It is a long-standing cliché to say that "crime never pays" but insurance companies are a primary target for criminals seeking to line their own pockets in the misguided belief that insurers are an easy target and that insurance fraud is a victimless crime.
The reality is that there is no such thing as a victimless crime and insurance fraud costs the industry over a billion pounds a year, whilst insurers are forced to invest millions of pounds to identify and combat fraud. Ultimately everybody pays for fraud because increased insurance premiums are a natural consequence of insurers paying fraudulent claims.
The common law and the Insurance Act 2015 provide insurers with an important armoury of weapons to combat various types of policyholder fraud, whether they are dealing with a deliberately staged incident or exaggeration of a genuine claim. Insurers can decline to pay the entirety of a claim (even any genuine elements), recover monies previously paid out to the insured and cancel their insurance policies. However, all these remedies are civil remedies and it is easy to forget that fraud is also a criminal offence. Whilst the civil remedies assist insurers in dealing with fraud on a case-by-case basis, a criminal prosecution is a much more effective deterrent to potential fraudsters.
In late 2015 AXA Insurance UK Plc received an insurance claim from a supply company for damage to their stock situated in a warehouse in Leeds as a result of a local river bursting its banks during the 2015 Boxing Day floods. The total value of the insurance claim was in the region of £107,000. However, AXA was concerned about the claim because various fraud indicators were present, and the reported damage to the stock was not consistent with the extent of water ingress into the warehouse. Most importantly, the Insured stored a substantial amount of stock at another warehouse that was uninsured, and that warehouse was located much closer to the local river and, as a consequence, was flooded much more severely.
AXA instructed its panel solicitors DAC Beachcroft to investigate the claim and, liaising with AXA's enquiry agents, DAC Beachcroft was able to collate the evidence to prove that the insurance claim was fraudulent. Specifically, it transpired that the stock that was damaged in the flooding was uninsured and therefore the Insured moved it to their own premises to try and pass it off as insured stock and by doing so recover the losses incurred for this stock from AXA even though AXA clearly had no legal obligation to indemnify them for the same.
Fortunately the evidence that we collated enabled AXA to exercise its right to refuse to pay the claim and cancel the relevant insurance policy. However, the matter was also reported to the Insurance Fraud Enforcement Department ("IFED") who subsequently prosecuted the Insured's director for fraud. The director admitted committing fraud by false representation and on 3 August 2017 she was handed down a sixteen-month suspended prison sentence and ordered to pay compensation of £7,200.
Whilst there is no doubt that civil remedies are an essential tool for insurers to use in the constant fight against fraud, criminal convictions are much more serious and detrimental to fraudsters and they send out an important message that insurance companies can, and will, actively seek to prosecute those who attempt to defraud them. Taking all available measures to reduce fraud benefits both the insurance industry and the general public who are ultimately forced to share the cost of it. Therefore, insurers should always, when investigating fraud, consider whether there is sufficient evidence to obtain a criminal conviction and, if so, liaise with IFED in respect of the same.