The industry seems to be fighting fraud alone, but it needs help from the government and the public, says Damian Ward
Attitudes to insurance fraud are changing, both for the fraudster and within the industry. But outside of the industry it is doubtful whether much of a ripple is felt.
It was, for example, surprising for some people to learn through the national media that there is a new phenomenon of staged accidents.
Regardless of the way fraud is portrayed in the newspapers, insurance fraud is not clever or sexy or exciting. It is a menace.
As far back as 1994, when the Fraud Law Reform consultation paper was published, the cost of fraud to the UK economy each year was £14bn. So one wonders why it does not seem to be further up the political agenda.
This is hardly surprising. ABI research conducted in 2003 revealed that 7% of the sample questioned had committed insurance fraud - the same number as would be prepared to steal a towel from a hotel room. Nearly 50% would not see exaggerating or falsifying a claim as a crime.
From this evidence it seems that fraud law reform is never going to be much of a vote-winner.
So, attitudes are not changing in government or with the general public, where are they changing? Certainly within the industry, and perhaps within the minds of the organised groups who target the industry.
But is this change real or just perceived? Within the insurance industry fraud is taken seriously and tackled, for the most part, in a controlled, systematic and well planned way. This is a big change from a decade ago.
We now have fraud databases such as MIAFTR2 and CUE PI, and the new Insurance Fraud Bureau. At the micro level, we have improved detection methodologies, process-driven investigations, and better partnerships with industry professionals (lawyers included).
This means that, although the industry still has some way to go, the entire emphasis of fraud detection and prevention is quite different to how it was a few years ago.
The career fraudster, however, has responded. One suspects that outside of the industry it is generally ‘business as usual'.
We know about organised gangs nowadays, because we spot their activities earlier and far more effectively than in the past. So the change is not, we suspect, within the fraudsters' realm, but in the industry's.
There can be absolutely no doubt that the concentration of some criminal gangs in targeting the insurance industry -notably in the arena of contrived or staged road accidents - presents a real challenge.
This is particularly apparent when taking into account that the industry operates within the confines and deadlines of the PI Pre Action Protocol; without the co-operational support of the government or police; and when it has - quite naturally and properly - fewer powers and access to information than law enforcement agencies.
If the general public, interviewed as part of the ABI's research referred to above, were aware of the problem with organised crime gangs, their perception of fraud as a victimless crime might change.
But the gangs continue to operate. Whether this is for terrorist funding activity at one end of the scale, through to fronting drugs, people trafficking or career fraudsters, it is clear that for some criminals insurance fraud represents an easy target.
The reality is that, for the most part, unless criminals are being watched by the police for other crimes, the insurance fraud element of the crime is unlikely to attract attention. In other words, criminals do not tend to get prosecuted for committing insurance crime.
This must change. One might also cite the disappointingly adversarial approach that lawyers can take in civil fraud cases. Entrenchment and distrust is the name of the game. If this does not change, the fraudster will still be able to walk away without consequence.
There are of course many subtle differences in the way these gangs operate but generally we see staged or contrived road accidents, claims for fictitious hire storage and recovery, or cars involved in genuine road accidents which sustain minimum damage and which are represented to have sustained more serious damage.
These cars will be hidden away or ‘ringed'. An alarming trend involves fraudsters targeting innocent members of the public, by slamming on their brakes for no reason, inviting an inevitable rear-end collision.
Damage is later exaggerated, false passengers claim to have been in the car, and of course the obligatory storage and recovery and hire claims follow. Individual speculative fraudsters are equally a problem.
So what of the cost? The financial cost to the industry, while alarming, is only part of the picture. The irony is that the financial cost of fraud has to be passed on to the consumer, so those 50% who see nothing wrong with insurance fraud are paying for their folly. Sadly, so are the honest remainder.
The costs to the public sector are equally worrying: local authorities are fighting false claims and this cost diverts funds away from other essential public services. The social cost of fraud is thus a concern, and does not seem to have been addressed by the government.
The lack of prosecution, and the generally lenient sentencing, means that this tacit legalisation of insurance fraud does nothing to reverse this perception and is damaging to both the fabric of society and the UK economy.
No matter how much fraud is prevented, and no matter how many initiatives and data sharing agreements blossom, as long as organised gangs are able to continue unencumbered by the process of criminal law, then the fraudsters will move on and start again.
Britain can learn from both America and the Republic of Ireland in terms of tackling and meaningfully criminalising insurance fraud. Until this happens the industry continues to fight the fraudster and the organised criminals with one hand tied behind its back.
'Damian Ward is head of the fraud special interest group of the Forum of Insurance Lawyers and a partner at Keoghs