Builders' £300m insurance fiddle

Unscrupulous building contractors are costing insurers £300m a year, according to research by Loughborough University.

The research, focusing on household building claims leakage, has revealed "a large degree of claims leakage" and "very limited measures" put in place by the industry to combat the problem.

The university's Prof Geoff Hodgson is currently researching the impact of the leakage on household underwriting results, with the help of building claims specialists InFront Solutions.

Hodgson interviewed contractors in England, Scotland and Wales over the past six months.

The contractors admitted altering their normal pricing when estimating insurance repairs on private homes.

They said they did this to take into account the time wasted estimating for other jobs that did not result in work and the cost of waiting for payment from insurers.

The contractors also said they inflated costs to account for householders potentially withholding payment.

They said some policyholders "encouraged or demanded" they build in the amount of the policy excess.

The UK household insurance market covers 21 million dwellings, with

12.5 million buildings policies issued every year. One in ten policyholders makes a claim in any given year, costing the insurance industry £1bn in claims payouts.

Hodgson found the industry had two methods of reducing building claims inflation: repair networks and web and software-based solutions such as claims and conversation management systems.

An Association of British Insurers' spokesman said the research was evidence of the often hidden way in which insurance fraud took place.

"While most large insurers use panels of contractors to combat this form of dishonesty, the industry will be interested to learn of this research and its recommendations," he said.