09 November, 2009
Fraudulent claims come in many guises, from simple exaggeration to the organised and premeditated presentation of false claims. Similarly the fraudster ranges from the 'opportunist' to the 'professional'. While the boundaries of fraudulent activity are not always clear, what is certain is that the protagonists pursue a significant bounty. The Insurance Fraud Bureau, for example, puts the cost of insurance fraud to the industry at £1.6bn per year — the equivalent of adding 5% to the premium of every policyholder.
Much work has been invested by insurers and lawyers in the pursuance of counter-fraud strategies, particularly in the motor insurance arena. But fraudulent activity mutates and evolves like the battle between drug cheats and drug testers in the athletics arena. There is a perception that organised activity is moving away from its traditional homelands, such as the staged motor accident, to employers' and public liability claims.
Evidence of organised fraud in the public sector will remain anecdotal but nevertheless undeniable for those involved in this liability area. The opportunist has always existed, but evidence of professional fraudulent activity is harder to elicit. Such claims often present themselves in an insidious fashion. Unlike the staged motor accident, where the participants appear from the outset — multiple claimants, hire companies, repairing garages and the like — the typical false claimant who pursues the local authority is an apparently solitary and shadowy figure, their injuries unwitnessed and unverifiable except for the tell-tale triage note at the hospital.
Indeed, the opportunist often falls at this hurdle. Many claims are run to trial and defeated each year, by simply putting the claimant to proof based on inconsistencies in their evidence. But such findings can be a soft option for the judiciary and mask more sinister operations. Picking apart the tangible links that indicate a wider network of activity and having the courts take notice of them, therefore, present particular problems.
Traditional industry counter-fraud tools, of course, remain crucial. Fraud indicators, profiling and data matching are all fundamental to the early detection and ultimate defeat of false claims. However, local authority insurance departments have an additional weapon at their disposal — local knowledge.
Geographical links between claims often manifest, with significant numbers emanating from a certain area of a community. Statistical data can be used to support any proposition but judges often treat this type of evidence with suspicion. In all fairness there may be a number of explanations for claim patterns — from a mail drop in a certain area, to seasonal factors such as a particular location being close to a public amenity that attracts greater footfall in the summer. Plainly something more is required.
Sherlock Holmes famously said: "If you eliminate the impossible, whatever remains, no matter how improbable must be the truth." If we can show a high proportion of claims originating from a particular geographical area, from individuals living within a certain neighbourhood with common links between them, the court may be persuaded that the suggested coincidence is, in fact, an impossibility.
The painstaking work involved in building such a picture can be illustrated with an example from experience. Having been alerted by a local authority to the prevalence of 'hot spots' of claims in certain parts of a holiday resort town, investigators were asked to conduct a fraud review. As expected, the initial picture revealed a scattering of accident locations concentrated in areas where population density and footfall were higher. There were, however, more subtle signs and local knowledge was the key to unravelling them.
It was established that a high proportion of individuals with claims lived within the immediate proximity of the claims management company thought to be central to the investigation; and the accident management firm itself was linked to a fraud ring that was already the subject of a fraud investigation for another local authority client some 50 miles away. Agents of this company were found to be directors of other accident management firms based across the north of England and East Midlands. Most of these claims are now statute barred; three were litigated and discontinued when fraud was pleaded; and another was defeated at trial and is now subject of a police investigation. This further illustrates how fraudsters do not respect local authority boundaries and shared knowledge between authorities is desirable to combat the phenomenon.
Sending out a deterrent message in fraud cases is never easily achieved and court sanctions have often been disappointing — thereby perpetuating the perception of insurance fraud as a victimless crime. The drain on public sector resources adds an additional disturbing dimension requiring decisive action by judges.
In Cairns v Wigan Council, the claimant proceeded on the basis that he had broken his ankle in a pothole in the road, supported by witness evidence from his nephew Anthony Purves. While initially successful at trial, further enquiries revealed that the claimant had actually broken his ankle playing five-a-side football. Despite pleading guilty to consequent charges of deception and perjury, which might ordinarily have resulted in judicial leniency, Mr Cairns was imprisoned for nine months and Mr Purves for six.
Fraud remains a lucrative industry for perpetrators. As those concerned move the sphere of their activities to new areas, insurers and their representatives must adapt existing strategies to stay one step ahead. Great strides have been taken to restrict fraudulent activities, but only by a continued investment in counter-fraud strategies and the determination to pursue allegations of fraud, where appropriate, through the courts, can the fraudster be deterred.
For further information please contact David Pickford, Church House, 90 Deansgate, Manchester, M3 2GP. Tel: 0161 918 0000 or contact David Pickford by email or Chris Booth, Marsden House, 28 Wellington St (St Johns), Blackburn, BB1 8DA. Tel: 01254 662831 or contact Chris Booth by email.