Will fighting fraud help cut your car insurance premiums?

Insurers could cut the number of fraudulent claims by communicating clearly with customers and making sure they understand policy exclusions, according to the Insurance Fraud Taskforce.
Motor or car insurance application
It is one of 26 recommendations in the Taskforce’s report on tackling widespread car insurance fraud.

£1bn problem

Fraud is a big problem. The value of detected insurance fraud is more than £1 billion a year and fraudulent claims push up premiums by about £50 a year. Lack of trust in the insurance industry is given as one reason why fraud is prevalent. Poor customer service, complex policy wording and shoddy claims handling lead some people to perceive insurers as ‘fair game’ and to view fraud as a victimless crime. Recent research by the AA suggests that 11% of motorists see nothing wrong in claiming for an injury following a collision caused by someone else, even if they are not harmed. But fraud doesn’t just add to the cost of insurance for honest policyholders. Public services such as the courts and the NHS waste valuable time and resources dealing with fraudulent cases. Fraud is also a source of funds for organised crime.

Whiplash woes

Fraudulent whiplash claims are a particular concern. There was a 32% increase in whiplash claims between 2009 and 2103 at the same time as a 16% drop in road traffic accidents. In the UK, 75% of personal injury claims are for whiplash, compared with 5% in France. Whiplash is easy to fake or exaggerate as there is often no visible evidence of a soft tissue injury. Many people are also encouraged to put in a claim by an eager claims management company (CMC). Evidence shows that areas with a high concentration of CMCs also have a high incidence of whiplash claims.

Legal failings

There is also evidence that large numbers of CMCs are falling foul of the law. Last year, for example, nearly a quarter of CMCs were the subject of some sort of regulatory intervention. The Taskforce is therefore calling for more rigorous regulation of CMCs as well as a clampdown on nuisance calls that encourage fraudulent claims by putting pressure on potential claimants. There should also be a crackdown on solicitors who either engage in illegal activity by aiding and abetting criminal gangs, or who turn a blind eye to fraud by failing to carry out adequate checks on clients.

Tackling fraud

The insurance industry spends about £200m a year tackling fraud, but more could be done. For example, some insurers routinely settle personal injury claims without medical evidence and before they get to court. It’s known as a pre-medical offer and is basically a cost-cutting measure. So too is the industry practice of settling claims that are potentially fraudulent. The Taskforce argues that such decisions undermine anti-fraud measures and reinforce the perception that fraud is easy money. It therefore wants insurers to adopt a more rigorous approach.

Data sharing

The industry should also support data sharing schemes and improve the quality of the data available. Claims records, for example, are often inaccurate or out of date. In addition, the Taskforce urges comparison websites to be more alert to the possibility of application fraud.

Government steps

The government has already introduced a series of measures to curb the so-called compensation culture including banning referral fees, introducing fixed-cost medical reports for whiplash claims and setting up MedCo, an independent panel of experts. George Osborne, the chancellor, also unveiled proposals in his autumn statement to end the right to cash compensation for minor whiplash injuries. Instead, compensation could be in the form of medical care, so there will be no incentive to make false or exaggerated claims. The government also intends to channel more whiplash injuries through the small claims court, by increasing the upper limit from £1,000 to £5,000. The small claims court is both quick and cheap. If more claims go through the court, it could therefore reduce costs. It could also deter ambulance chasers from pushing through large numbers of low-value claims.

Other areas

The initiatives have led to some reduction in insurance fraud. However, they might also have pushed fraudsters into other lucrative areas. The cost of noise induced hearing loss claims, for example, has jumped from £83m in 2010 to more than £360m in 2014. They are by no means all fraudulent, but experts are concerned that the sector is open to abuse because of unscrupulous audiologists and the difficulty in obtaining evidence of hearing loss, particularly in cases of tinnitus. Legal fees are also high: in 2013 for every £1 paid to a claimant, over £3 was paid to their lawyer. The Taskforce has therefore asked the Civil Justice Council to consider options for fixed legal costs.

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