Fraud: On the side of the angels

Bogus and inflated claims are increasing in frequency and value. The Association of British Insurers estimates the cost of insurance fraud at £2bn per year, adding approximately £44 to every honest policyholder’s premium each year.

Some 2500 fraudulent claims are detected each week, totalling more than £18m, with the insurance industry investing in excess of £200m each year tackling the issue.

The recession has exacerbated the problem, with rising incidents of fraud appearing to mirror the worsening economic conditions. But there is a delicate balance insurers and claims management companies must maintain to ensure that privacy rules are respected while cheating policyholders are caught.

The efficiency of a claims management process is key when handling suspected fraudulent cases and the provision of ethical and admissible evidence is crucial in mitigating losses. This involves gaining relevant, timely and high quality evidence to enable the repudiation of false claims and to ensure the success of cases that reach the courts.

While the majority of claims are not subject to investigation, those that are reviewed must meet Financial Services Authority regulations, as well as a company’s own exacting professional standards.

Innocent until proven guilty
In the justice system, an individual is innocent until proven guilty; similarly, in insurance, a claim is genuine until shown to be false. 
Investigations must be transparent, empathic and ethical.

The priority is to identify genuine claims and the majority are managed in the usual way and can be settled as quickly as possible, ensuring minimum inconvenience to the policyholder.

Most investigation is carried out with the claimant’s knowledge and involves standard industry database checks, which the customer will have been made aware of at policy inception. 
However, it is sometimes necessary to carry out covert investigation where there is suspicion of an invented or exaggerated claim, or where organised fraud is suspected.

The Chartered Institute of Loss Adjusters issues guidance on the application of fraud investigation techniques, promoting the ability of investigators to defend actions by focusing on the method, means and motive.

Impartiality and transparency
All CILA members are subject to the code of professional conduct, which promotes impartiality and transparency. The institute aims to ensure members of the public are treated fairly, openly and their rights and status are protected.

Loss adjusters perform a wide range of investigations. It is not necessary for each member of an investigation team to have all of the investigative skills required but it is important they only engage in activities for which they are trained.

Investigations can include interviewing and intelligence gathering, via data searches and surveillance, and require a clear understanding of the laws, standards and regulation 
surrounding each area.

However, professional standards must be adhered to throughout the investigation, whether performed in-house or by a third party firm on the insurer’s behalf. At the outset, full details and identity of the suspect must be confirmed, along with business interests and hobbies.

Social networking sites can be a useful source for gathering information but must only be accessed legally, without any breach of privacy or use of deception. Care must be taken while investigating not to allow the case to be compromised.

It is an unfortunate truth that some investigation firms have been known to compromise a case through the use of illegal and unethical methods, including hacking, to gain intelligence.

These illegal methods can be committed both by seeking to obtain and simply receiving the information — leaving all parties open to prosecution. As such, insurance companies, whether using in-house or third party firms, should always ensure due diligence in relation to investigations, while professional indemnity insurance is also a must.

Dirty tactics employed by unethical investigators can include the intentional omission of segments of footage, be that from a recorded interview or CCTV that is not supportive of the case. Obviously unethical and illegal, if discovered this can be costly and embarrassing for the insurer and claims handler responsible.

Other illegal methods include using agent provocateurs to incite criminal acts, accessing private databases or trespassing, in order to gain information about the suspected fraudulent claimant. Obtaining personal information knowingly and recklessly without the consent of the organisation or individual that holds it is, of course, a criminal offence, under the Data Protection Act 1998.

Insurers should look for fraud investigator partners to employ professionals who are qualified, accredited counter-fraud specialists with thorough vetting procedures in place to ensure they have knowledge of the legal and regulatory framework.

This is combined with loss adjusters and investigation firms needing to uphold professional standards through their recruitment policies, stressing the importance of ethics in investigation and to clarify that applicants do not believe that the end always justifies the means.

Unregulated industry
There is currently no requirement for a private investigator to be licensed in England and Wales, and the profession remains unregulated following the demise of the Security Industry Authority.

With more than 10 000 private investigators working within the UK, the profession needs to be licensed and regulated to raise professional standards and instil confidence across the board. While this industry remains unregulated, there will continue to be unethical investigators offering inadequate services that do not adhere to the strict code of ethics and professional standards expected.

Insurance companies are urged to make sure they protect both themselves and their 
customers against the associated risks of instructing individuals and third-party 
investigation companies that are unregulated or without professional qualifications.

Requirements for ethical investigations
• No hacking of databases, private accounts of telephones
• No agent provocateur techniques
• No blagging
• No trespassing
• No invasion of property
• No infringement of privacy
• Transparency of evidence gathering
• Clear and unbiased editing of surveillance footage and statements
• Positive identification of a suspect prior to surveillance

A case in point
In Jul this year, investigators were able to uncover a £520 000 fraud of a man who tried to fake this own death in Honduras.

Anthony McErlean, 66, from Canterbury, pleaded guilty to making the bogus death benefit claim against Ace Europe during a hearing at Canterbury Crown Court. He also admitted fraudulently obtaining a passport and two counts of theft in claiming pensions. Between 6 December 2009 and 31 May 2010, McErlean pretended to be his wife, claiming that he had been struck by a produce truck in Honduras and died from his injuries.

He was charged with the fraudulent claim offence by Kent police, who had first been alerted to the criminal activity by the Insurance Fraud Bureau, which had become suspicious of the claim. McErlean was sentenced to six years imprisonment on 30 September 2011.

Tim Richardson is head of special investigations at Merlin Professional Claims Service