In hard times, the temptation to commit insurance fraud increases. Industry insiders and legal experts gathered at the inaugural Insurance Times breakfast club to discuss the problem, and agreed that it was time to get tough

The first ever Insurance Times breakfast club, held at Vinopolis in London, was focused on the growing problem of fraud. Barker Gillette partner Steve Barker, Clothfair Chambers’ Ian Winter QC, and Insurance Fraud Bureau deputy chairman and AXA group fraud manager Richard Davies each provided some intriguing perspectives on a crime that costs the industry billions of pounds every year.

Barker highlighted the impact the recession had on boosting the public’s appetite for fraud. He pointed to the ABI’s grim figures showing that, while £700m worth of fraud had been detected in 2008, the amount of undetected fraud was estimated to have reached £1.9m. “In times of financial hardship, insurance fraud is almost endemic,” he warned.

He emphasised the psychological motivation behind fraudulent activity, noting that shame caused by crippling debts and failing businesses can encourage otherwise honest policyholders to make fraudulent or exaggerated claims. He added that this temptation to commit “opportunistic fraud” was stoked by easy access to insurance.

“It is an opportunity that is available to virtually everybody because everybody is required to have some form of insurance,” he said. “You have the means to do it without even leaving your house.”

He said the widespread tolerance of fraud by the general public and the failure to prosecute the majority of fraudulent cases were also contributing to the rise in insurance fraud. He pointed out that the new Fraud Act of 2007 made it a lot easier to prosecute cases. “It adds £44 to every policy and I cannot understand the reluctance to get tough with these fraudsters.

“I think it is something that needs to be addressed. I think the view that ‘it is only insurance fraud’ needs to change. Perceptions need to change because it is costing us a great deal of money. If when people took out policies they knew the amount it took to cover the fraud, they would be pretty concerned.”

Menacing tone

Barker also warned that organised fraudulent activity had taken a sinister turn. “Fraud has evolved over the past decade.” He added that the rise of the practice known as a “crash for cash”, where fraudsters stage car crashes in order to claim on insurance policies, was a worrying trend. “This concept of well-organised criminal gangs driving around creating accidents and making inflated claims is a concern. It is a concern because it has consequences far greater than money.”

Barker also pointed to the recent high-profile arrest of two 18-year-old law students in Brazil for insurance fraud. “Fraudsters are getting younger as well as more prolific. Who would have thought 10 years ago that someone as young as 18 would have the gumption to make insurance fraud in a foreign country?”

He criticised the media coverage surrounding the arrest. “The media seemed to be focused on the question of why they were asked to do community service. Well, the answer is they have committed insurance fraud.” He called on the insurance industry to make greater strides in tackling fraud, saying: “You’re making steps in the right direction but I think you need to do more.”

Ian Winter QC highlighted the opportunistic nature of fraud when he admitted how he fought an insurer tooth and nail for an insurance claim made on a bike worth £51.49, when he was a student.

He then spoke about his experience of defending the infamous Michael Bright of Independent Insurance, whose conviction of fraud followed the collapse of the insurance company that he helped found. Winter suggested this was a cautionary tale, showing that insurance fraud could be found at the heart of the insurance world. He believed the charismatic Bright had refused to delegate authority as his company grew and left himself open to accounting errors. However, he wryly noted: “The jury did not believe that he had been naïve.”

Sanctions needed

Richard Davies spoke about the need for the insurance industry to educate policyholders on the processes involved in investigating fraud.

“We need to remind fraud managers of the impact they have on the customer and, in particular, the impression that insurers can give that they are trying to make their claims process more difficult than it should be, when they are only trying to manage the risk.”

Davies also drew attention to the lack of legal sanctions in place to deal with fraud in relation to third-party fraud, saying: “The industry needs to lobby on the gap in the law.” He said the UK should emulate the sanctions in place in the Irish legal system. “Within the Irish act, if you are involved in any way in a fraudulent act, then the full powers of the state will be used against you.”

He also addressed the difficulty of raising public awareness about the negative repercussions of fraud, especially when it came to launching television campaigns.

“The argument is quite difficult to make when it comes to opportunistic fraud. The example that is always cited is the success of the drink-driving campaign but, as with organised insurance fraud, you are able to make the link to public safety issues,” Davies said.

“That does not apply to opportunistic insurance fraud, where the only thing we are appealing to is the sensibility of the honest customer not to have to pay additional premium. And I’m not convinced we have developed the right set of messages to change behaviour. We need to do a bit more research.” IT