While the motor sector has tended to grab the headlines, fraud is on the rise in other areas too. Post gathered together a number of industry experts to debate how the profile of this issue in the casualty sector can be raised
The proliferation of crash-for-cash and staged accidents in the motor market - and the subsequent media coverage of how this is affecting customers' premiums - has brought these frauds to the fore. It may not have had the same level of attention, but now dire warnings of fraud levels in other lines has meant casualty insurers are also starting to sit up and take notice. Whether consumers do the same remains to be seen.
With this in mind, Post, in association with law firm Kennedy's, recently gathered market commentators to find out what casualty fraud looks like and what counter-fraud strategies are in place to deal with it.
The discussion started with a look at the current situation. David Phillips, counter-fraud specialist at NFU Mutual, said that, despite the fact he believes there has always been fraud in casualty claims, there has been as increase in employers' liability fraud claims and, for the first time, public liability, which he admitted is "quite a change".
While James Norman, property and fraud validation manager at LV, quantified the increase it has seen at the insurer: "We have had a five times increase in the number of public liability claims from 2009 to present, so there is a concern that there is a lot more fraud."
Iain Taylor, UK casualty claims technical manager at Chubb, agreed with Phillips that these frauds are "not a new thing", but said that what has changed is the industry getting better at recognising them.
"As an industry, we made progress in tracking fraud and collecting data on it, which is probably why it is highlighted more than it has been in the past," he added.
The conversation then turned to what is defined as fraud in this area. Sue McCall, head of claims at Aspen Risk Management, said that it can be defined as "overstatement" or "completely staged accidents" that did not actually occur, and European claims manager at XL Insurance, Shamoon Hussain's, definition included "fabrication" or "exaggeration".
David Halstead, claims fraud manager at Chartis, agreed with these definitions, but added that the area around gross exaggeration, and when it falls into fraud as opposed to general claims negotiation, is something that presently has no consistency across the industry. "We need that before we can really start to drill down and understand where the risk lies within this," he added.
Nigel Francis, technical liability claims manager at Fusion Insurance, explained that deciding what counts as fraud can be more complex and involve "sub categories".
"It is not just about whether the accident happened or not and if it has been exaggerated, you get circumstances where people claim they have got a terrible back injury when in fact it is a pre-existing condition," he said.
"In other circumstances it has been alleged that the claimant is disabled and, therefore, the whole calculation for future losses, for example, is done differently. Is that exaggeration or is it fraud if they are not really disabled? Clearly it is difficult to say unless you are looking at individual cases. Certainly that can multiply the value of the claim so much that it becomes potentially fraudulent."
Martin Stockdale, a partner at Kennedy's, used a parallel to a motor claim, where there is often tangible evidence to deal with, to highlight the difficulties in assessing and defining fraud in casualty claims.
"Compared to investigating a motor claim, where there is often a piece of bent metal we can objectively examine, which will give a clear indication as to whether accidents have happened in the way people have said, casualty claims present a unique challenge where we are left to unpick someone's version of events," he said.
"It comes down to the crux of this, which is who is recording what, and what information are we able to capture right at the very beginning, from the point of the accident actually happening."
Stuart Gee, senior claims adjuster at Brit Insurance, agreed that the industry needs to validate claims in a similar way to how it is done in motor, at the front end.
"How we actually go ahead and negotiate the claim sometimes doesn't lend itself to demonstrating a fraud. We will negotiate the claim down and adjust it, but it won't give us the evidence we need to genuinely say, that is a fraud," he said.
And Norman conceded that the industry has been more focused on motor for the past few years and continued to be so, but defended the importance of having a good fraud strategy on casualty claims.
"We have invested in a dedicated resource and are starting to build up the skills of our handlers and put processes in so that we can start to spot more fraud," he said.
"We are quite early in the process of revising our strategy on commercial and casualty fraud, it is definitely a gap. If you are recruiting for motor handlers, for example, you can easily find good experienced staff, but finding people with casualty experience is a lot more difficult, so there are problems when you are developing a strategy."
Skills shortage worries
The debate then turned to whether others around the table have dedicated teams looking at this area and whether there is a worry that there might be a skills shortage.
"Most people around the table would admit they have a special investigation unit within their company, but what we are doing a little bit better is not doing it in isolation any more," said Taylor.
"We are realising that we need to co-operate with each other, because none of us have enough data on our own. So, we are doing it better, but the question is: are we really doing enough of it? Could we be doing more? And are there other areas that we need to be targeting to make this sector more difficult to defraud?"
Hussain questioned whether there is enough education from the general insurance market when it comes to identifying casualty fraud, and asked for people's opinions around the table as to whether there is enough education of staff to know what to look for.
Rob Smith-Wright, claims manager at QBE, answered that this is exactly what has been happening at his company.
"We have been doing a complete education piece across our UK casualty offices," he said. "Education is the key to get the message out there. These are the people that are working in a very bespoke area, they have specific technical expertise, and really need the education."
And Steve Jackson, head of fraud at Equity Insurance, agreed that education is a key element.
"I have seen a direct correlation between the education of handlers, particularly in the casualty area. If you educate them about fraud and you recycle your intelligence there is no doubt that you see the level of fraud identified going up," he added.
Talking about skills, Phillips said that motor may be where a lot of people start, but that people naturally evolve to deal with complicated EL and PL claims taking their fraud skills with them.
"One thing with the fraud industry is there is a lot of sharing and passing on of knowledge, which you don't tend to see so much in other areas of the general insurance market," he added.
But McCall questioned whether improvements could be made.
Phillips replied: "Yes, definitely through more talking. But we also need more publicity around the successful cases. It is a two-pronged message that fraud is not good and if you do it this is what happens to you."
As well as having the right staff, attendees also considered technology imperative. "Technology is very important. We have invested heavily in some new systems and software, which is great because it is going to help. But, again, it is only as good as the data you put in. There is no point having a brilliant system and your handlers are not looking for the right thing, because you are not supporting and training them," Norman said.
Halstead agreed and said that he was once asked if he could get rid of handlers trying to find fraud: "I said it will never happen. You always need a pair of eyes to identify your fraud first and then technology supports that."
However, Richard Davies, group fraud risk manager at Axa UK, argued that most of the technology that is used now is "quite naïve".
"It has been built up on rule sets that have been extracted from claims handlers' heads and we are desperately trying to tune that," he said. "We are going to have to deploy technology far more effectively than we currently are, and the industry has got to decide that it wants to start sharing intelligence in a structured, controlled and legal fashion so that we can start putting some barriers up to the fraudsters. Only then can we say to the customers that want to defraud us, there will be a consequence if they do."
Because, as he went on to explain, as it stands the chances of getting detected are less than 50%, and the chances of getting prosecuted are less than 1%. "And the industry refuses to put the barrier up to stop those customers coming back when they have defrauded them," he added.
McCall questioned, however, how this sort of action could be achieved in a legal way, taking the Data Protection Act into account. "The DPA allows us to share intelligence on proven fraudsters. It is just a question of putting a structure around it," replied Davies.
"I have looked at the Association of British Insurers' definitions of fraud and it is a starting point but it is very rudimentary. As an industry, we are launching the Insurance Fraud Register later on this year, and one of the things that will do is completely redefine what we mean by ‘proven'.
"It will give us a standard that we can all buy into backed by a clear set of process manuals, which will include such things as how we challenge the customer and tell them that we think that they might be defrauding us.
"That project will, over a period of time, start to establish some of those basic building blocks and remove the barriers to actually deterring fraudsters properly. Because at the moment we don't do a great job of that at all. The reason we know that is because we are seeing the same people come across our radar time and time again.
"If we are going to move forward with justifiable data sharing in a structured and controlled way, which minimises the risk to the industry, we have to get behind one definition and move away from redefining it so it fits our own needs."
Effect of the recession
The dire economic situation is hitting headlines at the moment, so the attendees were asked whether the recession has been a factor in the increase of casualty fraud and, if so, whether this is set to continue over the next 12 months.
McCall admitted that the recession has definitely been a factor, but added that it is not the only one. "Fraud has always been there and then you have the problem of people in the current climate who do get away with it. You then get word-of-mouth stories that this is happening and then you see a rise," she said.
Hussain suggested that what needs to happen, similar to what has been seen in the motor space, is that the profile of the successful cases needs to be heavily promoted, when claimants get sent to prison.
"Unfortunately, you don't get the cases in the newspapers where someone gets sent to jail on the back of trying to pursue a £3000 claim," he added. "What do we need to do to get the press interested?"
However, Oldfield highlighted that the result of Summers v Fairclough Homes , expected in April, might change this. Here the defendant has been given permission to appeal to the Supreme Court to argue that, in an appropriate case, the entirety of a third-party claimant's personal injury claim - including the honest part - should be struck out if the claimant has fraudulently exaggerated/fabricated a substantial part of it.
And Davies insisted that there are plenty of journalists that are interested in hearing about fraud and that the problem is getting hold of the case studies for them to print, something he said is down to the fraud managers to deliver to the ABI.
But Stockdale questioned how you make this relevant to 'Joe Public' when talking about casualty claims. Taylor concluded: "The public grasp that insurance motor fraud means an increase in premiums, but they don't get the consequences of casualty fraud and that is where the opportunity exists for the industry to try and better educate them.
"It is a war on two fronts, it is what we can do as an industry, but we are never going to win that alone. It needs to be more of a recognised moral hazard from the public at large. Unless we change that public attitude there is only so much that we are going to be able to do."
FINAL THOUGHTS - What is the most important step going to be in tackling casualty fraud in the next five years?
- "The first step has to be education. There is always going to be fraud and it is up to us as an industry to make sure that the staff, brokers and policyholders are all aware of that fact." Rob Smith-Wright, claims manager at QBE
- "Investment both in training staff and in systems, both to identify fraud and then to deal with it afterwards." Nigel Francis, technical liability claims manager at Fusion Insurance
- "Investment should be focused on effective risk management and preventing the claims in the first place. Removing the opportunity would be a key step in reducing fraud." Steve Jackson, head of fraud at Equity Insurance
- "We need better guidance from the courts as to what constitutes fraud. Case law is not clear about the way the courts are approaching this and we see claimants walking away with damages, which is not sending the right message." Iain Taylor, UK casualty claims technical manager at Chubb
- "Insurers have got to continue to demonstrate they are willing to pursue these claims right to trial." Christopher Oldfield, partner at Kennedys
- "Speaking to our policyholders, and also brokers, to educate them on how they can help." Stuart Gee, senior claims adjuster at Brit Insurance
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