Travel fraud: travelling in a new direction

Recent months, however, have seen an explosion of dubious claims being made on the public liability policies of hotels and tour operators by people claiming to have been ill while away. The bulk of activity relates to all-inclusive holidays because it is much easier for claimants to argue that their illness must be the fault of their hotel. Typically they never report being ill while actually on holiday and only make their claims after they have returned, having been encouraged either by adverts from claims management companies or solicitors on social media or the radio or by direct contact from the agents of such organisations.

The new whiplash scam?
Fear is spreading that this will prove to be the 'new whiplash scam' now that the attractions of the motor market have been diluted by insurers' efforts to combat fraud and by the fixed-fee regime for personal injury claims within the Claims Portal.

Claire Laver, partner in the counter fraud team at law firm DAC Beachcroft, says: "We are seeing touts working for claims management companies standing outside hotels with business cards recruiting holidaymakers who wouldn't otherwise have thought of claiming and prepping them on what to say. The amounts involved are typically between £750 and £5000 and involve the same business model and the same firms of solicitors as we've seen for whiplash. Some claims are purely fictitious."

This type of fraud, which is now manifesting itself in the Mediterranean area and in Spain in particular, had previously occurred in countries like Egypt, Morocco and Tunisia - whose tourism industries have since been adversely affected by terrorism and security issues. But it is only this year that the CMCs have got involved in such an active way.

DAC Beachcroft has seen at least a fivefold increase in gastric illness claims this year, and insurance law firm BLM says that the travel industry is seeing an increase of 50% or more in them each month.

Joanna Kolatsis, partner and head of aviation and travel at law firm Hill Dickinson, relates: "My husband got a telephone call this October from a company asking if he'd been on an all-inclusive holiday recently and whether he'd been ill, and he said he had been on an all-inclusive holiday but hadn't been ill. They asked if he realised that if he had been ill he could get up to £5000 in compensation, and were trying to coax him into remembering something that hadn't happened.

"The problem with the system is that it's very much weighted in favour of the claimant and, although the damages tend to be fairly minimal in bog standard cases, the costs for claimant lawyers aren't limited as with whiplash claims. Lawyers can overcharge the insurers and the insurers don't want to spend even more time trying to prove they did."

"Tour operators and hotels can have policy deductibles ranging from £5000 to over £100,000," continues Kolatsis, "which means they are often not even insured for the smaller claims. So, unless there is a big class action, they have to absorb them all in their own profit and loss."

The problem is alleged to be costing the Spanish hotel industry more than €60m (£54m) a year, notes Charlotte Lee-Field, head of claims at Travel Insurance Facilities, while Jared Mallinson, counter fraud partner at insurance law firm Horwich Farrelly, highlights that a single online search for "how to make a holiday illness claim" returns millions of results.

Tour operators complain to governement
"We've only been seeing the tip of the iceberg as these claims are so very easy to make," says Sarah Hill, partner and head of fraud practice at BLM. "The tour operators are beginning to look at the issue and take it seriously, realising it's a big fraud piece." She adds they have been looking at ways to deal with fraud with the Association of British Travel Agents.

Major tour operators declined being interviewed by Post for this article. ABTA says it will take their concern about fraudulent claims to the Ministry of Justice at an upcoming meeting.

"ABTA members have reported a significant increase in the number of gastric illness claims being made by holidaymakers," the representative body says in a statement. "An increasing number of these claims are supported by very little evidence and we believe this is being driven by aggressive sales practices of some claims management companies, touting their services to UK holidaymakers either in destinations or in the UK.

"ABTA will be meeting with the Ministry of Justice, which regulates claims management activities, to highlight our concern and ensure it takes the necessary action to safeguard the system from fraudulent claims. It is important that holidaymakers who have genuine claims are protected, and people should be aware that it is illegal to pursue a fraudulent case."

Hill notes: "The tour operators are reluctant to comment themselves as they are in a consumer space and are concerned about their brand. The real message they want to get across is that this will affect customers with genuine illnesses and will ultimately affect all customers as the cost of holidays will have to go up."

Commentators are not short of suggestions about what the Ministry of Justice should do to combat the problem, with many feeling that it should put holiday claims within the Claims Portal or at least find some way of reducing the financial benefit for CMCs and solicitors. But there is also a clamour for tour operators and hotels to be more proactive in making sure people who have illnesses don't leave the resort without reporting them.

"One of the simplest tools at the industry's disposal is to remember the basics in civil claims," says Mallinson. "The burden of proof rests with the claimant. Will they truly get over that hurdle where the claimant has not reported the illness at the time, has not sought treatment at the time, and has no proof other than their word that the illness took place? In our experience, they will not, and so many of these claims, particularly those reported long after the alleged illness took place, are very easy to successfully challenge."

Travel insurance
For the time being, this cottage industry springing up in the travel sector has had negligible impact on travel insurance, although some insurers have had to explain to the odd solicitor trying to submit a claim on behalf of a customer that they don't cover loss of enjoyment of holiday or compensation for stress.

Claims by opportunists continue to be the major problem, with many otherwise supposedly respectable people seeming to regard defrauding insurers as a good way of reclaiming some of the costs of their holidays.

"The volume is still on the rise but we're getting better at detecting it," says Jamie Hersant, head of lifestyle claims at Axa. "Making progress depends on changing customer behaviour, so we need a major pan-industry initiative to make the consequences of committing fraud absolutely clear. One of the reasons there are so few prosecutions is that the amounts involved are often only a few hundred pounds and bodies like the Insurance Fraud Enforcement Department are focused on higher cost crime and organised crime."

When travel insurers identify the potential for fraud in a particular case, they often work with their competitors but the fact that there has so far been no formal industrywide database of the type used for home, motor and personal injury claims has undoubtedly been a handicap.

The Claims and Underwriting Exchange database is due to extend to travel insurance claims in the second quarter of 2017. At some point later in 2017, travel insurers should also be able to use CUE to check information at the point of issuing quotations.

Premeditated travel insurance fraud
This development is timely because, although the travel insurance sector has traditionally experienced little premeditated or organised crime, the situation has begun to change during recent months.

Detective chief inspector Oliver Little, head of IFED, says: "We have a number of ongoing investigations into opportunistic travel insurance fraud and also into premeditated crime, often by people working alone who have found a scam and then repeated it. There are not yet gangs of criminals in this area as they don't need other people like they do for crash for cash."

However, investigations company Covent Bridge, which has the technology to connect patterns to the same fraudsters globally, has identified half a dozen cases of travel insurance fraud in the last three months which it suspects all relate to the same criminal gang. Europe managing director Steve Cook says: "Criminal gangs could easily have representatives in a number of different countries. The very large insurers may not be aware of the impact yet but I suspect they will be getting quite worried about it a year down the line."

A number of commentators also highlight a marked recent increase in premeditated fraud involving medical expenses, which can run into hundreds of thousands of pounds.

Mike Hallam, head of technical services at the British Insurance Brokers' Association, says: "This is where the fraudsters are seeing opportunities, not only as individuals, but also for more sophisticated frauds involving connections with dishonest medical persons and establishments overseas. The fraud can take the form of treatment for fake illnesses or cosmetic treatment getting billed as medical treatment for illnesses. Production of false documents and evidence is commonplace."

Claims farmers turning to travel insurance?
In view of this rise in organised crime, the big question is whether CMCs and solicitors will start to enter the travel insurance arena. Opinion on the issue is divided.

Bobby Gracey, president and CEO of Molmax Solutions and chairman of the Chartered Institute of Loss Adjusters' anti fraud committee, says they could do. On the other hand, Charlie Williams, partner at law firm Weightmans, regards it as unlikely on the grounds that travel insurance claims are much more objective and tend to involve the reporting of tangible losses, meaning there should be more of a paper trail that insurers could investigate.

The fraud bug has spread beyond motor and payment protection insurance, with travel insurance showing early symptoms of the disease. But imagine how sick the industry could get if touts started welcoming holidaymakers back to the UK, encouraging them to remember that they may have lost their cameras, mobiles or laptops while away.