Fraud

Insurance fraud can be illustrated by the following examples:

1. Inventing a loss that never took place.
2. Exaggerating the number of item stolen by an honestly reported break-in
3. Deliberately creating an insured event
4. Exaggerating the effects of an insured event – eg: wrongly claiming for whiplash in an accident.

It is difficult to quantify insurance fraud as it can go undetected. Quantifying it by collecting data on the amount and type of fraud is becoming very important and can be seen as the first steps in elimination. 

Fraud Prevention:   

This is best undertaken at a strategic level. The Fraud Prevention Bureau (FPB) was formed in 2006 to lead the insurance industry’s collective fight against fraud. It acts as a central hub for sharing fraud data and intelligence. It is aimed at detection and disruption of organized fraud networks. This is achieved because of its positioning at the heart of the industry Centre.

Two primary Objectives:

1. Help insurers identify fraud and avoid the financial consequences
2. Support Police, Regulators and other law enforcement agencies in finding and bringing fraudsters to justice

Other supporting Objectives:

1. IFB administers the Insurance Fraud Cheatline, run in association with crime stoppers.
2. The above is a free and confidential tool for the public to report suspected fraud. The police or IFB can investigate.
3. The Insurance Fraud Enforcement Department (IFED) is another tool available, this is a city of London body which is a
4. Unique team of police officers and investigators funded by insurers through a partnership between the ABI and Lloyd’s of London. It

           provides a specialist unit tackling especially high volumes and organized criminality as well as opportunistic fraud.

Technonogy is being harnessed in the drive towards fraud dectection:

1. Pooled claims databases where insurers chare claims details with each other, matching repeat claims with new ones 
2. Insurance Fraud Register 
3. IFB insurance fraud intelligence hub (IFiHUB)
4. Motor Insurance Anti-Theft and Fraud Register (MIAFTR2)
5. Motor Insurance Database (MID)
6. Claims and Underwriting Exchange (CUE)
7. Art Loss Register (ALR)

FRAUD Detection:

1. A key person in the detection of fraud is the claims handler, other indicators are:-
2. Claims made soon after a policy has been taken out.
3. Frequent changing of insurers, indicating a move to disperse the information held about them
4. uncharacteristic increase in the level of cover. eg: midterm addition of say accidental damage cover to the policy
5. Financial difficulties, may not be apparent but comes to like when bank statements are received.
6. Prevarication by the insured
7. Excessive pressure to settle
8. Inconsistencies in the stories given
9. Lack or missing documentation
10. Too perfect documentation. (too good to be true to the experienced claims handler)
11. Lack of cooperation. (condition precedent to liability)

 Other measures taken to improve customer service as well as help detect fraud:

1. Completion of the claim form over the telephone (it is harder to lie directly as against just filling in the form by themselves)
2. Settling of claims by replacement rather than by cash.
3. The use of cognitive behavior tools to listen for inconsistencies in voice and action during the claims process.
4. Some insurers now have a fraud detection team, staffed by persons with experience working in surveillance, security services and police officers.

Consequences of Fraud:

2. To the Insurer – it is estimated fraud cost the industry £2.1 billion per year, can affect profit, soft touch 

                                       perception thereby attracting more of the undesirable, premiums increases, less competitive.

1. To the Fraudster – they get away with it once, temptation to continue
2. To the Policyholders  – Genuine policyholders having to pay the increased premium.

Case Laws:

1. Konstantinos Agapitos v Ian Charles Agnew (2002) dealt with the issue at some length.  The judge decided

           that not only would a fraudulent claim fail completely, but that if a claimant instituted an authentic claims

           that was subsequently found to be exaggerated, it must also fail in its entirety. He quoted Lord Hobhouse’s

           statement from the case of Manifest Shipping Co. Ltd V Uni-Polaris Shipping (The “Star Sea Case”) where

           he stated: the fraudulent Insured must not be allowed to think: If the fraud is successful, I will gain, if not, I lose

           nothing. 

1. The Supreme Court in Versloot Dredging BV v HDI-Gerling Industrie Versicherung AG and Others (the DC

          Merwestone) (2014) reverse the above decision in a above. In summary, the supreme court said that the insured

          can tell lies in the presentation of a claim and still make a full recovery from the insurer provided the lies are immaterial or

          collateral and that the claim is otherwise genuine as to liability and quantum. The logic behind this was that no one was

          prejudice and no one benefited by the lie. 

Now this decision puts commercial insurance contracts on a par with the views of the Financial Ombudsman Service whose position has been that the historic precedent was unnecessarily harsh. Their view is that where the fraudulent act or omission makes no different to the insurer’s ultimate liability under the terms of the policy, it should not entitle the insurer to “forfeit” the policy or avoid the claim.

The Insurance Act 2015, came into being in August 2016:

1. Whilst it largely applies to commercial insurances it does include provisions for both consumer and commercial

         contracts. Section 12 says, insurer can terminate the contract from the time of a fraudulent act.   

1. Following Termination the act says:
2. The insurer will remain liable for any prior legitimate claims arising before the fraudulent act
3. The fraudulent claim and all subsequent legitimate claims will be invalid.

                 iii. The insurer may recover any payments in respect of any fraudulent claim (s) and

1. The insurer will be entitled to keep the premium

1. The ACT does not seek to define what a fraudulent claim is, so there is no distinction between someone who presents a

          completely fraudulent claim and someone who suffered a genuine loss and used fraudulent means in inflating the claim

1. The ACT does define what a fraudulent claim is as against a fraudulent act (the behavior which makes the claim fraudulent). In respect

           of a fraudulent act, the insurer is entitled to terminate the cover from the date of the fraudulent act (not when it is discovered).

1. Many fraud conditions stated that is case of fraud, all benefits under the policies are forfeited, this means all previous claims even if

         legitimate. The ACT does makes it clear that legitimate claims made PRIOR must be paid. No return of previous claims are permitted

         under the Act.

The Criminal Justice and Courts Act (CJCA) 2015:

Under s57 of the CJCA, defendants can request that where part of a personal injury (PI) claim is found to be fundamentally dishonest (significantly exaggerated), the whole claim must be struck out.

What amounts to fundamental dishonesty was not always clear in the legislation nor are there any court cases, however this should still serve as a deterrent to anyone contemplating  exaggerating their personal injury claims.