The future of fraud part 3: insurance fraud is here to stay

This week we’re back with the third part of this series where we consider the possible impact of civil reform and consider how fraud will remain a persistent problem for insurers and other compensators with new processes to exploit.

Insurance claims fraud is here to stay. Civil reform offers new processes to exploit in an area where there is comfort in previous success and experience.

Claims fraud is not going away

Since 2007, when fixed costs first entered personal injury claims, claims volumes and fraud have remained. At the heart is a UK claims culture driven by a population aware of their right to claim damages (where’s there’s blame, there’s a claim), an active enabler community that remains able to profit from claims, promotes opportunities to claim and actively identifies new opportunities to exploit. The UK claims sector remains fertile and lucrative.

Ongoing attempts to discourage fraud, particularly civil justice and claims reform over the last 5 years including the latest incarnation in the Civil Liability Act, have focused on discouraging by stripping out cost related financial rewards. Fixing (and thereby lowering) legal costs and banning payment of referral fees (for some elements of a claim).

This is not wrong. It does, however, only deal with part of the problem. In reality the benefits of fraud to claimants, claims management companies, medical reporting organisations, experts and others in the claims supply chain remain present and available. Whilst the unit cost of a fraud event may now be lower, it does not follow that fraudulent claims simply cease to exist.

Civil Liability Act

It is arguable that (along with other features of the reform programme) the claims process is now more susceptible to fraud and abuse. The process is weaker with greater focus on expediency. Let’s look at some of the key measures being introduced in April 2020:

Tariff damages for whiplash claims

Will damages reduction and assessment by tariff result in less critical examination of claims and streamlined process in which fraudster can profit?:

Injury is whiplash only - tick
3-6 months - tick
Pay £470

For a claim valued at £470 who is examining alleged impact on lifestyle, profiling claimants and looking for inconsistency?

Fixed recoverable costs

With the UK population being alive to their rights to bring claims, particularly in personal injury, the fixing of costs has not removed the need for lawyers who are willing to assist claimants. Good businesses can and will succeed. However, in order to maximise the rewards, some will always look for loopholes to exploit this framework.

Many commentators of the reforms see the creation or promotion of secondary injuries as a deliberate ploy to game and push the boundaries of the whiplash definition. The intention being to inflate claims, avoid low tariff based damages and increase the recoverable costs plus any rewards they may recover from the claimant under a damages based agreement (DBAs).

DBAs are growing in popularity and will be something which CMCs will surely exploit, as they do successfully in other areas such as flight delay and PPI compensation claims.

Increase in small claims track values

The small claims track values will rise in personal injury claims: £5,000 for RTA claims and £2,000 in all other non-motor claims.

It is expected that solicitors will leave this part of the market. Nature abhors a vacuum. Into this space will come CMCs, McKenzie Friends and litigants in person (LiPs). For the LiPs the introduction of a special portal will be another technology driven process that makes pursuing claims on behalf of minors or protected parties more detached and therefore open to abuse. Behavioural science is now starting to demonstrate that technology can depersonalise a process, making it emotionally easier for someone to attempt to defraud it.

FCA will now regulate CMCs

As a consequence of removing a number of claims from inter-party costs recovery it is universally feared that CMCs will enter the claimant representation space. DBAs result in a direct financial interest in the outcome for the "advisor". Where a CMC's primary motivation becomes their own financial interest in the claim, this can only dilute any thought of customer care towards the injured claimant.

As they do already, CMCs will promote claims, put pressure on those vulnerable or easily led and convince people to make claims where they may not have felt interested or comfortable doing so. We already see too often how people are induced into making grand (and false) representations in claims, essentially making fraudsters of otherwise law abiding people.

The claims referral chain will remain in operation. The removal of some of the fat from the claimant costs end of that chain may be felt lower down in terms of reduced referral or marketing fees, but it is unlikely to go away. These organisations are too well established to simply fold. Instead with the margin on their product impacted there will be a focus on increasing volumes in order to maintain topline numbers. Remember also, there are plenty of referral fees being paid by other parts of the claims supply chain - not just the introduction referral of the claimant.

We have advocated for some time that the regulatory remit (whether FCA or MOJ Claims Management Regulator) needed to be wider so that it covered more CMC activities and areas of interest.

CMCs are already diverse organisations operating across many lines of business. Our intelligence and investigations into CMCs and those who own and operate those businesses demonstrate this entrepreneurial, diverse and opportunistic mindset.