Written evidence from the Insurance Fraud Bureau (IFB)

 

 

About the IFB

 

The Insurance Fraud Bureau (IFB) is a not-for-profit organisation established by the insurance industry over a decade ago to tackle organised insurance fraud.

 

Insurance fraud has a broad spectrum, from opportunistic fraudsters who exaggerate what is an otherwise genuine claim out of some misguided sense of entitlement, right the way through to large scale scams orchestrated by organised criminals.

 

It is however worth noting that the line between some of these categories is not clear. For example, whilst many of the large scale scams that the IFB investigate are described as organised, many rely on lower level opportunistic fraudsters being convinced to take part in the individual claims, which they later exploit even further.

 

 

Considering whether fraudulent whiplash claims represent a significant problem

 

  1. IFB recognise that these reforms are based on a much wider consultation, at the heart of which is ultimately a consideration and decision for society as to whether it prefers high compensation and higher premiums or low compensation and lower premiums.

 

  1. As with the response to the broader consultation, IFB has not focused on the wider issues but provides a specific view based on the circa £336m[1] organised motor fraud problem, which is its main focus. In that context it considers fraudulent personal injury claims, the majority of which are for whiplash type injuries, to represent a significant problem for reasons which are outlined below. That is along with an articulation of some of the harm to society it causes.

 

  1. Historically if a vehicle was near the end of its useful life, a criminal’s favourite method of disposal was a fake fire or theft claim. However, the reality is that criminals recognise that even a vehicle relatively near the end of its life, can still be a useful tool for generating further money when used in a certain way.

 

  1. Fake car accidents (aka ‘crash for cash’ scams) are unfortunately an all too common occurrence. The favourite methods now include the staged car accident (where the criminals collude and agree to drive one vehicle into another) and more alarmingly the induced car accident (where the criminal gang pay a ‘stooge’ driver to purposefully stamp their brakes on in front of an innocent member of the public, forcing them to have a collision).

 

  1. There are a number of motivations for why gangs find these scams attractive, including the ability to extract cash at every step of a process which is designed to help innocent members of the public. However the reality is that fake whiplash claims still remain the most lucrative.

 

 

 

 

 

 

  1. The IFB run the industry’s Cheatline, which is an anonymous reporting service for members of the public to report their concerns about all types of insurance fraud. The IFB consistently receive in excess of 4000 reports a year from members of the public and tend to see two things in common. The first is that the most common type of report relates to motor crash for cash fraud. The second is that when asked why they are reporting, the most common reason given by the public is that they “don’t want their premiums paying for fraudsters”.

 

  1. The overall scale of the organised insurance fraud problem is clear:

 

 

  1. Whilst whiplash type claims are not the only component of crash for cash, they are undoubtedly one of, if not the most common. The money that a fraudster can exploit from an individual accident by using fake or bogus passengers can generate claims running into tens of thousands of pounds.

 

  1. After a decade of operational experience, it is clear that fraudulent whiplash claims are a significant component of crash of cash and that the legacy compensation model and claims sector that we are working with fuels and exacerbates that problem. The amount of money in the system available to fraudsters is a contributory factor and it therefore follows that the more excess money you remove, the less attractive personal injury claims will be to fraudsters, thereby reducing the problem accordingly.

 

  1. The IFB considers the introduction of the tariff system and the long overdue raising of the Small Claims Track as useful and proportionate steps to remove some of that excess money from the system.

 

 

The role that Claims Management Companies (CMCs) play

 

  1. The vast majority of the scams that the IFB investigate, alongside regulators and law enforcement agencies feature organised crime groups at the heart. Those gangs are often linked to and involved in various other types of serious and organised crime.

 

  1. Those gangs will ply their trade in a number of ways. In some instances there will be a ready supply of opportunistic fraudsters that are willing to take part in these scams. In other scenarios people will be hounded through a series of nuisance calls and persuaded to make a claim that they otherwise would not have pursued. We have seen examples which are akin to modern day racketeering where people are forced into making a claim. Finally we see the gangs stealing identities and using those to make fake claims.

 

  1. The sad reality is that many of these gangs have and do use a CMC as a front for their illegal activity. Whilst the IFB have enjoyed a positive working relationship with the MoJ’s Claims Management Regulator (CMR), it welcomes the recommendations from the Brady report to move to a more robust regulatory framework, which would have a positive effect in weeding out more fraud.

 

  1. As the regulatory landscape has evolved over the years, we have seen fraudsters demonstrate their ability to adapt their criminal enterprises very quickly. For example, with the introduction of the referral fee ban, fraudsters are still attempting to operate outside of the claim management regulation. They adopt more of what they would attempt to suggest is marketing, but which is ultimately claims farming and has led to many of the problems with the nuisance calls.

 

  1. We believe that moving the regulation of CMCs to the Financial Conduct Authority (FCA) is a necessary step to help reduce the risk of the fraudster and rogue firms attempting to circumvent any new controls.

 

  1. At a recent meeting of the CMR they confirmed that the transfer of regulation of CMCs to the FCA would not be happening until 2019 at the earliest. This delay will result in inconsistency between the implementation dates of the CMC and personal injury reforms which causes the IFB concern. We consider it vital that the transfer of regulations takes place at the same time as implementation of these personal injury reforms.

 

 

 

Definition of whiplash

  1. Given how innovative and resourceful fraudsters are, the IFB is concerned that the current definition for whiplash within Clause 61 on the Prisons and Courts Bill excludes a significant proportion of potential claims. It does not cover a number of common soft tissue injury claims that are often presented as “whiplash”. If the definition does not change it would result in the fraudsters simply adapting their fake claims to be outside the definition.

 

  1. The IFB would therefore recommend that the proposed definition for whiplash be amended to follow the MedCo definition, which would include a far broader spectrum of soft tissue injuries that are presented as whiplash type injuries.

 

 

The effect of the proposed changes on fraud

  1. As outlined above, the ability to manipulate the existing system for financial gain is one of the key drivers for the fraudsters. Logically therefore the more defined and controlled the system, the more difficult it becomes for the fraudster to manipulate and exploit.

 

  1. As such, the introduction of the proposed changes would have a positive impact on the fight against fraud and in particular some of the crash for cash scams. However it is important to note that behind these scams are well resourced, tenacious and experienced criminals who will work hard to find alternative means to defraud the system and these measures should not be seen as the ‘silver bullet’ to remove all fraud.

 

 

Other effective steps that could be taken

  1. A further key group in this process are the professional enablers, usually in the form of claimant lawyers. The vast majority of the fraudulent claims that the IFB see are represented by lawyers who have obtained those leads from a CMC.

 

  1. IFB recognise that the majority of claimant law firms work in a compliant manner and in the client’s best interest, however there are a number who do not. The bad practices in some of those firms is fuelling this problem further because the criminal gangs and rogue firms have the ability to bring their claims.

 

  1. In the last six months the industry, through the IFB, has significantly increased its engagement with the Solicitors Regulation Authority (SRA), making 37 separate referrals. As part of this engagement it has become clear that the SRA are restricted by their powers, in two fundamental ways:

 

 

The significance of whiplash fraud

 

  1. It is hoped that this response explains why whiplash fraud is a significant problem, but in summary the amount of money to be made from a low-value whiplash type injury provides an attractive proposition to the fraudster.

 

  1. The consequential harm that crash for cash fraud causes to society is widespread. There is, of course, an obvious financial impact in a variety of ways, but there are two other very significant harms:

 

 

  1. The IFB would therefore urge the Government to proceed with the proposed reforms as soon as possible as they will have a positive effect on the fight against fraud.

 

 

31 March 2017

 

[1] http://view.digipage.net/?userpath=00000817/00017508/00080957/