The high cost of fraudulent claims has spurred insurers into action. Now they have improving relations with the police and better detection systems. John Jackson explains
The gloves are off - insurers and the police have declared war on the insurance cheats - and householders are at the centre of this new crackdown on phoney claims.
The ABI, last month, issued new guidelines aimed at reducing the £150m per year household fraud problem.
Now insurers can report claims to the police without a policyholder's consent under section 29 of the Data Protection Act where there is clear evidence of fraud.
Even if there is just a suspicion of fraud, insurers can report claims to the police. However, the insurer must gain the policyholder's consent to contact the police in this instance.
ABI anti-fraud manager Deborah Weekes explains: "There has been an agreement since 1978, but it has not been working well, as the grounds on which insurers are asking for information must be clear to the police."
Other grounds
The guidelines are included in a data protection notice on how insurers use the policyholder's information.
That's all very well, but what happens if a policyholder refuses to allow insurers to contact the police. Weekes says: "If policyholders refuse permission, that could be a basis for the insurer rejecting the claim, although this would not be automatic - other grounds would also be sought."
While the new guidelines will bring more police involvement, insurers could do more to deter fraudsters. Rather than just rejecting fraudulent claims, insurers should pursue prosecutions. George Trudgill of Biba says insurers have been reluctant to prosecute. He adds: "They refuse a claim, but do not prosecute the villain.
"The police are not interested in these little matters and it can cost an insurer more to prosecute than the value of the item in question.
"However, we have heard recently from some insurers that they are going to make more of an effort." It seems the value of deterrence is being recognised.
The new measures come just in the nick of time. For when there is an economic slowdown, household fraud picks up. By next year a new fraud detection system, backed by the ABI, could be used across the insurance market. In addition, the ABI has met the FSA to co-ordinate the approach to tackling fraud, and is also planning talks with the Home Office. The ABI wants to knows how fraud should be investigated and who should pay for the work.
Weekes says: "Insurers do an awful lot of work and pretty much present the police with a fully-investigated package."
Claims exaggerated
Another significant boost for insurers comes from a code of behaviour, agreed by the ABI and Association of Chief Police Officers (ACPO). This will result in a standard information request form for insurers to which ACPO will ensure a police reply. It will be available in the next few months, according Weekes.
Insurers are investing more than ever into beating fraud. A survey for Royal & SunAlliance (R&SA) revealed that seven out of ten people would exaggerate a claim if they thought they could get away with it. Little wonder, then, that R&SA set up fraud teams across the country, known as SIUs - special investigation units.
The efficiency of detection is also getting better. One of the more sophisticated fraudulent claims detection systems is RADAR, operated by loss adjuster Crawford.
Crawford Claims Management Services managing director Neil Ventriss says: "We are finding a lot of fraudulent low-value claims in the £200-£300 region. We have a 14% detection rate in this area, with an additional 9% withdrawing their claim.
"In the all-risks, fraud and accidental damage areas we have a 9% combined detection and withdrawal rate."
A database of known and suspected fraudsters, called Insurance Hunter, is also being used. R&SA personal lines anti-fraud manager Peter Jackson says: "All new business and new claims go through Hunter on a daily basis. We are looking for patterns."
Suspicious Hunter cases are then matched against CIFAS - the fraud avoidance system - that lists fraudsters for all areas, not just insurance, by name and address. Another database, Claims and Underwriting Exchange (CUE), which holds details of claims from member insurers for six years, allowing multiple claims to be detected.
Among insurers taking a much stronger stand is Allianz Cornhill, which a year ago launched workshops for staff aimed at sharpening them up to spot the dodgy claim, across all classes of business.
The noose is tightening around the serial fraudsters.
The builders' fiddles
Unscrupulous contractors are costing insurers £300m a year.
Research into household building claims has revealed a large degree of leakage and "very limited measures" put in place by the insurance industry to combat fraud.
Loughborough University Professor Geoff Hodgson interviewed contractors across Britain. He found builders:
