U.K. car insurers are fighting back against a surge in bogus
claims, including so-called "crash for cash" scams by organized
criminals, that threaten to erode earnings and force up
premiums.
Data from the Association of British Insurers show that false
car insurance claims have risen in terms of value and volume since
2005, attributed by some observers to fallout from the financial
crisis. Fake claims in 2009 rose to GBP410 million, or 4.5% of all
insurance claims filed, more than double the 2% rate in 2005,
before the credit crunch and the financial crisis.
By volume, the number of fake claims rose to 39,395 or 1.03% of
all claims filed in 2009. This is also more than double the 0.45%
rate in 2005.
"The figures highlight the fact that there is a real problem
here which the industry is tackling," ABI spokesman Malcolm Tarling
told Dow Jones Newswires.
Andrew Torrance, chief executive officer of the U.K. arm of
Germany's Allianz SE (ALV.XE), said: "The U.K. private motor market
has been unprofitable for some participants. The industry believes
the element of fraud has increased quite rapidly over the past two
or three years."
"Fighting fraud is a big priority for the insurance industry in
the U.K. right now," Torrance said.
ABI's Tarling said insurers have been getting better at
detecting fraud, "but there's also the question of whether these
figures reflect that more people are committing fraud."
He said "there is a strong belief that when times are tough,
some people will look to insurance as a way of making money."
Increased insurance fraud often coincides with times of economic
crisis.
"Back in the early 1990's when there was a similar dip in the
economy, insurers saw a rise in fraudulent arson, where some
businesses would torch their premises to get insurance claims
paid," Tarling said.
"There is a historical correlation between the economy and
fraud, but it may be a bit premature to say that, today, there's a
direct link. The motives behind fraud are quite diverse," he
said.
To help detect fraudsters, U.K. insurers formed the Insurance
Fraud Bureau in July 2006. Since then, the IFB has played a key
part in helping the U.K. police make over 415 arrests of people who
were trying to defraud insurers, resulting in 89 convictions.
The IFB also helped expose the presence of "crash for cash"
scams across the country. In these, fraudsters usually drive to
busy road junctions and then suddenly stop and cause innocent
drivers to crash into them.
"Claims are made to the innocent motorist's insurer, often
including several accounts of fictitious injuries from members of a
criminal gang. There is growing evidence to show that the proceeds
from this type of fraud are used to fund other forms of serious
crime including drug trafficking and gun running," the IFB says on
its website.
The IFB said there are about 30,000 staged, invented or induced
motor accidents each year.
Without giving the number of cases per region, the IFB said the
U.K.'s worst "hotspot" in crash for cash scams is Birmingham,
followed by Liverpool, Blackburn and Manchester.
Out of the 20 regions monitored, East London has jumped from
13th place to 6th place over the past year.
Allianz's Torrance said there has also been an increase in
"misrepresentation" fraud, especially in using the Internet, where
insurance applicants enter wrong details, like a younger age, to
get a cheaper quotation from an insurance company.
All these fraudulent claims have increased operating costs for
insurers and are partly to blame for the rising cost of insurance
coverage.
Insurers have been buying more advanced software and have
increased cooperation amongst themselves in sharing data on
potential fraudsters.
Others have been hiring more staff to check on fraud. At Allianz
U.K., for example, the number of employees investigating
potentially fraudulent claims has risen to around 70 from just 25
two years ago.
Early this year, analysts from Oriel Securities warned that
insurance company profit could be hit by fraudulent claims.
"It is well established that fraudulent claims increase during
recessionary periods," Oriel said.
One of those being hit is RBS Insurance, the insurance arm of
Royal Bank of Scotland Group PLC (RBS). Last month, RBS Insurance
said earned premiums in the second quarter were GBP1.12 billion,
unchanged from the same period a year ago, while net claims rose
49% to GBP1.13 billion. The company didn't say what proportion of
these claims were from motor insurance. This and other expenses
pushed RBS Insurance to a second-quarter operating loss of GBP203
million, compared with GBP141 million profit a year earlier.
Meanwhile, Aviva PLC (AV.LN) reported that the combined
operating ratio of its U.K. personal motor insurance business
worsened in the first half of the year to 104% from 101% a year
earlier.
A combined ratio is a measure of claims against premiums and a
figure above 100% indicates an underwriting loss. A higher number
indicates higher losses.
The IFB said on Monday it has boosted the operational capacity
of its Cheatline phone and online facility, which people can use to
report cases of fraud. The phone number is 0800 328 2550.
The IFB said this would help "make life more difficult for
fraudsters and fairer for honest insurance customers."
-By Vladimir Guevarra, Dow Jones Newswires; +44 (0) 2078429486,
vladimir.guevarra@dowjones.com
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