The Insurance Fraud Taskforce have now delivered their final report. Their findings will not come as a surprise, as the Taskforce released their initial recommendations in two tranches over September and October and because many of the issues raised in the report are longstanding ones that have received a lot of previous thought. The Taskforce finds common ground with the government where various proposed reforms are already in the pipeline, such as those in relation to small whiplash claims, the intended rise in the small claims track limit, proposed reform of noise induced hearing loss claims as well as late notified claims and the activities of CMCs.
The report serves to catalogue the processes and areas where, against a background of the industry being plagued by fraud, the industry could and should take steps to tackle those issues. MedCo Director and FOIL Vice President, Nigel Teasdale looks at the report and considers their recommendations.
A lot of water has flowed under the bridge since the then Secretary of State for Justice, Chris Grayling announced the formation of the Insurance Fraud Taskforce in December 2014. Not only has there been a change of Justice Secretary, but the newly elected Conservative government have, through last November’s Autumn Statement, announced that they intend to legislate to remove the right to recover damages in minor whiplash claims. The fact that that reform, along with the announcement of the intention to raise the Small Claims Track limit in personal injury cases probably to £5,000, was made by the Chancellor of the Exchequer together with the fact that the Taskforce reported to the Treasury, highlight that these issues continue to be of interest to the top highest ranking members of Her Majesty’s Cabinet.
At the end of last year, the Taskforce discussed those recommendations which it thought might form part of the final report at a number of meetings held with stakeholders, so there are few surprises in the 26 recommendations that it now puts forward to tackle the various forms of fraud that exist (organised, premeditated and opportunistic), both at the claims stage and when the policy is purchased. Some of the recommendations are said to cut across all types of fraud and others address specific areas of the policy lifecycle, from inception to claim, where fraud can be found.
The Taskforce’s recommendations
Click here to view table.
The key recommendations fall into two broad categories:
Recommendations requiring action from the industry
Getting the consumer on-board
The Taskforce have suggest that by improving consumer trust, the industry could do much to rid itself of the perception that it is “fair game” and that insurance fraud is a “victimless crime”. The Taskforce suggests that ill will is generated towards the industry as a result of over complicated policy wordings and a mystifying claims process. Many consumers are also irked by what they see as a failure by the industry to provide them with the best price at renewal. All of these factors inform the consumers’ decision to present over inflated or speculative claims, as a means of “getting their own back”.
By changing perceptions, the Taskforce conclude that trust will be improved, leading to a reduction in the risk that consumers will commit insurance fraud in a situation where consumers will take a dim view of those that do. The application of “nudge economics” has been successfully applied by government (in increasing engagement in those out of work in the job search process) and the Taskforce has recommended that the ABI and CII should commission research in this area. All of these steps are likely to take time and are unlikely to lead to any “quick wins”.
The use of data to tackle insurance fraud has been at the centre of the industry’s fight against fraud for some considerable time, but the Taskforce has concluded that there is still capacity for data to play a bigger role still. Of itself, the ongoing development of a single cross industry fraud database will no doubt go some way to meeting this aim.
Whilst the industry has done much to improve the quality of the data that it gathers and the way that that data is shared, the Taskforce (via the Personal Injury Working Party) has urged the industry to make personal claims data available to the consumer at the point of quote, so as to allow a challenge to be made to any incorrect entries.
Taking this step would require care to be taken. As the Working Party also identified, there was strong anecdotal evidence (which we also have experience of) to suggest that fraudsters are well aware of the way that existing databases work and where weaknesses exist. If not implemented properly, the system could be abused by the organised fraudster, who might use the system to carry out fishing expeditions, or as a tool to prepare themselves for those awkward Part 18 questions when a claim is made.
The Taskforce’s recommendation that a standard definition of fraud be used across the industry is a sensible one and would assist in making sure that fraud data is just that. Using a single definition could also assist in the sharing of data, and improve the flow of data under the Data Protection Act as could the Taskforce’s suggestion that the ICO should provide guidance to the industry on data sharing.
The Taskforce has encouraged the industry to be more collaborative and share data with others, especially the DWP and HMRC and it has also suggested that government bodies could engage in better reciprocity of useful data.
Separately, the Taskforce have recommended that aggregators have a part to play in combatting insurance fraud, as they are in possession of data that will reveal where several attempts have been made by customers interrogating their sites in order to obtain the lowest possible quote.
Board level ownership of fraud
The Taskforce has sought to highlight through their report the importance of the industry adopting best practice and has suggested that a key example is assigning ownership of the issue of fraud at board level. None of the respondents from the industry replying to the Centre for the Study of Financial Innovation’s worldwide survey of “Insurance Banana Skins 2015” (in association with PwC) placed insurance fraud in their top 25 areas of concern (of the 806 who responded, 74 came from the UK). The results of that survey seem to support the Taskforce’s conclusion that the issue of fraud needs to be moved into the boardroom. The Taskforce have recognised the tension that exists between the sales and underwriting functions and the fraud and claims departments, and of the need to manage any conflicts that might arise.
Defending more claims and fundamental dishonesty
The Taskforce has urged the industry to adopt the approach taken by some insurers of defending all fraudulent claims and have drawn attention to the success that certain insurers are seeing in taking that approach and securing findings of fundamental dishonesty against claimants.
A finding of fundamental dishonesty can of course be obtained when defending claims under the QOCS regime and leads to the claimant losing the costs protection afforded to them. As the report also mentions, the court can also make a finding of fundamental dishonesty under Section 57 of the Criminal Justice and Courts Act (which applies to proceedings issued from 13 April 2015) and which can lead to the entire claim being struck out. Ironically, the court need not make a finding of actual fraud against a claimant for a court to conclude that the claimant has been fundamentally dishonest.
It has been our experience that seeking to apply fundamental dishonesty in the QOCS regime is a very effective tool in the defence of spurious claims and a useful deterrent against late notified claims, where findings of fundamental dishonesty are common. A finding of fundamental dishonesty under QOCS can also be sought in those cases that are discontinued and so is not confined to cases that fail at trial. Cases which are struck out as an abuse of process will also lose QOCS protection.
Whilst the QOCS regime will have soon been with us for nearly three years, the application of fundamental dishonesty under s.57 leading to a potential strike out of the claim is a relatively new development. Whilst it is probably too early to gauge the impact that s.57 will have in the overall fight against fraud, it should provide a helpful weapon to insurers, particularly in phantom passenger claims and maybe also in catastrophic personal injury claims, where the claimant is exaggerating the extent of his personal injury losses. We also believe that s.57 will prove helpful in the defence of late notified claims and could see insurers look again at their Low Velocity Impact claims strategies.
The Taskforce has urged the ABI to discourage the use of pre-med offers as they believe they can encourage fraud. Insurers are of course already dissuaded from the use of pre-med offers as a result of last year’s amendment to both the “Aims” of the Pre-action Protocol and to the Protocol itself, so that offers are only expected to be made where medical evidence has been obtained. As the process of accreditation of experts is now due to be completed under MedCo by April of this year, it is likely that the use of pre-med offers will at least continue to reduce as trust continues to grow in MedCo and its ability to deliver medical reports free of financial influence. Indeed MedCo may have a wider part to play in the fight against fraud, the Taskforce suggest.
Emerging risks and fraud in the rehab supply chain
The Taskforce rightly recognise that the industry should be alive to the constantly evolving nature of insurance fraud and it accepts that it is inevitable that, where initiatives are put in place to tackle fraud in one area, fraudsters will seek to move away from that area and into other areas. In this regard, the Taskforce specifically mention fraud in the rehabilitation process.
Abuses in the rehab supply chain is something that we have witnessed for some time and have raised concern about, including in our response to the questions posed by the Taskforce last year. Fraud and exaggeration in this area can take a number of forms, including invoicing for treatment never received and inflating the overall value of the invoice. We have experience of treatment providers collaborating with fraudsters in the commission of this type of fraud.
We have previously suggested that MedCo is likely to be able to play a role in preventing this type of abuse in rehabilitation, particularly if the reform of general damages in whiplash as announced in the Autumn Statement is successfully steered through Parliament. This would be on the basis that as the opportunity for fraudulent involvement of PSLA is removed in small whiplash claims, so the attention of fraudsters is likely to turn to the categories of special damages which remain. These will include rehab costs, unless as part of a new process replacing the right to claim gerenal damages an obligation to provide rehab is imposed on insurers.
The need to be vigilant in relation to potential rehab fraud is also a recommendation put forward by the Taskforce. Whilst it is probably too early in MedCo’s life to be tackling this issue at the moment, it would be expected to be more ready to do so by the time the reforms are expected to become law in late 2017.
Unless something is done to tackle the issues in that space, we suspect that credit hire will increasingly feature on fraud departments’ radars over the coming 18 months, as fraudsters anticipate the effect of the reforms proposed in the Autumn Statement. We have seen the involvement of a number of “ghost” credit hire companies and inflated hire claims of late. It remains to be seen whether the consultation to follow the Autumn Statement will extend to making proposals in relation to credit hire.
Other steps that need to be taken
As we highlighted in our response to the Taskforce’s questions for consideration, many of the issues in need of being addressed could be tackled by tougher enforcement, or might be addressed by extending existing control processes into other areas. The industry, and to some extent the government should take heart from the fact that the way forward can include the extension of existing processes rather than the development of entirely new ones. There are areas though where the Taskforce has suggested a need for a change in the law.
Late notified claims and the small claims track limit
Late claims have been a concern to the industry for a number of years now. The vast majority of these types of claims are brought on a promise of easy money and farmed through cold calling, encouraged by CMCs and presented at a time when symptoms are alleged to have ceased, rendering a medical expert’s opinion and prognosis effectively redundant. As a result of these factors, fraud and exaggeration is rife. Whilst many insurers have longstanding strategies in place for dealing with these claims, the report accepts that they were a “major problem” for many stakeholders.
Much of the Taskforce’s thunder here has been stolen by the Chancellor’s announcement of more radical reform in the Autumn Statement that the government would seek to ban recovery of general damages in minor whiplash claims and raise the small claims track (SCT) limit to £5,000. With the consultation due to be issued on those two reforms in the next few months, the Taskforce’s recommended solutions may be of interest to those responding to that consultation.
The Taskforce’s proposals, which fall some way short of those proposed by the government, are:
- Recent claims (within 6 months) to proceed via fast track with older claims falling into the SCT
- A reduction of recoverable costs in minor personal injury claims notified six months after the accident
- Predictable damages for soft tissue injury claims
- The introduction of a rebuttable evidential presumption of no injury in some late presented claims
Whilst the suggested solutions might be different, they go to tackling the same issues as those identified by the government: too much money in the system, the resilience of medical evidence being questionable and no agreed medical definition for what constitutes whiplash.
There is some tension between the first and second recommendations from the Taskforce in this area in relation to claims notified more than 6 months after the accident. If those claims are to enter the SCT where essentially no costs can be recovered, then what is the point in reducing those costs by 50%. Are the Taskforce speaking of two different types of claim? Some clarity would be helpful.
In any event, the Autumn Statement announcement clearly proposes a different and indeed stronger approach to the same issue and has effectively already overtaken the Taskforce’s recommendations in this area. As a result although they seem sensible, we would not expect the Taskforce’s first and second recommendations on this point to be taken forward. The introduction of an evidential presumption that no injury was sustained is an interesting idea. The Taskforce suggest in their report that the presumption might be dispelled where a claimant could provide contemporaneous evidence that they were injured, perhaps by way of proof of an attendance upon their GP, a visit to an A & E department, or proof they had time off work. The government may be unwilling to take this idea forward, perhaps because they anticipate an extra burden being placed upon the NHS.
The Taskforce recommendation in favour of predictable damages is though surely likely to proceed. It was expected to be proposed even before the Taskforce’s report as part of the reforms needed to accompany the SCT increase, so that claimants have the opportunity of representing themselves in claims under the new SCT limit.
Fraud in NIHL claims
As the existing reforms came into being for tackling fraud and exaggeration in motor claims, we saw an increase in these types of behaviours in the Noise Induced Hearing Loss arena. Claims farming in this category of claim is almost as prevalent as it is in motor claims and has led to a huge increase in claims. The vast majority of these claims are rejected (85% is the figure mentioned in the report). The Taskforce recognise the work that is being done by the Civil Justice Committee in considering these issues, and support the introduction of a system of recoverable costs for NIHL claims, as indeed is part of the CJC’s existing remit.
As has been seen in whiplash claims, where there is too much money in the system, the Taskforce see that fraud is likely to “follow the money”. Reducing the costs available to solicitors in these claims would make them less attractive to process and would lead to a drop in the level of any legitimate referral fees paid.
Separate to the rise in claims volumes, fraud has been widely seen in the NIHL costs arena as solicitors seek to claim that a certain grade of lawyer has had conduct of a case, when in fact it was conducted by a more junior lawyer, or where the lawyer’s experience is exaggerated in order to suggest that that they are entitled to recover fees at a grade(s) above that which they are in fact.
Cold calling and action from the regulators
The problems facing the industry in late whiplash claims and NIHL claims could both be addressed in some part by taking enforcement action against CMCs and solicitors and by tackling the problem of cold calling, says the report. Legislation exists already to tackle the latter and using that legislation better would have a significant impact, particularly if better regulation of CMCs were also introduced. In respect of CMC regulation, the Taskforce acknowledge that Carol Brady is yet to complete her fundamental review of CMCs, but have highlighted some areas where the Claims Management Regulator might focus, such as effectively policing the referral fee ban, preventing the use of phoenix companies and dealing with CMCs operating outside the regulated sector.
Our understanding is that the Brady review is not going to look at capping CMC fees in the personal injury sector which might be an area of concern and something that the Taskforce could have picked up in their report. If the SCT limit is increased, then short of any specific regulation, the fear is that CMCs will open up for business in this area in competition with solicitors and could look to exploit consumers including by looking to take a keep a larger proportion of damages than they might otherwise do now for these types of claims. This risk remains to be addressed.
Where solicitors seek to enable those committing fraud (or any crime) the Taskforce point out that they should be subject to appropriate censure; be that by way of a fine, by being struck off or prosecution in the criminal courts. In their report the Taskforce have highlighted where there are failings at the SRA which is viewed as needing to take a much tougher approach to combatting fraud. The SRA has been specifically criticised for some time now for failing to properly police the referral fee ban. Save for a few very recently reported cases there seems to have been little enforcement action taken.
Requiring solicitors to carry out Anti Money Laundering (AML) checks in litigation cases would seem a very easy way to prevent solicitors from falling victim to those CMCs who have been simply set up as a means to introduce fraudulent personal injury and credit hire claims. Those engaged in fraud often have past criminal histories which would in all likelihood be revealed by law firms having to carry out proper AML checks in litigation cases and which are required to be carried out by law firms in transactional work.
The report contains a lot of good ideas, many of which had been proposed before the Taskforce was set up in 2014. Insurers will be supportive of the report’s conclusions. Some of the recommendations seem to require a simple change in attitude and approach, whilst others would require something more systemic. Some of the proposed changes are seen to be the responsibility of insurers themselves.
Claimant representatives including APIL are predictably unhappy with the report, and the fact that their involvement in the process was limited to the Personal Injury Working Party. They say that the Taskforce has been “highjacked by the agenda of the insurance industry and this government in its plans to do away with the rights of the genuinely injured to compensation”. APIL have announced that they will be joining the Law Society and MASS in looking to develop effective opposition to the Autumn Statement reforms, and that activity is likely to include opposition to part of the Taskforce’s report, at least where there is overlap between it and the planned Autumn Statement changes.
As we have said for some time, if the regulations around cold calling were properly enforced, the referral fee ban was being properly policed and some of the existing reforms in personal injury claims had been fully rolled out across all classes of claim, then the claims environment could have a very different appearance to what we see today. The question remains what that claims environment will look like in the future after delivery of this report, which has been welcomed by both the Treasury and the MoJ. Their more detailed response is awaited.
Where the Taskforce report overlaps with the Autumn Statement, we should expect the Autumn Statement reforms to be the government’s chosen way forward, and the consultation on that is awaited. The MoJ may though be pleased to have the Taskforce’s support in its general aims, if not the process to be adopted to achieve them.
Most of the Taskforce’s recommendations however stands separate of the Autumn Statement, and it seems to us that all of the recommendations produced are likely to remain acceptable to government on closer review and may well form the basis for further reform in the ongoing work against fraudulent claims as we move into the second year of the parliament.