Our panel of experts discusses the importance of the Insurance Fraud Bureau and other measures in tackling fraud
Rachel Gordon - chair
Scott Clayton - head of claims Investigation, Zurich
Allan Clare - counter fraud controller, NFU Mutual
Richard Davies - fraud risk manager, AXA
Ken Robinson - anti-fraud unit, City Police
Chris Hannant - head of financial crime prevention, ABI
Chris Hill - head of fraud, NU
Bobby Gracey - head of counter fraud solutions, Crawford
Richard Healey - chief executive, Claim Tracker
John Freeman - director for investigation services, Capita
Chair: Does the panel welcome the arrival of the Insurance Fraud Bureau (IFB) and what challenges does it face?
John Freeman: The IFB is a tremendous step forward. But it is not just this we should be looking at - the government's fraud review is also important. Powers against criminals are increasing - there is a parliamentary inquiry into identity fraud and the whole pace seems to be gathering, which is great news. I hope the media will give the IFB time to develop. We all want quick wins, and I am sure we will get some. But the nature of fraud is such that sometimes inquiries can be complex and you have to wait for those results to come through.
Chair: Should the media stop hassling the IFB?
Freeman: Basically, yes. It needs time to bed in.
Allan Clare: With the IFB, the industry has put its money where its mouth is. This is also a positive move for the public at large.
Scott Clayton: Getting the key players from insurers around a table with the IFB and collectively tackling this problem is music to the ears of people who are connected to fraud. I guess intelligence sharing is a relatively new concept among insurers, but keeping up with the pace of the staged accident ring relies heavily on intelligence.
Chair: Some have said the IFB should be allowed to go about its business quietly, but is it right to be so secretive?
Clare: If you're trying to attack organised crime, some of the inquiries you have to conduct in a very sensitive manner. I am sure they would be willing to share the results as soon as they achieve them. We do not want to do anything that would prejudice an inquiry. If you are thinking about the actual location being secret, then that is a sensible thing to do. We are dealing with some pretty serious criminals.
Chris Hannant: Ultimately, what matters in this are two things. The first is that it is here. Second, it is what we achieve, what are the results. It is slightly academic where their address is for example. So what? The important thing is for the industry to get behind it.
Chris Hill: It has to be discreet about its methods, about the individuals who are working with the bureau for obvious operational reasons. But it needs to be open about its results.
Freeman: Part of this process must be as a deterrent factor. So if you do not advertise the results then you are losing that opportunity.
Chair: Will the IFB be an effective deterrent?
Hill: The only deterrent to the rapid growth of organised crime in insurance is effective prosecution. The IFB is an important step on that road because we created a body able to work more effectively with police. But if we are unable to secure prosecutions which historically - until very recently - we have almost always failed to do, then I do not believe we will ever get a measure of effectiveness out of it.
Hannant: We also have a significant challenge in tackling the opportunistic fraud. I see in due course the success of the IFB potentially as a deterrent to the would-be occasional fraudster.
Healey: As someone from outside the industry, I am staggered by the amount of fraudulent claims and potential claims. For instance, there will be a huge number of claims in the coming months on plasma screens. People bought plasma TV screens in the first flush, but they were not HD ready. So as soon as new HD comes out, we are sure we are going to see an awful lot of the older flat screens falling off the wall.
Chair: Are fraudulent third party claims increasing? And is it a problem that we do not have an actual crime of fraud? Should we follow the Irish who have done this?
Davies: The Civil Liability and Courts Act in Ireland has had an enormous effect on third party claims. For the first time insurers are able to generate sanctions because they do not have to go the whole way to disprove a whole claim.
Hill: Some years back we had a case where a third party claimant suffered genuine injuries resulting from a crash. That person then inexplicably began to develop apparently unlinked symptoms to the point where they were unable to conduct a normal life and had to be wheeled around in a wheelchair. Surveillance then actually captured this person going out shopping and playing badminton. The person, when confronted with the evidence, got out of the wheelchair and walked out. We passed that information to the police, and they did nothing.
Chair: What does the panel feel about SOCA, the Serious Organised Crimes Agency, and is it taking insurance fraud seriously enough?
Hannant: By and large we think it is an excellent thing. So far we have had a range of issues in terms of having to report suspicious activity to looking at a specific case that we have given them. It has a specific remit, organised fraud.
Hill: Like the IFB, it is in the early stages of putting together a new operating framework. It would be almost impossible and unthinkable though for SOCA to seriously investigate the things that are its first and second priorities - which are drugs and people trafficking - without considering that dimension of insurance fraud, which is increasing.
Chair: In general, insurers appear to focus on personal lines fraud. Do you think there needs to be more emphasis on commercial insurance fraud as well?
Freeman: There was the commercial fraud survey that was conducted last year. It quite plainly identified that there is a problem with regards to commercial fraud. It is not as big as it is in personal lines, but there is a problem there.
Chair: Is the panel more optimistic now than ever before that it is actually tackling fraud across the board?
Hill: In 2002, we prevented something like £49m in fraud. We have had a programme of enhancements, and last year we stopped £134m of fraud, and are set to do considerably more. You could then go to the figures that are collected on behalf of the industry as a whole, you will see that there has been a big increase across the board year on year. There is no doubt some types of fraud are increasing. But we are increasingly confident we are ahead of the game.
Chair: What types of fraud are increasing?
Hill: Organised. Out of that £134m the majority, by value, of the savings we have made have been in the commercial field. The majority of frauds on commercial liability are third party frauds. These are people attempting to defraud the company they work for, or a company whose goods or services they have used where they tripped over. Local authorities, hospitals, and all the rest of it, it is third party fraud and the methodology for tackling it are very similar to those we apply on personal injury third party claims.
Chair: Is there scope for other parties to help insurers tackle fraud better - what about brokers, for example?
Hill: There is a real contribution that our brokers can make, particularly on the commercial side. Brokers build up a very close relationship with the customers, they understand their business in a hands-on way and are in a position to spot what may be symptoms of fraud, either at the underwriting stage, or at the claims stage. This is an area where we should be supporting the broker community and putting in more effort. We have done some pilot training of our brokers.
Freeman: I spoke on a forum with some brokers earlier this year, and what they were saying was that some of the brokers wanted to play an active part. But they were finding it difficult to liaise with someone at the insurance company. They did not know who to contact, and they were looking for greater participation from insurers to actually train the brokers in trying to spot potential fraud and things like that. There is a demand there. Some insurers are responding to that, and I think more insurers should follow the lead of those few.
Davies: This has to start with trade associations.
Chair: Do we need to see more consumer education on the impact of fraud? Certainly the Irish Insurance Federation has made lots of noise about various campaigns. Do we need what would potentially be an expensive, high profile media campaign? What else might work?
Hannant: Any high profile media campaign is potentially very costly, and we need to weigh costs and benefits.
Clare: In the US, insurers are educating customers about how to prevent themselves from being victims of insurance fraud, like 'slam ons' and 'induced' accidents, and other types of scams. That leads into a higher awareness of the types of risks, but also this is what insurers are doing to combat these problems. I do not think we should lose sight of the fact that each individual insurer or organisation has a responsibility itself to manage its own risks, communicate and educate its customers as well as trade associations and other organisations, and government.
Bobby Gracey: It is a challenge, though, in terms of brand protection and market share. Everyone around this room would love to see a marketing campaign around what we are doing and the good news stories we have all described. However, there are other individuals, perhaps, within our organisations who are more concerned about the brand protection and one thing: to be the number one insurer and gain market dominance.
Davies: It is about demonstrating processes of evidence. I think that is where fraud managers have made major differences in the past five years. My chief executive has a fraud target on his annual plan. I cannot ask for anything more than that in terms of generating a target. If it gets missed it is he who has to explain to our shareholders why that was. The difference in Ireland and the UK is that we do not generate many fraud prosecutions here - we do not have the backing of the Crown Prosecution Service.
Hannant: The thing that does strike a chord with people is saying directly, with benefits fraud it is their taxes going to an unworthy end. What we need to communicate, and what struck a chord in Ireland, is it is your money.
Chair: How frustrating is it that there are so few prosecutions?
Hill: Some 18 months ago, the insurance industry presented to one of the major police authorities a complaint in relation to an organised criminal gang who were believed (we had evidence) had committed something like 400 induced accidents. They had actually arranged crashes with 400 innocent motorists in the space of 18 months. We as an industry paid for some of the best specialist legal advice in Britain to pull together an evidence pack for the police, at a very considerable cost. The evidence was in the view of the legal counsel, and in the view of the other insurers, overwhelming. That investigation was declined at the police stage. The police and CPS have historically been caught between a rock and hard place. They have both been set targets, which historically have never included fraud, because historically fraud was not perceived to be a priority for policing. You will not find it anywhere in the national policing plan.
Davies: This is exactly the challenge facing the IFB. From an IFB perspective we now have to progress, with law enforcement, the relationship building process. The police often get presented with an enormous file, fantastically researched, but it is often just too big. Unless the police get involved almost at the point of selecting targets, it is going to be difficult to generate real leverage until we get prioritisation. '
' Gracey: There is a historic issue as well. The apathy of some insurers to go to the police because of the uncertainty of outcome. We have been too accepting of dignified exits with a claimant instead of actually dealing with the problem.
Robinson: Can I come to the defence of the CPS? We went through a bad period of fraud investigations generally where we had lawyers who clearly were not up to the job, and we lost a lot of cases. Hopefully, part of the jigsaw coming together - the positive news - is that there has been a re-establishment of a fraud prosecution service, the specialist arm of the CPS. I do believe now, for all what that may be coming as a result of the fraud review, the CPS has restructured and I have no doubt that the current fraud prosecution service does have the expertise to deal with major fraud.
Chair: What are the panel's views on the attorney general's recent fraud review?
Hannant: What we really welcome is the analysis that underpins it, the recognition that it is a national problem, recognising the scale of the problem. It makes a whole raft of recommendations to address that. Success or failure will come down to one simple point and that is resources. Government is in the middle of a very tough spending review. Whatever happens, the clear message we are getting is that there is not any spare cash around. Also, government needs to recognise the significant resources that we have already put in to tackling fraud. To take another sector in the financial services industry, a credit card company sponsors a police unit in the City. A lot of effort has already been made by the financial services industry, especially insurers. What we are keen to see is for government to step up to the plate.
Robinson: The police are not tackling it because it is not in their plans. They get assessed every year; they have to meet their targets - business is business - and fraud is not on their agenda. Until it filters down to lower levels, you do not put your resources in this. It actually says in the fraud review that we should consider national community safety plans, which obviously encompasses how local forces can tackle fraud.
Chair: What does the panel feel about insurers paying for private prosecutions, as happened with a recent case?
Hannant: The case in question went to the Court of Appeal. What it recognised was the fact that the insurers had very reluctantly agreed to fund a police investigation because the police simply said they did not have the resource to investigate the organised criminal gang unless they did. So we had a choice between putting our hands in our pockets or just preserving our own financial position and walking away. On that particular case we decided to fight it and provide funding.
Robinson: The important thing is that police decide whether or not to take on an investigation, not on the basis of who is funding it. Once the decision is made to go ahead and investigate it, there are investigation costs, which certain organisations would be prepared to contribute to because it might speed up the investigation and help their commercial interest. It is a very fine line.
Chair: Do you feel that even though there is now more use of databases, that serial fraudsters are somehow slipping through the net?
Clare: I think less so. We are all becoming more sophisticated in the technologies that are available to us, the databases, data sharing has probably never been so prevalent within the market. We are doing more, collectively and individually, to identify these people. These organised fraudsters leave footprints, they leave histories. There are things that you can check. There is still room for improvement, but we must not beat ourselves up over the steps that have been taken over the last few years.
Freeman: It is easier to spot the serial claimant. We still have concerns with regard to the liability claims though. We need to get smarter on that end, and that has always been the problem with the nature of the insurance market. We have responded to consumer demands to the extent that you have cover immediately.
Davies: My position is that data sharing is still very narrow. We all sell more products than covered.
Chair: Do you feel adjusters have improved in their ability to detect fraud?
Clare: Loss adjusters have moved forward tremendously in the past few years. Several years ago they formed the fraud special interest group. Representatives from companies from the group look at how the interest group could work together with the ABI and insurers as the principles to assist them in the combat of fraud.
Freeman: Adjusters and insurers have always worked very closely together. There has never been a problem with it. We are talking at a much higher level, such as the ABI and the CILA. Have they always worked closely together? I would have to be honest and say no they have not. For the first time, the special interest group are in direct contact with the ABI and are sharing information.
Gracey: Measurement is also a key area for loss adjusters now. Every contract we look at now has KPIs in terms of fraud. How do you differentiate between a low risk and a high risk claim success rate? That is music to my ears because five years ago that did not exist. Insurers realise the benefit of having a fraud strategy. In terms of the adjuster, by validating claims you quickly differentiate between low and high risk. We could debate the correct model, the correct product. You need every kit in the tool bag to defeat the fraudster. The key thing for me as an adjuster is there is no direct measurement in terms of performance, which is critical. It is not just a quick fix.
Chair: Is internal fraud a problem for the insurance industry and if so, how should it tackle it?
Freeman: People are looking at these situations much better than they have before. But, there is ignorance too. I was talking to someone about how effective his whistle blowing policy was, and he said it was really good because he never get any calls.
Gracey: We also have some issues relating to Sarbanes-Oxley, being an American firm. It has been a major challenge for us to implement, but in terms of corporate behaviour it has been good news. It eradicates any opportunity -not fully eradicates - but reduces opportunity.
Hannant: One of the first steps is to measure the scale of the problem, and that is one of the things we are doing at the ABI. We are looking at the assessment of types of things, and also the scale. The anecdotal stuff suggests that there are robust controls, but that insurance companies feel that on the whole they are on top of it. You are never going to be 100%. One of the key things is get a sense of where we are as a whole. We are undertaking a survey right across the industry.
Robinson: Organised crime has been found in banks in the City, and I cannot believe they are not targeting insurance companies with staged accidents and such. IT