ABI reports sharp increase in fraudulent insurance claims

Data released by the Association of British Insurers on 30 May 2014 found that the value of fraudulent insurance claims uncovered by insurers rose to £1.3 billion in 2013, representing an increase of 18% since 2012. Fraudulent motor insurance claims were both the most expensive and the most common to be uncovered, with 59,900 dishonest claims worth £811 million detected last year, their value up 32% since 2012.

Whilst the value of attempted fraud went up, the number of fraudulent claims went down. The scale of property insurance fraud also decreased 38%.

Overall, the annual cost of insurance fraud passed on to the customer was around £50 per head. For this reason the insurance industry has made over £230m investment in fraud detection measures, such as the development of the Insurance Fraud Register, a database of insurance cheats.

The ABI believes the recorded level of insurance fraud is increasing because more people are reporting it and more resources are being used to fight it. It has "never" been harder to get away with committing insurance fraud, according to Aidan Kerr, the ABI’s assistant director, who warned penalties were now "severe" “ranging from a custodial sentence and criminal record to difficulties in obtaining financial products in the future”.

The Insurance Fraud Enforcement Department, a specialist police unit, has helped to prosecute 85 people since its genesis in 2011. The Insurance Fraud Bureau was set up in 2006 for the purpose of dealing with false motor policy claims. The IFB is currently investigating 110 ‘Crash for Cash’ schemes which represent approximately a £120 million liability for insurers. ‘Crash for Cash’ schemes arise when an insured stages a car crash, for example by slamming on their brakes, frequently with the brake lights disabled, and a motorist crashes into the back of their car. The insured will often have witnesses to say that the crash was the other driver’s fault.

Insurance fraud can manifest in various different guises from an entirely false or made up claim, to genuine claims that are fraudulently exaggerated, where the loss transpires to be smaller than first thought or where the claim is based on false information (e.g. where the insured seeks to improve or embellish the facts). Recent examples of fraudulent insurance claims uncovered include: claims invented by a vet to the value of £200,000 for treating non-existent pets; and a man caught playing rugby while making a £923,000 claim for wrist injuries.

Despite ever more resources being employed in the fight against insurance fraud, fighting fraudulent claims can often cost the insurer more than simply paying the claims themselves, leaving the insurer in an unenviable position.

This article first appeared in Law-Now, CMS Cameron McKenna's free online information service, and has been reproduced with their permission. For more information about Law-Now, click here.