Following on from the brouhaha of the phone hacking scandal and the Leveson Inquiry, Westminster' attention has now turned to private investigators, with plans intended to regulate their activities from autumn 2014.

Whilst many will welcome what they perceive to be action to 'clean up' the underworld practices of some private investigators, what effect will regulation have on insurers and self-insured risks and those who work in these industries?

On 31 July 2013, the UK Government released its report on private investigators in response to the Home Affairs Select Committee's fourth report into its enquiry into their activities. Identifying the risks associated with the sector remaining unlicensed lays at the heart of the enquiry. In the Government’s own report, it confirms that it intends to regulate the activities of investigators by introducing mandatory licensing. Failure to comply with the new rules could result in a six month jail sentence. 

A detailed review of the Government’s intention highlights a number of issues that insurers, and those in claims investigation, should be alive to now, to ensure meaningful consideration of potential operational impacts and additional costs.

True intention

It is not the Government’s intention to criminalise investigation activity. There is already a framework in place in this respect through the proper application of prescribed offences under the Data Protection Act 1998, Computer Misuse Act 1990, Fraud Act 2006 and Bribery Act 2010. Offences are punished under the provisions of this legislation, together with the Proceeds of Crime Act 2002, Criminal Justice Act 2008 and Legal Aid, Sentencing and Punishment of Offenders Act 2012. Instead, the Government is looking to bring into effect existing proposals to amend the Private Security Industry Act 2001 (PSIA) - which sets out a system for the statutory regulation of the private security industry.

It is the Government’s intention to enable the Security Industry Authority (SIA) to regulate the activities of private investigators, by designating investigation activities, which will be a criminal offence if undertaken without a license. The SIA will only issue a licence following satisfactory criminality and identity checks and competency-based training. The SIA will have the power to issue, modify and revoke licenses.

A uniform approach

The Government has rejected the Select Committee’s recommendation for a two-tier system of registration and licensing. The Committee proposed that, whilst full licensing should apply to full-time private investigators, registration only should apply to those organisations which are already subject to regulation, such as solicitors and insurance companies. The Government has confirmed that all those working in private investigations need to be regulated to the same standards - including the need to attend and successfully complete competency training.

Regulated activities

The proposed amendments to PSIA outline the activities that will be regulated, which includes any surveillance, inquiries or investigations that are carried out for the purpose of obtaining information about:

  • A particular person or about the activities or whereabouts of a particular person
  • The circumstances in which or means by which property has been lost or damaged

In addition, as well as meeting satisfactory criminality and identity checks, the competency-based training referred to above is likely to require the demonstration of skills and knowledge as to:

  • Conducting investigations
  • Conducting interviews
  • Searching for information and preserving evidence
  • Conducting surveillance
  • Understanding of and working to relevant law and standards

What does the regulation of the private investigations sector mean for insurers and third party administrators (TPAs), including those carrying self-insured risks, as well as suppliers to those organisations?

On the face of it, there are a number of significant points to be considered. These include:

  • The operational and financial cost in training and licensing all claims staff.
  • The investigation process of claims handling (whether for fraud or otherwise). Will such a process need to be centralised?
  • The available talent pool of investigative claims handlers. Will licensing decrease this and/or increase the wage costs of such people?

Comment

There are some proposed exemptions to the scope of licensed investigations, which will impact upon the extent of any operational considerations for businesses. These include, most notably, where the person being investigated provides consent to, or has knowledge of, the investigation activity that is being undertaken. How the applicable definitions develop with regard to both the detail of the activities and any exemptions will be vital to being able to consider how insurance contracts can be altered for first party insurance investigations. Such detail will also determine whether any process of fair notification can be used in respect of third party claims (as per the data protection fair notices used in most claims processes).