A dirty white van. A pair of twentysomethings you wouldn’t look at twice. And a camera hidden behind a button. This is the reality of private investigation, a business that saves insurers tens of millions of pounds a year. Katie Puckett reports from a London stake-out. Illustration by Quinton Winter

If the shopkeeper suspects anything, it’s hard to tell. His customer, a man in his late twenties wearing a dark jacket, jeans and trainers, buys a Lucozade Sport drink from the north London newsagent. He acts like any other shopper who has wandered through the door that morning.

But later the shopkeeper will discover that the unremarkable black bag slung around the man’s neck held a hidden camera, its tiny lens behind a button. The footage will be used to disprove the shopkeeper’s claim that a lower back injury has left him unable to work, potentially saving thousands of pounds in insurance payouts.

The dark-jacketed man was a private investigator from Cotswold Group, working on behalf of an insurer. With claims expected to rocket as Britain moves into recession, more and more insurers are likely to call in hired guns to help investigate suspected fraud.

Despite the hit-and-miss nature of surveillance work and its considerable costs, insurers say it pays for itself many times over.

“It’s sometimes regarded as dark and shady, but it can be key in terms of disproving a claim and being able to produce good-quality evidence,” says Scott Clayton, claims fraud and investigations manager at Zurich. “These people are professionals. There are many, many cases where surveillance has produced evidence that massively reduces six-figure claims.”

Surveillance firms are keen to dispel some of the poor perceptions about their trade; insurers trying to formalise ad hoc relationships have helped in this. For example, Zurich uses a specific trio of investigators, while AXA works exclusively with Cotswold.

David Williams, claims director at AXA, says surveillance is highly sensitive and smaller firms can be “over-zealous” or “less corporately minded”. He adds that in the first 10 months of last year, private investigators saved AXA £39.86m – 10 times the amount for the whole of 2004.

For Tom Scott, managing director of Cotswold and a former police officer like many of the company’s 170 staff, the work is a natural fit.

“An underbelly of fraud exits within the UK across insurance, banking and local authorities which does not come on to the police radar,” he says.

But the job isn’t easy. “Claims tend to be substantially reduced rather than disproved outright and, even when they are rejected, it’s difficult to pinpoint where exaggeration becomes criminal fraud.”

In the company’s 18-year history, only one personal injury claim has ever gone to court. In August 2006, a 31-year-old – who had tried to claim £1m by pretending an accident at work left him in a wheelchair – was filmed walking to the shops and going on a caravan holiday. He was sent to prison for three-and-a-half years.

Cotswold’s client list also includes Norwich Union, Royal Bank of Scotland Insurance, AIG, Allianz and NFU Mutual. It usually charges a fixed fee per case and handles about 6,000 fraud and 4,000 personal injury claim surveillance cases each year.

Scott admits the investigation industry has its questionable characters. But he stresses that companies such as his strictly follow the limitations of the Human Rights, Data Protection and Regulation of Investigatory Powers acts.

The ABI also offers guidelines on the instruction of private investigators.

It may come as a shock to civilians, but there’s a great deal of surveillance going on around us – by the police and on behalf of private and public sector organisations. A drive with Martin Roach, director of Cotswold’s surveillance services, is a crash course in paranoia. “That silver van, that could be a surveillance vehicle– it doesn’t fit with the others in the row and it’s too clean.”

If surveillance is done well, nothing should look out of place. “It’s about being a grey person. You wear nothing to catch the eye, you’re not too tall, not too fat, not too good-looking or too ugly. Just bland and boring,” he says.

Roach drives a grey BMW and wears clothes in neutral colours. If you meet him – he tells people at dinner parties simply that he “works on behalf of insurance companies” – you’d notice his height and baldness, but little else about his appearance stands out.

An amiable ex-police officer who didn’t fancy spending 30 years in the force, he says: “One is always left with a sense that the private sector won’t matter so much, but it does when you’re dealing with insurance claims of £2m to £3m.”

The figures are startling. Roach estimates that of all the claims the firm investigates, only one in 10 or even 20 turns out to be genuine.

The operation outside the north London newsagent is the third day on the job for a two-man surveillance team. They have already established the claimant’s identity through a brief conversation with his wife, and know that he returns home in the afternoon. That morning they filmed him leaving the house at 5am and driving to his store to open it for the day. Now they are outside preparing to gather video evidence of his activities.

The surveillance van is a dirty white Vauxhall Corsa, one of thousands on Britain’s streets.

You wouldn’t look at it twice. In the back, a Cotswold employee will sit for up to eight hours, hidden by black-out curtains, peering through the windscreen or peepholes in the back window shades.

The two investigators are in their late twenties and look like any other young men about town. Roach explains that these people are chosen carefully to blend in with their location. Each brings whatever they need to make the long hours comfortable – blankets, cushions, beanbags. There’s a radio and a video camera, and a number of disguises, including a fluorescent jacket. “I throw that on the passenger seat,” says one of the men, “and no one’s going to look twice. You can go to an industrial estate and put it on and walk around.”

There’s also an orange light that can be attached to the roof and magnetic signs for a window cleaning firm or building contractor. Another favourite trick is a traffic survey form that the men can present if challenged. One has an MP4 video recorder in his shoulder bag, but cameras can be integrated into anything from a cigarette packet to a mobile phone.

This equipment is rarely necessary. “The bizarre thing about people is that unless you expect to see something, you won’t see it,” says Roach. “Never catch anyone’s eye. As soon as you do that, it’s game over. You haven’t compromised the operation, but you can never be seen by them again.”

Surveillance teams would rather lose a target than make them aware of their presence – this is company policy to avoid compromising an insurer’s brand.

Roach is adamant that his teams never breach their target’s privacy, though when you’re sitting outside someone’s house and filming their movements, it does seem a fine line.

“Our view is everybody’s got a right to privacy within their home – we wouldn’t film any of that,” he says. “But when they’re out, everyone else can see what they’re doing anyway. The key thing is that you never, ever, want to discover anything other than where the claimant is or their identity. You don’t want to be open to claims of any kind of entrapment.

“It’s in our interests and in insurers’ interests that what we do is within the law. We’ve been attempting for years to improve the image of what we do, to something we hope is professional, lawful and compliant, rather than something people would view as grubby.”

Two-thirds of Cotswold Group’s work involves surveillance. The rest is detective work around the identity of claimants, their whereabouts and the circumstances of accidents.

Sean Armstrong was a detective in his native New Zealand and now spends his days driving around London piecing together evidence about motor claims.

He makes cold calls to track down claimants, insureds and witnesses, conducts interviews to gather statements and visits accident sites to make sketches.

His detecting skills obviously come in useful but it’s a far cry from investigating murders in Auckland. He spends a lot of time sitting in traffic, knocking on doors and pursuing the minutiae of accidents in interviews that can stretch over several hours.

Armstrong says there is no sure-fire way to tell if someone is lying. “It depends on how good they are. A lot of it is getting the facts, letting them speak for themselves – the engineer’s report can tell you a lot, for example.”

His workload ranges from 40 to 80 cases at a time and these can vary from a full-scale investigation to a door knock to establish a false address. He says there is no substitute for visiting someone in their own home.

“You see where they live and where they park their car – that’s part of an insurance policy.

They might tell an insurer they have a garage, but by going to their house you see they’re in a fourth-floor flat and live in a road that doesn’t have garages.”

With hours of his day spent sitting in traffic, it seems a laborious and inefficient process.

But the amount of fraud he uncovers is easily enough to justify the expense.

Insurers are bracing themselves for a steep climb in the number of claims, genuine and fraudulent, as the recession takes hold. This will inevitably mean more detectives like Armstrong on the roads and more anonymous white vans parked up near suspected fraudsters. Keep your eyes peeled …