Recent figures released by the ABI tell us that insurers successfully identified £1 billion worth of fraudulent claims in 2011. It is estimated that a further £2 billion per annum escapes detection and is a regrettable cost passed on to customers.
However, under the Jackson reforms, will insurers face a future of investigating and detecting fraudulent claims in even more challenging circumstances? I suspect that will be the case, requiring more effective systems and processes to be deployed in the fight against fraud. If not, there is a real prospect that increased levels of fraud will become the unintended collateral damage of the Jackson reforms.
Proponents of the reforms will eagerly point to the banning of referral fees and the reduction and fixing of claimants' costs in the majority of personal injury claims as a key counter fraud benefit.
However, it is unlikely that the referral fee ban will result in significantly fewer claims being made. Commercially aggressive (and often innovative) accident management companies will find new ways to generate income streams from personal injury claims. Many already look to other parts of the claims process as a means of driving revenue. In the motor arena referral fees are the smallest prize to many organisations that also provide additional services such as vehicle recovery and storage and credit hire.
What is the effect of squeeze in recoverable legal fees? The need for legal businesses to drive efficiency is obvious. One such efficiency will be the success rates and need to avoid waste caused by fraudulent claims that result in the failure to provide a return on a fee earner's time investment. This could potentially see claimants' lawyers looking for ways to cleanse their book of business. However, an alternative outcome would be the volume business model where quality is sacrificed for quantity and little or no checks are put in place to prevent the (non-deliberate) submission of fraudulent claims.
Hurried decisions and processes under pressure are fertile ground for fraudulent insurance claims. The binding nature of the liability decision is unforgiving unless the insurer can find new and additional information that enables a decision on liability to be unpicked.
The Ministry of Justice (MoJ) Portal process requires insurers to pay initial and staged instalments on the claimant’s recoverable costs. Having started flowing, the leakage of money continues as the diligent insurer will also start to make payments in an effort to mitigate the claimant’s claim in respect of any ongoing losses. In addition, there is the prospect of interim payments being more frequent. Having made all these payments, what is the prospect of a claimant returning the money when his fraud is uncovered at a later date?
Of course, claims can come out of the Portal process, but insurers need also to be able to take advantage of the financial savings that the system offers. Perhaps a better alternative would be to allow an insurer greater flexibility in the event that it realises a fraud issue exists, even if there has been no material change in the facts?
Qualified one way costs shifting (QOCS)
QOCS proposes a major shift in the civil litigation risk assessment which, when summarised, all but removes risk from the claimant’s calculation.
What of the circumstances where the claimant loses the QOCS protective shield? A claimant cannot expect protection from the defendant’s costs if the claim is found to be fraudulent on the balance of probabilities. However, how many fraud cases ever actually get to trial? Not many. A fraudulent claimant is opportunistic in his litigation strategy. Many insurers will recount stories of a suspected fraudulent claimant who discontinues at the first sign of resistance, to simply come back with a different claim later down the line. The insurer is left out of pocket in respect of the investigation and legal costs incurred.
I fear that an opportunity has been missed to ensure the parties are returned to the current position in relation to costs where there is fraud. Arguably wording along the following lines would have protected that position:
"QOCS protection would be lost if the claim either wholly or in part is found to be fraudulent on a balance of probabilities or where the claimant discontinues the claim subsequent to the defendant explicitly pleading in its defence (or any amended defence) that claim is fraudulent either wholly or in part."
We wait with interest to see how the courts will interpret the current wording and whether the discussion around greater clarification and cost protection will again be afforded in due course. In the meantime, I anticipate that fraud will remain a priority issue for the foreseeable future.