On Friday 26 February 2021 the rules providing the framework for how whiplash claims will be managed from 31 May 2021 were released. My colleague, Ian Davies, considered that these changes were “seismic” before predicting a frantic three months as insurers and compensators set about preparing themselves for a new system and new processes.
Ian went on to say that:
And when looking at this from the perspective of managing fraudulent claims, I couldn't agree more.
Over the years of civil justice reform in England and Wales - from the creation of the original MOJ Claims Portal for motor claims under £10,000 in 2010, through to the Jackson Reforms and now in these latest form of evolution (with some revolutionary elements thrown in) - reducing claims fraud, by reducing the size of the prize and thereby making it less appealing, has been at the forefront of thinking.
The reality is that fraudulent behavior is more complex than that. These issues were recently considered by a Civil Justice Council working group, commented on by my colleagues and myself in a number of articles. You can find my fraud-focused post, Agreeing to disagree, on this blog; or the full piece here, referencing the Insurance Fraud Taskforce and its wider recommendations.
But, here and now; how will these reforms impact the response to fraudulent claims and counter fraud strategies? I go back to what Ian said: “Make no mistake – these are seismic changes to low-value RTA claims in England and Wales.” And this goes for fraud too.
These reforms require a shift in how fraud risk will be managed by insurers and other compensators. When looking at the reforms my initial reactions are:
1. The opportunity for fraud remains.
Fraud is a covert behaviour which is well-suited to low-value/high-volume environments where claims are not examined forensically. Whilst the prizes for all actors (claimants and enablers) are reduced, motor claims fraud will remain attractive with a defined process that demands early admission or disclosure of the defendant’s position. The new rules make fraud prevention more difficult.
- 53% In a recent poll undertaken by Kennedys 53% of respondents from across the industry believed that the reforms would not reduce fraud frequency or cost of fraud.
2. The volume of fraudulent claims will remain.
Process efficiencies run counter to fraud controls and measures. The lack of process exit means compensators will constantly be seeking to strike the right balance. Fraud is just one of the challenges that claims departments need to account for.
- 21% In the same poll only 21% of respondents believed that the reforms would discourage fraud and reduce frequency.
3. Fraud will look like it always has done; but with opportunities for new areas to exploit.
False claims for injuries that never happened, crash-for-cash, credit hire fraud - will all continue to happen. At the same time we can see how there is more opportunity and incentive for exaggeration and inflating claims, whether by gaming the (new) system and/or layering claims with additional injuries and losses.
- 98% 98% of respondents to our poll believed that additional injuries will be presented alongside whiplash in order to push claims out of the new process...
4. New rules on providing detail and evidence within 30 days will turn existing fraud strategies on their heads.
Compensators will now have to conclude investigations and provide detailed reasons with evidence within 30 working days. This creates enormous pressure when trying to reveal covert behaviour. Often early disclosure in fraud cases enables a fraudster to adjust their story. It will be imperative for insurers to invest in early fraud detection solutions and ensure they front-load investigations in order to detect and prevent fraudulent claims.
Whilst the rules have been published there is still a lot of dust to settle. In our sister blog, Behind the Wheel, my colleagues in our Motor Group will cover the developments between now and beyond the new rules coming into force on 31 May. For now, as Ian says, “There are so many questions to be answered!” and we will continue to follow the questions and their answers as they develop. My colleagues and I will also be on hand to provide our own thoughts as to the impact of these reforms on fraudulent claims and compensator fraud strategies.