Agreeing to disagree
In a recent article I worked with colleagues across Kennedys in reviewing the recent report of the Civil Justice Council (CJC) working group on low value personal injury claims. You can read this report here.
Part of their debate and discussion focussed on reforms that address the fraudulent, or unmeritorious, claims. In this post I reprise our review of the main issues.
Fraudulent claims continues to be a topic that divides opinions and there remain differing levels of discord on all the key areas considered.
There was consensus on all sides that fraud remains a problem and that greater public awareness of the problem is required. Where there is fraud, there ought to be penalties.
Beyond these basic principles, there was little by way of practical agreement in addressing how the problem is tackled. In fact, at the heart of the areas of disagreement includes how fraud is measured and the scale of the problem.
Measuring fraud, a covert activity, is difficult. The Association of British Insurers definition takes into account, and attempts to measure, (unsuccessful) attempts at fraud which themselves create a cost impact for insurers. Claimant representatives increasingly seek to minimise the problem of fraud by focussing on a narrower definition built on proven/confirmed fraud.
Where there is no agreement on the problem it follows that there will be little agreement on the solution.
We have always described fraud as a behaviour that seeks to extract a benefit from exploiting weaknesses in the claims process arising from desirable activity that promote expediency and efficiency. Fraud measures are therefore a balance: too onerous and they create friction that increases cost and impacts genuine claims; too lax and fraud thrives.
Whilst insurers spend time on, and invest in, developing fraud measures that minimise the impact on efficiency in the claims process, claimant representatives are increasingly challenging against further measures that they see as an imposition on their business practices.
As recent measures to combat fraud have focussed on reducing the incentive by reforming areas such as damages, legal costs and claims referral (both the process and rewards in this area), claimant representatives argue that before further reforms take place there must be clear and reliable evidence available.
Insurers know there remains a problem, albeit one that is sometimes hard to see. The reforms to date represent only a job part done in building effective fraud resilience into the personal injury claims process. The Insurance Fraud Taskforce recommendations will help to do this, as long as those recommendations are properly checked for relevance at the point they are implemented. We believe that:
- More effective data sharing and data processing freedoms for fraud prevention can help and will allow innovation to keep pace with changing fraud behaviours.
- More effective id checks throughout the claims process will provide certainty to all, and provides no greater imposition on claimants than is expected in a world where data privacy and security measures are common.
- The opportunity to test claims properly should remain an available deterrent to fraudsters, notwithstanding the aims to reduce frictional cost in the claims process.
There is also a discussion relating to qualified one-way cost shifting (QOCS) which focussed on fundamental dishonesty.
This was a particularly contentious topic within the working group and as such, it was left that the situation should be actively reviewed. Areas of concern included late discontinuance of claims and the definitions of ‘fundamental dishonestly’ and 'substantial injustice'.
Members from defendant backgrounds with specialist fraud departments were particularly concerned that if the court was required to approve a notice of discontinuance, LiPs would have to deal with these applications, which would in effect become a trial.
Some members of the working group were of the view that further guidance is needed on fundamental dishonesty, whilst others disagreed and felt that the provisions under both Section 57 of the Criminal Justice and Courts Act  and in creating an exception to QOCS protection, are working well. We agree. As we have stated above, fraud is a behaviour and, given that it will change to the opportunity, one that is not well codified. Finding a claimant to be fundamentally dishonest is a matter of fact and context, not a matter of defined lines. The danger of codifying fundamental dishonesty is that you will inevitably legitimise behaviours, however problematic, up to that drawn line.
Fundamentally Honest readers will recognise our view on this topic. In a previous post we concluded:
The available case law supports a broad interpretation of fundamental dishonesty from what it is, through to how and when it is applied in litigation. We continue to explore for our clients how we can use fundamental dishonesty to challenge, and avoid validating, poor claims behaviour. At all times we continue to look at the intent behind the conduct.
In the last 10 years fraud has been at the heart of the civil reform programme. The fact that fraud remains a problem for insurers is not to suggest that this reform has failed, but instead it goes to demonstrate that fraud adapts to survive. Where reform has tackled some of the root causes and sought to make insurance fraud less attractive, we look forward to further reform allowing the insurance industry and other compensators the means to build their own defences that address their own, particular, risks.