06/11/13
Opening keynote speech on insurance fraud
[Check Against Delivery]
My name is Aidan Kerr, and my role at the ABI covers a range of issues across general insurance. Amongst them, fraud stands out as one of the most tangible and crucial for insurers: from little ‘white lies’ on a proposal form to organised fraud rings…fraud is very much alive in our industry.
Scale of the problem
But let me start with some figures.
Around 15 fraudulent claims are discovered every hour. This means that, by the end of today, around 340 fraudulent claims will have been uncovered, with a value of around £3 million.
So £21 million a week – or around £1.1 billion for the 124,000 dishonest claims uncovered by insurers.
These are very big numbers. Numbers that, but for the work of the industry and our partners, would end up hitting the pockets of honest insurance customers.
So, given the stark picture these statistics paint – you can understand why tackling fraud is high up on the agenda for us at the ABI, and I suspect, very much a part of the day job at the various firms in which you all work.
And these are just the figures we know – what has been detected. Our estimates suggest that there is in excess of a further £2 billion of undetected fraud. So, in actual fact, the first numbers I mentioned may well be just the tip of the iceberg.
And this, of course, is all ultimately felt by customers. Taken together, detected and undetected fraud could be adding at least an extra £50 to the insurance bill of every UK household.
A priority for the industry
So what are we, as an industry, doing about this?
Well, insurance starts and ends with our customers. So when fraud hits their pockets in such a significant way, we have a duty not to stand idly by, but do everything we can to combat fraud, and to try and deliver affordable premiums.
And that is exactly what we are doing, and have been for some time.
The story really goes back to 1995, when the ABI established the Crime and Fraud Prevention Bureau – which in many ways was the forerunner to the Insurance Fraud Bureau. This led to the establishment in 1998 of the first bespoke Committee of fraud managers – The Anti-Fraud Committee - which in 2004 became the Financial Crime Committee. A key milestone was reached a couple of years later when the Insurance Fraud Bureau was launched.
In the spring of 2009, the ABI held a fraud summit for CEOs which firmly established the issue at the top of our agenda and laid the foundations for the introduction of the big ticket initiatives that have been driven forward since.
So that’s the history. And through it you can trace a clear chronological line of the industry’s efforts to tackle fraud.
And tackling insurance fraud will remain a top priority for us at the ABI. Today, the industry is investing £200 million a year in the fight against fraud. And I’ll now just talk through some of the measures being taken.
I’m sure that the vast majority of you will be familiar with the role of the Insurance Fraud Bureau (IFB) so there is no need for me to expand too much. The IFB is spearheading the collective fight against organised insurance fraud. It is also delivering the Insurance Fraud Register, which I will come onto shortly.
The IFB leads on the industry response to the identification of criminal fraud networks and works closely with the police and other law enforcement agencies.
The impact of the IFB has been huge since its launch in July 2006, with numerous arrests and tens of millions of pounds of savings for insurers and ultimately their customers – but I’ll talk about these numbers in more detail later.
I think it is fair to say that the last couple of years have been seminal, as the industry has introduced two major initiatives demonstrating how serious it is about combatting fraud. The first of these is the Insurance Fraud Enforcement Department (or IFED), which became operational in January 2012.
It is a bespoke counter-fraud insurance unit housed within the City of London Police – which is the lead police force for economic crime within the UK.
It is funded by the industry – to the tune of nearly £3 million a year – and is visible proof that insurers are putting their money where their mouth is when it comes to fighting fraud.
And in the 20 months since IFED came into operation, we have seen some good results in detected fraud, which I will cover in more detail later.
But it’s important to remember that IFED isn’t just about put people behind bars.
It plays a key role in prevention too, taking every opportunity to use its high media profile to raise general awareness and strike fear into would-be fraudsters, as well as reassuring honest policyholders that an important battle is being fought on their behalf.
The two BBC series of ‘Claimed & Shamed’ are excellent examples of this.
The second key initiative is the Insurance Fraud Register (IFR) – the first industry-owned, cross-sector register of known insurance fraudsters.
It will hold details of first party fraudsters, third party fraudsters - such as passengers who have made a false claim following a road accident - suppliers and professional enablers who have committed fraud – whether it is at the application stage, renewal, the claims stage or when changes are made to the policy.
The IFR will benefit the industry and its customers alike. It will improve consumer confidence, providing a visible log of our on-going activity, as well as a deterrent for fraudsters.
The IFR will deliver the functionality that the industry needs in a cost-effective way - since we are reusing the assets that the industry has already built. In particular, we’re using the IFB – which is firmly established as the industry centre of excellence.
It’s worth also mentioning that we have built various checks and balances into the process of using the IFR to reassure consumers that there will be proper controls.
For example:
- There is a robust definition of fraud;
- The data will be removed after 5 years;
- The IFR cannot be used as an automated decision-making tool;
- There is a mechanism for auditing insurers’ processes;
- The individual will be advised that they are in breach of the fraud condition;
- And, importantly, there is a detailed complaints process.
Now, I know the key question on everyone’s lips is when will the IFR become operational? You will all understand that the contractual discussions with something as innovative as the IFR have been necessarily detailed and complex, but this is something we needed to get right.
However, I am pleased to report that the contractual arrangements for the IFR are nearly complete, and the pool of early adopter insurers are now making preparations for implementation.
So these are two big ticket initiatives where we already have the wheels in motion.
Looking forward, we can talk about a third strand in our fight against fraud – a project to secure access to driver licence details from the DVLA. This is a major piece of work involving the ABI, DVLA, Motor Insurers Bureau and central Government: an example of how different organisations can – and need to – work together to drive results.
ABI research has shown that 23% of motorists don’t accurately declare driving history - including thousands of disqualified drivers. This is thought to add about £15 to every motor premium.
The new system will work with motorists providing their Driving License Number when applying for insurance. An automatic check will then be made of the DVLA database, bringing back accurate information on licenses – such as conviction dates; points; disqualifications; type of licence held; length of time licence held and age). The system will then direct enquiries through an industry ‘hub’ to be run by the MIB.
Good progress has been made on what is a complex and expensive project, and we are at the moment on course to secure access from Q2 2014.
As part of the DVLA project, we are also delivering a No Claims Discount database for motor claims. This will simplify the verification process for NCDs, thereby reducing application fraud and insurer costs, which will ultimately benefit consumers.
This is another example of how serious the industry is in finding systematic ways of tackling and preventing fraud.
Results so far
So that’s a brief overview of where we are and what the industry is doing, and we are seeing some good results.
For example; since its inception, the IFB has assisted police with 829 arrests, securing more than 215 years in prison for organised fraudsters. In 2011, the IFB increased its resource by 55% and by a further 112% in 2012, and is now able to manage nearly 50% of the industry’s estimated value of organised motor fraud.
And by the end of September this year, IFED had made more than 350 arrests, secured 45 convictions and issued over 100 cautions. It currently has more than £23 million of fraud under investigation.
Last month, IFED coordinated a well-orchestrated ‘day of action’ involving 168 officers during which 27 ‘ghost brokers’ were arrested in dawn raids across the country following the execution of warrants in Greater London, West Midlands, Manchester, Thames Valley and Leicestershire.
And just last week following a joint operation involving IFED, the IFB and the MIB, a ‘ghost broker’, received a three year sentence for what is believed to be the UK’s biggest fake car insurance scam.
Developments outside of the industry
So that’s an overview of some of the results we have seen from the industry’s commitment to tackle fraud.
And turning now to outside of the industry, there are a number of developments that have an important interplay with insurers’ efforts to tackle fraud.
One is the apparent growing willingness of the judiciary to play its part in stamping out insurance fraud. There is, I think, increasing evidence that the Courts are beginning to adopt a zero tolerance approach to fraud cases.
By way of example, the case of a man who tried to claim £100,000 in compensation after breaking his ankle in a pothole, when in reality he had sustained the injury after jumping off a wall while intoxicated.
He, along with his two accomplices had signed statements of truth in support of the claim, which were subsequently found to be false. All three men were found to be in contempt of Court and handed custodial sentences.
This case illustrates that claims for committal of contempt of Court are not one-offs pursued by insurers to prove a point. They are a realistic consequence of providing fraudulent statements of truth and serve as a stern warning that dishonesty may end with criminal sanctions.
This case followed closely after another – Summers V Fairclough Homes, heard in the Supreme Court last year - which established the important principle that the Court does have the power to strike out a Claimant’s case in its entirety for abuse of process, even when it is established that part of the Claimant’s case is genuine and they would have been entitled in principle to damages.
While this type of ruling is helpful, the current law surrounding the strike out of exaggerated claims is inconsistent and unfair to those impacted financially by such claims. For example, in Summers, the judge held that the court could only strike out the entire claim ‘in very exceptional circumstances’. The Supreme Court did not give any significant guidance as to what would amount to such circumstances.
So while the judiciary is attempting to address deficiencies, it can only go so far in interpreting the law. The ABI believes that this area is in need of reform and we are urging the Law Commission to review the matter in its Twelfth Programme of Law Reform.
We are also encouraged by the recent consultation by the Sentencing Guidelines Council.
We are mindful that sentences for insurance fraud have been upheld by the Court of Appeal at levels higher than those indicated in the current guidance. It is important that the new guidelines reflect current judicial attitudes towards sentencing and the actual sentences handed down.
Strong sentences can send a clear deterrent message to anyone planning to engage in fraud, that any potential financial reward is far outweighed by the risk of severe consequences.
Whiplash
Now no discussion on insurance fraud can be complete without a mention of whiplash.
Each year around half a million people claim for whiplash –costing the industry £2 billion every year, and adding £90 to the average motor premium.
The Ministry of Justice (MoJ) has been consulting on reducing the number and cost of whiplash claims. While we accept, of course, that many whiplash claims are legitimate, the Government is right to be concerned about the disproportionate growth in whiplash claims over the last few years.
The MoJ recently published its response to the whiplash consultation. Whereas the ABI strongly supports the plans to set up panels of independent medical experts, we believe that this needs to be supplemented by further reforms to increase the small claims track limit from £1000 to £5000 if customers are to benefit from sustained lower motor premiums.
The Government accepts that there are good arguments for extending the small claims track limit – which has remained at £1000 since 1991 when 50% of all personal injury claims were within this threshold. But today, only 9% fall within the small claims track limit.
The ABI will continue to press for this outcome with Government. This change would provide not only a simple, speedy, more cost-effective way of settling genuine whiplash claims, but ensure that lower market premiums can be sustained.
So we are seeing a toughening up of judicial approaches towards insurance fraud, and Government taking a keen interest in what it can do to help tackle fraud in whiplash, and help the industry deliver more affordable premiums.
And alongside this, there are a number of Government bodies that have been created, strengthening the fight against fraud.
Such as the National Crime Agency (NCA), which began operations last month. The NCA will be at the centre of efforts against organised crime and other major offending that cuts across regional and international borders. The NCA has more than 4,000 officers and will work with each of the regional police forces in the UK and similar organisations abroad.
We also know the Government is developing its outline business case for the Counter Fraud Checking Service (CFCS) – a mechanism by which confirmed fraud information may be made available to commercial, public sector and other organisations.
We look forward to working collaboratively with the NCA, and with Cabinet Office on the development of the CFCS, in the same way that the ABI and other industry partners have worked closely with organisations such as SOCA and the National Fraud Authority over the past few years.
So where to next?
So, where have we landed, and what can we do to make further progress?
There is no doubt that using words such as ‘fight’ and ‘cheats’ is aggressive. But only by taking such an approach can we deliver protection for honest customers.
When a person defrauds an insurer – they aren’t just making an opportunistic claim against a faceless company – they are pushing prices up for everyone else and increasing the costs for companies, in a climate where no matter who you are, every penny counts.
And we make no apologies for the ‘zero tolerance’ approach we are taking – we cannot tolerate honest customers footing the bill for insurance cheats, through their premiums.
We are, however, very mindful of the need to get the balance right and to promote the fair treatment of customers. The vast majority of our customers are honest and we have a duty to ensure that they are provided with great service and that their genuine claims are paid promptly.
I think that the launch of IFED and the IFR send out a very clear message – that fraud will not be tolerated.
In the industry’s anti-fraud strategy, IFED is the industry’s frontline, and the IFR is its new weapon. Both of them can truly build on the excellent work carried out by the IFB since 2006.
So there are clear signs of success in the industry’s fight against fraud, but we need to build on this to ensure all of the effort and investment is not wasted. And much of what we need to do focuses on the changing people’s attitudes to fraud. I think that – as a minimum – there are 3 things we need to focus on here:
Firstly, we also need to use the media to spread the anti-fraud gospel. I’ve already spoken about how getting stories in the media is a key part of what IFED does. We will be looking to do the same thing with the IFR.
And - at the ABI’s annual fraud conference last year - we launched a booklet “No Hiding Place – Insurance Fraud Exposed” which sets out the industry strategy and reinforces the message that fraudsters are now more likely than ever to get caught.
Secondly, we have to adopt a collaborative and cooperative approach to combatting fraud.
Fraud affects everyone.
It is no good taking a fragmented and disjointed approach to tackling fraud – we must look at it holistically.
There are many different types of fraud and the methods used to perpetrate them are constantly evolving. And the business environment is also evolving. For example, the emergence of price comparison websites has led to ‘gaming’ whereby applicants may manipulate the data entered in order to obtain lower quotes.
In the UK, we are operating in a tough regulatory environment where we have to be able to demonstrate that we have appropriate systems and controls to fight financial crime. If we don’t, we will be fined and suffer harmful reputational damage.
So we will continue our work to identify and cut-off emerging threats as early as possible. We need to produce threat assessments to identify new types of fraud that are emerging and also any threats – and indeed opportunities – presented by the legal and regulatory environment.
And we need to ensure that proposals to regulate the private investigator sector – which we support in principle – do not over-reach themselves and catch desk-based investigators working within insurance companies.
But thirdly, and I think most importantly, we need to try to change the public’s perception that insurance fraud is a victimless crime.
The ABI carries out quarterly surveys to gauge consumer attitudes to fraud. Reassuringly, the results of our last survey show that 95% thought that making an exaggerated, false or inflated claim should be classed as fraud.
But – more worryingly – 38% thought that insurance fraud was an easy way to make a quick buck. And 29% thought you were unlikely to get caught.
When you couple these figures with those from an IFB Mori poll on attitudes to crash for cash – which found that 1 in 12 would consider taking part in a crash for cash scam for financial gain - you can see that we still have some way to go.
As I see it, there are two issues we need to address:
First, we need to change how people view fraud itself. An ABI consumer survey from around ten years ago put ‘making a fraudulent claim’ alongside ‘stealing towels from a hotel’ in terms of the seriousness of the offence.
Attitudes may have changed since then, but the perception of insurance fraud as a victimless crime still exists, and it is a fallacy that needs to be dispelled.
Not only is it something that adds to the financial difficulty faced by many people across the country struggling to afford insurance, but some of the organised fraud we have seen in recent years causes real harm to many people.
The industry needs to continue to beat this drum; we need people to realise that insurance fraud is as unacceptable as any other crime.
But, secondly, there is perhaps more that the industry can do to ensure people understand the value of insurance. There is also a perception that there is a need to inflate a claim, to somehow ‘get your money’s worth’ from insurance.
If people fully realised the true value of insurance – to ensure the uncertainty of life can be managed financially – there may be less of a perception that they need to make some sort of ‘financial return’ through an inflated claim.
I recognise that changing perceptions will be a longer term process. But it is an absolutely crucial part of the fraud agenda, and we will be looking for ways to trigger that shift in attitude.
Conclusion
What I’ve given you today is a bit of a whistle stop tour of the fraud landscape…with hopefully not too many acronyms…!
I hope I have painted a picture of an industry fully committed to tackling fraud and helping to deliver affordable premiums. Part of the strategy is absolutely about having the right infrastructure in place, and ensuring the impressive array of organisations across the sector can work well together.
But it is also crucial that we find ways of educating people about the true nature of this crime, and changing its perception as an acceptable course of action for otherwise honest people.
We have the tools in place to continue our success in the fight against insurance fraud, and I am confident we will succeed if the organisations represented in this room can continue to work together as effectively as we have done to date.
I hope you have an enjoyable and productive day.
Thank you.