Increased fraud could be a by-product of reform
Keoghs LLP is warning insurers that the government’s proposals for reforming the claims process may leave them facing substantial hidden costs.
Although these measures are likely to achieve the desired effect of cutting the cost associated with the majority of claims, the new restricted timescales proposed for admitting liability (e.g. 15 days for motor-related claims) could create significant issues for insurers when considering the potential presence of fraud.
James Heath, Head of Intelligence Services at Keoghs, which specialises in fraud law, said:
"Most people have rightly welcomed the proposals on the basis that they should cut down the time taken to settle genuine claims and reduce the handling costs. However there could be a significant hidden cost that emerges."
Despite improvements in both technology and handling processes, many insurers still struggle to uncover fraud within the timescales allowed by the current protocols. Fraudsters are also becoming increasingly sophisticated in their approach.
Under the proposed regime, unless an insurer has robust, effective and adaptable early fraud detection procedures in place they may well find themselves forced into admitting liability only to uncover their mistake later.
Heath added that insurers need to urgently address the processes they use to identify potentially fraudulent claims:
"These deadlines are really tight. Insurers are going to have to review their processes to find a better way to hit the deadlines whilst still ensuring that they pick up on potential fraud. If they don't, then what they hope to save in costs on genuine claims could be seriously impacted by an increase in leakage and costs due to fraud. In our experience the key to an effective counter-fraud strategy is the use of intelligence at the earliest possible stage in the claims process.”
The proposals are built around promoting early admissions of liability and early settlements, and removing duplication of work from the process. They provide for actions to be taken within set time periods and with fixed recoverable costs.