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Insurance Fraud- From Fake Paperwork to Staged Crashes

Consider the following scenario: you recently came home from an evening out to find your home had been burgled, with several valuable items taken.  If this were not traumatic enough, the insurance company is now dragging its feet on paying your claim, hassling you for receipts for every one of the valuable items listed as having been stolen.  Trouble is, no matter how hard you look you just can’t find the paperwork for the flat screen TV you bought in the chaos of last year’s sales.  Who could blame you for knocking up a fake receipt on the computer?  After all, the claim is perfectly valid, it’s just a question of speeding up the payment.  And maybe if you just added a few hundred pounds onto the price to compensate for the inconvenience…

Insurance claims certainly seem to present a big area of temptation for a lot of otherwise honest people.  According to a 2003 survey by the Association of British Insurers (ABI), 47% of respondents said they would “not rule out” exaggerating an insurance claim in the future, with 37% giving the same response to the idea of completely fabricating a claim.  7% admitted to actually putting in an exaggerated or made up claim in the past- extrapolating to around 3 million people across the UK. 

From Opportunism to Organisation

John Beadle, Chairman of the Insurance Fraud Bureau (IFB), an industry-funded body set up in 2006 to detect fraud and work with the police in effective prosecution, recently reported that UK insurance fraud costs around £1.6bn each year, adding 5% to premiums.  While most of this is still due to the kind of opportunistic fraud described above (i.e. committed by usually law-abiding citizens like you and me), organised fraud is now seen as a growing menace, accounting for an estimated £200m a year and rising.   

Of course, organisations such as the IFB will always be keen to justify their tough approach and continued existence by emphasising the ‘organised’ aspects of fraud, cracking down on hardened gangsters rather than ordinary citizens straying slightly from the straight and narrow.  However, there can be no doubt the problem is there; in the year since its launch the IFB has seized over £5 million and made 40 arrests.  “Individuals involved in organised insurance fraud are criminals first and fraudsters second,” warns Beadle “they are linked to many other criminal areas.”  

Chief amongst the tools at the IFB’s disposal to combat organised fraud is the new cross-industry car insurance database , run by industry experts HPI since the start of 2005.  Replacing the previous clunky register (run since 1987), this database should contain details of all vehicles written-off following an accident or reported stolen.  This should help in the identification of a wide variety of car insurance frauds- for example the policyholder who insured his old Fiat with 11 different insurers and claimed for a replacement from all of them following a crash that he had caused himself.  If successful he would have stood to gain £34,000 against a car worth £1,000.  

Staged Car Accidents- Beware the ‘Squatter’

One of the IFB’s first major successes was ‘Operation Mysterious’, an extensive investigation which earlier this year led to the arrests of thirteen people around the country.  A gang based in the Home Counties had been involved in ‘cash for crash’ fraud- deliberately causing car accidents and claiming as much as possible on vehicle policies.  Drivers, vehicle recovery agents and an insurance vehicle examiner all worked in concert to defraud the insurance companies.  

Sadly, it now appears that we in the UK are beginning to catch a bout of that particularly nasty American disease- the staged car accident.  According to the FBI website, this crime has developed into an entire industry in the US, costing insurance companies around $20 billion annually.  Crooked physical therapists, chiropractors, lawyers and auto repair technicians are all involved- dovetailing nicely with the number one American fraudulent activity, medical provider fraud (costing $95 billion a year- thank goodness we’ve got the NHS!).  

It seems car accidents involving innocent victims are relatively easy to produce to those determined enough to cause them.  Here are some popular variants from over the pond:  

• Swoop and Squat: a vehicle ‘squats’ just in front of you.  A third ‘swoop’ vehicle pulls ahead and cuts the squat vehicle off, causing him to slam on the brakes.  Usually you can't react quickly enough and ram into the squat- meanwhile the swoop takes off and is never seen again. The swoop that caused the accident can't be located and your insurance ends up having to pay for the damage and any personal injury claims.
• T-bone: someone runs into you as you go through a crossroads.  The driver and several planted ‘witnesses’ tell police that you went through a red light or stop sign.
• Drive Downs and Sideswipes: used where lanes merge or the traffic drifts at multi-lane turnings.  The rogue driver rams into your back or side, often after giving you a friendly wave forward.
• Panic Stop: a less sophisticated version of swoop and squat.  A lookout in the squat vehicle checks for you being momentarily distracted from the road- then slams on the brakes, with predictable results.

In all these cases, the fraudster’s vehicle will usually be crammed with passengers, each of whom will file a spurious personal injury claim with your insurance company.  Hard-to-disprove favourites include whiplash and other soft-tissue injuries.

Hopefully all this will give you good reason (if you needed one) not to tailgate, and watch out for ‘squatters’.  However, avoiding the staged-accident brigade may prove impossible if you are targeted in a well-planned attack.  In the event of any accident call the police immediately, note down as many names and numbers as possible and take photos (the phone camera may come in handy here).  Remember- if you have been the victim of staging that HPI database check could be your salvation, helping to bring down a criminal gang in the process.   

'Utmost Good Faith’

So much for the actions of hard-bitten organised fraud gangs- what’s that got to do with you sneaking in a home-baked receipt for your theft claim?  The trouble is that insurance companies can tend to get a little paranoid and overzealous, labelling any minor dishonesty by the insured as attempted fraud and reason enough to refuse claim payments.   

Legally speaking, you owe your insurance company a duty of ‘utmost good faith’ at all times, a principle that has been tested both in the courts and via the Financial Ombudsman on numerous occasions.  Recent case precedent has been forged in the lawyers’ paradise of maritime insurance (only if you suffer from insomnia should you peruse the claims and counter-claims of the seminal Sea Star and Mercandian Continent cases), but has quickly trickled down to the ordinary policyholder. 

The situation now accepted by all parties is that the insurance company can ‘forfeit’ the policy (refuse to pay the claim or provide any future cover) only if the insured’s dishonesty is sufficiently serious to:  

• affect the insurer’s ultimate liability;
• or entitle the insurer to repudiate the policy for fundamental breach of contract.

Serving as recent warnings of honesty being the best policy, both “Mr G” and “Miss J” had complaints rejected by the Ombudsman and their claims left unpaid.  The former had claimed for the theft of some Star Wars DVDs- before the films had been officially released in that format (oops!), while the latter sent in three repair estimates for water damage- which turned out to be all from the same contractor, whom she knew well.  In both cases, the fraud falsely inflated the insurer’s liability (the amount to be paid out).  However, several other cases of simply providing false documentation for valid claims have had complaints upheld- the dishonesty being too minor for the insurer to justify rejecting payment. 

Insurance companies are certainly getting tougher with cheats- so it’s always best to be as honest as you can with them at all stages.  After all, we all pay for the cost of fraud with higher premiums.  And, for the sake of sneaking a few extra quid, would you really want to be lumped together with the kind of people who deliberately cause car accidents?  

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