Fraud - June 2010
Ministry of Justice Reforms - Fraudulent Claims update
One of the primary concerns for some insurers
arising out of the MOJ reforms is the extent to which they will
facilitate an increase in fraud. This concern is very real in light
of what I consider to have been a sea change over recently times.
Fraudsters appear to be submitting a higher volume of fraudulent
claims knowing that whilst there will be a number that are not
successful many will slip through the net. To some fraudsters it is
a numbers game. If this proposition is right then fraudsters are
likely to view the reforms as an opportunity to increase the number
of claims being submitted.
This being the case Insurers and compensators
are rightly looking at their approach to the reforms and how they
can properly protect themselves from fraudulent claims.
In dealing with the threat there is not a
common approach. This depends on the extent to which the insurer is
affected by fraud, the type of risk covered and the assessment of
the threat moving forward. Some are more worried than others and
some have not substantially changed their processes, waiting to see
how matters develop.
Identification of suspect claims within the 15
day deadline for admissions of liability is a key area for insurers
(subject to ways in which admissions can be withdrawn later on in
the process; see below). With this in mind some insurers are
increasing the number of experienced staff at the front end of the
claims handling process to assess the facts of the case and deal
with data analysis. The aim is to increase in the number of suspect
cases where no admission is made early on in the case. This
objective will be helped by an increase in the compulsory
information to be supplied by the Claimant at the outset. Greater
fraud awareness at front end is high up on many insurers' agenda.
Investment in early identification alone however will not entirely
address the threat.
Fraudulent claims will of course be designed
to look straight forward and appropriate for admissions of
liability and many cases will only take on a different complexion
later on in the case. With this in mind it is important for
Insurers and their case handlers to be aware of the ways in which
admissions of liability can be withdrawn and the case exited from
the new process. Following late changes to the proposed Civil
Procedure Rules the situation regards withdrawing admissions of
liability remains broadly unchanged from the position prior to the
reforms. The Court has a broad discretion to allow Insurers to
withdraw an admission and will consider each case on it's facts.
However, an admission made in good faith before genuine suspicion
arises is likely to be able to be withdrawn.
Whilst some fraudsters will see the reforms as
part of a numbers game Insurers will also be keen to measure the
effectiveness of their MOJ strategy. The basis of a strategy is
therefore crucial. A strategy that gets suspicious cases out of the
process will clearly result in a short term loss i.e. the cost of
investigation, legal spend and delay. In the longer term the aim
will be a saving in claims costs and a deterrent to those looking
to defraud them.
Too few cases brought out of the process could
result in a susceptibility to fraud claims in the future. On the
other hand too many cases being brought out could bring about an
increase in costs investigating claims which are not ultimately
repudiated and result in increased costs.
Accordingly the effectiveness of a strategy is
important but will not be seen for some time. It should be high on
the list of priorities for insurers to measure the cost of cases
that come out of the process and compare it against what it would
have cost to deal with the claims within the process. An effective
strategy should show significant savings in addition to an
effective deterrent to those aiming to defraud that insurer. If the
MI shows a different outcome however this can help drive a more
effective approach in the future.
Having some means of measuring deterrent will
prove useful however problematic. Deterring a number of cases that
the insurer never sees will not result in a paper saving however in
real terms will be of huge benefit. Insurers are likely to increase
their reliance on deterrent measures to send the appropriate
messages to those looking to defraud them.
The effect of the MOJ reforms on fraud will
not be entirely clear for some time. However, the strategies
implemented by insurers that have an emphasis on effective
detection, proactive handling and robust sanctions are likely to
provide the greatest protection and results in the future.
Stuart Smith is Head of Fraud at
Weightmans.
Those clients requiring advice on
fraud detection, case handling issues, deterrent, management
information issues or the effect of the MOJ reforms generally
should contact Stuart Smith on 0151 242 7948 email:
stuart.smith@weightmans.com or Bavita
Rai, Partner on 0121 200 3499 email:
bavita.rai@weightmans.com