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TACKLING THE HIGH COST OF CAR INSURANCE - STRATEGIC
REVIEW
5 Reducing car insurance
fraud
For a full review of
this problem, we refer the interested reader to our 'car
insurance fraud' series.
Minor and major fraud are common in car insurance. This is a burden for
the motorists that need to meet its cost via raised premiums.
Fraud adds about £44 to every car insurance premium and
undetected fraud could double this figure.
Minor fraud, such as 'fronting' where an over-25 pretends to be the
primary driver for an under-25 (who is the true primary driver but is
instead listed as a second driver), is extremely common.
At the other end of the scale are organised crime gangs that make
multiple fraudulent claims that can cost car insurance companies
millions to settle.
Deputy Chief Constable David Ainsworth (lead on vehicle crime)
Association of Chief Police Officers has stated that the police
response to car insurance fraud nationally is "patchy". The policing of
car insurance fraud is significantly under-resourced and lacks the
expertise needed to effectively tackle it, especially at a
supra-regional level.
Chief Supt Geraint Anwyl, Roads Policing, Association of Chief Police
Officers, has pointed out that there are now less than 6,000
roads policing specialists for all of England and Wales, many of whom
are not deployed full time on road policing duties.
Criminals are well aware of where the policing of fraud is poorer and
exploit such regions for their criminal operations where the claims
management company, lawyers and doctors work together as a criminal
network to conceal the fraudulent nature of the claim.
By constantly moving around the country and pesenting different
claimants, their detection becomes more complex. However, since the
industry-funded Insurance Fraud Bureau (IFB) was set up to collect
claims data across regions and insurance companies, identifying these
claims has become easier and hundreds of these criminals have been
arrested as a result of IFB evidence.
Nonetheless, at present probably at least a half of major car insurance
fraudsters avoid detection and the police would like to develop greater
police and insurance representatives collaboration on this issue with
the development of several regional insurance fraud units. This process
has begun with the setting up of a new London
based Insurance Fraud Unit, financed by the insurance industry.
The Association of British Insurers (ABI) is also setting up a new
insurance cheats database to assist in the identification of minor
insurance fraud.
Additional developments include that car insurance providers are now
checking with the IFB to see if applicants have previous claims, even
if they are undisclosed on the application while insurers are also
about to be given access to the DVLA database to check on driving
license penalty points, also commonly withheld.
One way to finance a higher level of law enforcement in relation to
insurance fraud would be to follow the American model of charging $1
per policy to resource the fight against fraud.
Excessive whiplash claims, many of which are fraudulent or speculative,
has been a key driver of ever-increasing underwriting costs. Its
diagnosis needs to be researched and tightened up while the rules of
evidence in whiplash cases should require proof of its presence.
Summary of necessary
changes to reduce car insurance fraud
- Following
the USA model, an anti-fraud levy of £1 should be applied to all
annual car insurance policies. This would raise £28m annually to
fight fraud.
- That
money could be used to fund several new regional Insurance Fraud Units
(run according to the new London-based insurance fraud unit model) with
greatest investment in the North West and other hotspots where there is
the highest level of fraud.
- The
new levy could resource an additional car insurance fraud workforce of
around 330 deployed in around ten or more regional centres
- Some
of the additional resources could be used to increase staffing at the
Insurance Fraud Bureau, particularly to assist in liaison with the new
regional fraud units.
- The
Association of Chief Police Officers and insurance industry
representives, including the IFB and ABI should draw up a new
'framework for co-operation' in relation to evidence sharing to ensure
that there are no barriers to intelligence gathering especially in the
context of the new anti-fraud initiatives.
- The
Ministry of Justice needs to conduct a review of current anti-fraud
legislation and penalties with a view to developing new simplified
procedures that could be used to successfully prosecute minor levels of
fraud. At present, such prosecutions are never brought. This may be a
complex task but in its absence, there is little to deter the millions
of have-a-go fraudsters.
- Thatcham
needs to finance a new medically-led whiplash research unit that draws
on best practice in other countries and conducts its own research to
develop best practice guidelines in the assessment and diagnosis of car
accident related neck injury.
- Rules
of evidence, specifically in relation to whiplash, should be strictly
adhered to, in order to make it a requirement to prove the presence of
whiplash (such that more than just a supportive medical report would be
needed) in order to secure compensation.
Final Comment
Given that currently drivers pay at least £44 to finance the cost
of car insurance fraud in their premium and the above-suggested
regional units would be expected to significantly reduce this figure,
it would be foolish to resist the £1 anti-fraud levy that we
propose.
Next, we look at the problem of uninsured drivers.
Other Sections of this
Report:
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