” (something quite clear to anyone who deals with insurance call-centres daily).
It is not the claims handlers' fault – they need to be trained in this incorrect, inadequate and regimented manner because often they have little or no technical experience.
But policyholders are being defrauded in this apparent quest for consistency. Most of them will accept the position without question or, if they do question it, they will eventually go away when the complaint is not dealt with effectively.