Insurers must fight fraud rings

You arrive in a new country, penniless, and knowing little or nothing of the language. Someone who speaks your own tongue offers you £50 - a fortune in your present circumstances as an economic migrant - to borrow your identity.

You accept, gratefully.

The Mr Big who initiated the proposition used you as an alleged victim of a road traffic accident. You "suffered" from a whiplash injury in a staged or faked crash, and a claim was made against a motor insurer.

A typical payout for a whiplash victim is £2,000 - of which Mr Big pockets £1,950 for very little work or risk. And your contact may be working a similar scam with hundreds of other dupes.

There might be three "injured" people in each car in a two-vehicle staged or faked crash. That's an award of £6,000 per car: add the vehicles at, say, £1,000 each and other miscellaneous items of damage (a rented or replacement car, storage and recovery, etc), and each claim can easily exceed £20,000 - a very modest illustrative figure.

This is an example of an actual fraud ring that is currently being investigated. Another case involves a claim for a minibus that was allegedly carrying 12 passengers. That's £24,000 just for the injury claims, and this is one of at least 15 connected accidents.

Fraud rings are an increasing threat to the insurance industry. They're getting more sophisticated, and their organisers may invest months in planning some of their more elaborate operations.

They're helped by the difficulty in disproving whiplash - the injury that figures in 90% of false claims - and the willingness of GPs to confirm that a patient is suffering from the condition. Doctors' attitudes are perhaps not so surprising when you consider that they receive £250 for their report and are unlikely to ever stand before a judge to justify their comments.

Fortunately, insurers are getting smarter. The industry is using a broader range of techniques to combat motor insurance fraud, and individual companies are sharing information and co-operating more than ever before to defeat cross-industry frauds.

When an insurer believes that it is dealing with a potential ring it can perform a full internal data-trawl to identify all its suspect claims. This enables the insurer to assess its full financial exposure, and to exclude genuine claims that merely contain passing similarities.

The company can then liaise with other insurers, using database matches to check an individual's claims record, and tools including computerised fraud detection systems to identify claims at other insurers.

Until recently, an insurer pursuing a suspected fraud would use its own preferred investigator to interview the parties. If those involved were also claiming from other companies in separate incidents, different investigators might interview them. There would often be no cross-check on inconsistencies in their stories, and in effect, the insurers would be trampling on evidence that might ultimately lead to savings for them all.

The latest techniques use "conversation management" - methods of questioning a claimant to reveal whether he is lying. Faced with this process, a bogus claimant will often withdraw from the proceedings.

It's complex and detailed work. Until it can be alleged that a fraud is being committed or attempted, the elements of each individual claim need to be investigated in order to build a complete case.

Insurers have made massive advances in detection and repudiation rates in the past two years. Over the next five years we can expect to see equally rapid progress, including the launch of an industry-wide fraud database that all insurers and their partners will be able to search.

James Heath and Damian Ward are partners in Keoghs Solicitors in Bolton, and founder members of the firm's specialist claims unit