A study commissioned by AXA states two million people have committed insurance fraud and believe it’s a victimless crime
Insurance fraud is far from a victimless crime. As with all types of fraud someone is always left to pick up the cost and with every false or exaggerated claim innocent policyholders are left paying higher insurance premiums, either because of the loss of their no-claims discount or the insurance industry trying to recover the cost of fraudulent claims with increased premiums.
To put the cost of fraud in the UK into context, the annual cost of fraud in the UK could be as high as £193bn per year, according to a new report by the UK Fraud Costs Measurement Committee (UKFCMC). This dwarfs previous estimates produced by the UK Government which put the total cost of fraud in the UK at around £50bn in 2013.
Mark Button, director at The Centre for Counter Fraud Studies (CCFS), says: “The problem of fraud is underestimated, undervalued and under researched. There is much that can be done to tackle it and central to that is enhancing our knowledge of the problem and what works in reducing it.
“In the UK insurance fraud is costing the industry around £1.3bn a year through illegitimate claims with an estimated 350 frauds committed every day.”
However, the report commissioned by AXA, claims two million people have made a fraudulent claim costing the industry in excess of two billion pounds a year. The true scale of the problem is not shown within the reports figures as many people wouldn’t openly admit to breaking the law.
Whilst conducting the study it was clear that many view insurance fraud as a victimless crime, while there is a general mistrust of insurers. Half of the study’s respondents didn’t believe insurers were always honest, while over a third (35%) thought that an exaggerated claim was justifiable because insurers ‘try to trick their customers with small print’.
The report also highlighted the example of phone “upgrade” fraud, where someone falsely claims their device has been stolen or broken just as a new model is released as well as opportunistic fraud as a result of a lack of trust between consumers and the insurance industry in general.
Britain’s compensation culture is also fuelling fraud, with a sharp rise in whiplash claims following road traffic accidents which are currently at record highs. Whiplash and personal injury claims are fuelled by claim management companies according to the report. Not surprisingly, the report criticised claims management companies for fuelling compensation claims, stating that they had made significant profits from personal injury claims.
Figures published show that fraud committed by organised criminal gangs is also going up, with crash for cash accidents costing the industry over half a billion pounds a year, and consumers over £400 million a year in raised premiums alone. To put motor insurance fraud into prospective it is estimated that this type of fraud increased fivefold between 2004 and 2014 adding around £50.00 – £90.00 to the cost of the average motor insurance premium in 2015, depending which figures you read.
Richard Davis, head of fraud at AXA UK, said: “We place compensation at the heart of our redress system rather than focusing on rehabilitation.”
Incidents involving workplace-related claims for things like noise-induced hearing loss or trips or slips show that, in all cases, the fraudster had no contractual relationship with the insurer, Axa said.
In its recommendations, the report called for legal reforms such as a six-month cut-off period for bringing a compensation claim forward and far greater regulation of claim management companies.
Insurers are fighting back against fraudsters and can now use new powers if they wish to pursue insurers through the courts hitting them where it hurts most – in the pocket. One case in point was highlighted by insurer Aviva after semi-professional footballer Gary Burnett, 24, who played for Northwich Victoria as well as being a part-time window cleaner made a spurious claim worth £2,000.
The claim for injuries followed an accident in a Mercedes van at a drive-thru restaurant in Birkenhead even though no injuries were reported and the damage was minor. Barnett claimed to have suffered injuries to his neck and back, which left him unable to play for the Cheshire-based club for around four weeks.
Having become suspicious Aviva investigated the claim with the assistance of its solicitors Horwich Farrelly. Aviva found his publicly-accessible Twitter account, and found Burnett had tweeted about playing when he claimed to be out of action. One tweet, a day after the incident, read: ‘Nice little trek to Kendal later for footy’ – referring to an away match in the Cumbrian town, just over an hour north of Northwich.
Further investigations showed the striker bragging online after knocking higher-ranked team Nantwich Town out of the FA Trophy with a second-half goal, which was less than three weeks after the accident. Following this evidence being put to his legal team the case was dropped by Burnett’s solicitors, but the courts were able to use recently-introduced powers brought in during 2015 to rule the claim as being ‘fundamentally dishonest’.
This powerful piece of legislation removes the protection claimants have from paying the other party’s costs and opens the door to a criminal conviction. The judge sitting at Wigan County Court heard the mountain of evidence against Burnett.
The judge accepted the claimant had misled his solicitors, his medical expert, the defendant and the Court, concluding Burnett had made a dishonest personal injury claim and had openly publicised his footballing achievements on social media.
In what was believed at the time – July 2015 – to be one of the first such findings in a case which was dropped before actually reaching the courts, the Judge ruled Burnett’s claim was fundamentally dishonest and ordered him to pay Aviva’s costs of more than £11,000.
Jared Mallinson, partner at Horwich Farrelly, stated at the time: ‘The court’s decision to find him fundamentally dishonest is a red card to any would-be fraudster that they will be caught.’