Lack of initial investment may jeopardise scheme, experts say

Concerns were raised over the ABI's plans to finance an industry-wide anti-fraud database without any up-front investment by its members.

Anti-fraud heads were scheduled to meet this week to consider four outline bids from companies keen to build the database.

All four were required to propose a system financed entirely by subscription fees and no initial investment to help save its members the £20m believed to be lost every week to motor and household insurers alone.

One fraud expert said the decision to rule out initial investment could compromise the system's effectiveness. "In theory it could work, but there's a lot counting against it," he said. "If you have a shrewd company prepared to run this thing and staff it and still market it to the insurers, they will need to set a very high entry fee."

In the US, where 93% of the insurance industry by premium volume swaps anti-fraud information, database investments appear to be paid off very quickly.

Richard Boehning, president of ISO, which runs anti-fraud databases in the US and is one of the four bidders to the ABI, said return on investment in the US was "at least 50 to 1".

ISO runs a system with information on 350 million claims. This enables insurers to see if a claimant has a long record of other claims or association with suspicious activity.

A decision five years ago to combine separate databases in the US sent the number of matches - or links between a claimant and possibly dodgy past behaviour - soaring and demonstrated the value of a comprehensive, co-ordinated system.

Boehning said bringing systems together sent the number of matches in a property database from 17% to 34% and in bodily injury from 33% to between 50% and 60%.