Plan of attack

Police and insurer collaboration to combat organised claims fraud appears to be gaining strength. With prosecutions now more likely, is the time right for a PR offensive, asks Tanya Powley

Fraud has been a hot topic for a long time but, after years of debate and discussion, the insurance industry's efforts to combat the high cost attached to organised claims fraud is finally gaining momentum. Last month saw the official launch of the long-awaited Insurance Fraud Bureau as well as the appointment of Sue Jones, currently head of counter-fraud at Royal Bank of Scotland Insurance, to head the unit from 23 October.

In addition, seven people were arrested in June in north London for large-scale insurance fraud and money laundering, following a City of London Police investigation that worked closely with insurers (PM, 6 July, p3). A month earlier, reports were issued that one of the UK's largest fraud rings was being monitored to build up evidence for successful prosecutions (PM, 1 June, p3).

So with these strides being made, has the insurance industry turned a permanent corner in terms of its working relationship with the police? "I would like to think we have," says James Heath, partner in the specialist claims unit at law firm Keoghs. "We've been working towards the current state of play for years and with the launch of the IFB we are finally starting to see a huge rise in the interaction between insurers and law enforcement."

Ms Jones agrees: "It is fair to say that the industry is seeing an increasing number of cases where the police are interested in pursuing prosecutions for insurance fraud in the areas of claims and non-claims fraud."

Jamie Taylor, head of motor fraud at Hill Dickinson, stresses the importance of the IFB for the industry. "Historically, the industry has only had the Association of British Insurers' anti-fraud committee but this is only strategic. The IFB is completely operations based - it will create a positive interface between the two."

However, with a heightened focus on organised crime and terrorism across the UK, insurers have realised that the police are more likely to take cases on if they can show that insurance fraud is only one facet of an individual's criminality and that it may be the facilitator for more serious activity.

Mr Heath explains: "Insurance fraud tends to be one piece in a puzzle of the wider activities of criminal gangs. At the moment, prosecutions will often relate to these other criminal offences but police would not necessarily have been able to prosecute without the insurance fraud part being there."

Ms Jones adds: "Most insurers know that they must look at the wider activities of the individuals under investigation and ensure that the police have the full picture because fraud is not a priority for most police forces."

An important part of this process has been the insurance industry's collaboration in terms of sharing data and intelligence, facilitating the build-up of an evidence level that makes the police willing to take cases on.

John Beadle, chairman of the IFB steering group and counter-fraud manager at Royal and Sun Alliance, believes that for years insurers have been their own worst enemy by trying to make cases too complex, leaving the police less inclined to get involved. "Insurers now understand that we can't just go to police with boxes full of papers. We need to put the case together all tied up with a pink ribbon," he says.

Ms Jones agrees: "There was some improvement several years ago in the quality of evidence with the introduction of the Association of Chief Police Officers' guidelines on the presentation of cases to the police. With constantly improving expertise, a focus on fraud and financial crime within individual insurance companies and a greater ability and appetite to work collaboratively on organised fraud cases, there is little excuse for the submission of sub-standard packages to law enforcement."

She adds: "In many cases, the quality of evidence is such that little work is required on the part of the police before arrests are made. At RBSI, we are seeing an ever-decreasing referral-to-arrest time with a consistently high referral-to-prosecution ratio."

Working relationships

Detective chief superintendent Steve Wilmott, head of the economic crime department at City of London Police, says that during the past year there have been several successful cases, noting that this has resulted from a closer working relationship. "We've set up a regular monthly meeting with Chris Hannant from the ABI, and we also meet with Sue Jones and John Beadle to keep up to date with what's happening with the IFB," he explains.

With the government becoming increasingly concerned at the economic and social impact of fraud, the new Fraud Bill - likely to achieve royal assent this autumn - has been welcomed as a step forward by the insurance industry.

Mr Heath explains that the existing problem is how to 'shoehorn' insurance fraud into the current legislation. "We have to try and squeeze insurance fraud into either the Theft Act or conspiracy to defraud but it can be hard to do because these statutes are quite narrowly defined."

Ms Jones notes that fines would be the basic minimum penalty under these legislative pieces, with 10 years as a maximum custodial sentence - although the courts rarely impose significant sentences.

According to Mr Taylor, around 70% of convictions for conspiracy to defraud amount to sentencing between six months and two years. However, he adds that a big proportion do not even get a custodial sentence. Mr Heath agrees, revealing that in a recent case involving a small fraud ring - which scammed around £500,000 from the industry - the ring leader only received a 250-hour community order even though he pleaded guilty.

Generally speaking, Ms Jones believes that the level of sentences applied by the courts is disappointing and fails to act as a deterrent to would-be fraudsters. "Deterrents that have some bearing on individuals would be the possibility of being unable to gain financial services products as a result of being loaded on the CIFAS (UK's fraud prevention service) database, as well as the potential for assets to be seized by law enforcement," she explains.

The forthcoming Fraud Act will try to resolve these difficulties with the introduction of four specific offences: fraud by false representation; fraud by failing to disclose information; fraud by abuse of position; and fraud by conspiracy to defraud.

"I am pleased with the Bill but it must be recognised that this isn't a silver bullet," points out Mr Taylor. Mr Heath agrees: "The Bill will have a big effect; the penalties are more clearly defined so it should be far easier to fit a specific fraud into the new offences."

Ms Jones is also fairly optimistic about its impact. "The new Fraud Act will make charging and prosecuting individuals more simplistic for law enforcement, the Crown Prosecution Service and the judiciary - not to mention juries. We also hope that a reduction in the risk of prosecution failures on the basis of technicalities will come with a simplification of the law."

However, there will be no change to sentencing under the new Act, with the maximum penalty remaining at 10 years. Damian Ward, chairman of the Forum of Insurance Lawyers' fraud special interest group and partner at Keoghs, notes that with the high number of people in prison it is not on the government's agenda to put more in. "The government's thinking behind money-based offences is that fraudsters do not pose a threat to people's safety," he says.

However, Ms Jones points out that the courts will need to impose heavier custodial sentences on organised criminals, combined with asset confiscation, to have any real deterrent effect.

The potential for future changes to fraud-related crimes has been brought about by recommendations of the Fraud Review, which were published by the Department for Constitutional Affairs last month. The recommendations emerging from the review include the establishment of a new strategic fraud authority and a national fraud reporting centre (see box).

They also include the establishment of fraud as a national policing priority (with the implication that targets should be set), as well as the immediate ring-fencing of existing police fraud squad resources, pending a review of long-term resource needs once the scale of fraud impacting the UK has been properly measured.

The Home Office has initiated a consultation process to gauge support among key stakeholders for these recommendations. It has also indicated that any decision will be taken in the light of the government's comprehensive spending review.

Quantum leap forward

Chris Hill, head of fraud at Norwich Union, says that he fully supports these recommendations, which - if implemented - could represent a quantum leap forward in the collective fight against fraud. Mr Ward is also fairly optimistic that at least some of these recommendations, if not all, will be implemented: "There is a desire within government to make fraud convictions easier and, with this review, all the right noises are being made."

In addition, he points out that some of the changes are already happening. "The City of London Police received some training run by the ABI with Keoghs, which was designed to act as an introduction to the different types of insurance fraud. This shows that police are keen to take best practice from the industry and are in the process of creating a centre of excellence for forces around the UK."

Mr Beadle adds: "Other forces are beginning to get economic crime departments like the City of London Police, so there is a sense that the tide is turning."

He also notes that, due to a change in legislation earlier this year, police have been given another incentive to focus on fraud. "This change has meant that out of any money that police seize, 50% of it can go into their budget. Consequently, police are keener to work on fraud so it has made a substantial difference to our plight."

However, Nick Young, partner at Davies Arnold Cooper, believes that with all the attention on claims fraud not enough focus is being given to fraud at the underwriting stage. "No one seems to have paid much attention to the fact that with the new offences of fraud by false representation and failure to disclose information to be introduced through the Fraud Act, it will be a lot easier to prosecute opportunistic fraudsters."

George Lillington, claims solutions director at Computer Sciences Corporation, agrees: "One thing that should not be overlooked is the incidence of fraud that is perpetrated by everyday policyholders, as this too is on the increase and represents a huge loss of revenue to the insurance industry. The ABI must make sure that part of any sustained publicity is also directed at policyholders to help them understand that exaggerating claims is against the law."

Affirmative PR action

Successful prosecutions will, of course, be of limited value in terms of deterring fraudsters if they are not publicised. So does the IFB plan to invest in a PR offensive to maximise the effectiveness of any convictions?

Mr Beadle responds by saying that, as the IFB is only a tool of the industry, it is down to the ABI to publicise fraud to the public. "The anti-fraud committee is in charge of the strategic development of the industry and one of its targets for this year regards how to publicise fraud. A range of options are being looked at but it has to be a considered PR strategy - we need to think about who the target audience is and not just wade straight in."

The ABI's PR and Communications Workstream within the anti-fraud committee is currently drafting a set of recommendations that will be reviewed by the General Insurance Council in the near future.

"The issue of publicity is always on the agenda but it is a case of measuring success against cost as campaigns can amount to quite a lot of money," says an ABI spokesman. "We are considering a more targeted regional approach, choosing particular areas to campaign in. People often take more notice of local media than the nationals so it could be better value for money."

With an improved focus on organised crime brought about by the launch of the IFB - against the backdrop of new legislation and the potential for future changes arising from the Fraud Review - 2006 looks set to be a significant year for fighting fraud. It is clear that the government is increasingly concerned at its economic and social impact, the growing risk to public safety from induced accidents and the substantial funding that this is generating for organised crime in the UK.

Mr Hill concludes: "At such a key time, and with so much to play for, it is clearly critical that public visibility on fraud as a national issue is maintained. As a main stakeholder in the front line against fraud, the insurance industry can and should play a major part in this. We not only need to speak with one voice but also ensure that this voice is heard."

FRAUD RECOMMENDATIONS

The Fraud Review recommendations are to:

- Establish a Financial Court jurisdiction so that the different proceedings arising from serious fraud cases can be brought together in one court and to extend sentencing options available to the court;

- Allow plea bargaining as an alternative to a full criminal trail where an acceptable punishment can be agreed, subject to the court's approval;

- Set up a national fraud strategic authority as a public/private partnership to devise and implement a national fraud strategy;

- Form a national police force, based on the City of London Police fraud squad, to act as a centre of excellence, disseminate best practice, give advice on complex inquiries in other regions and assist with or direct the most complex of such investigations;

- Within the lead force, establish a national fraud reporting centre to receive and analyse reports of fraud and channel information to investigators; and

- Ring-fence police fraud squad resources.

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