A major review of the factors behind insurance fraud has laid out a series of recommendations to be adopted in the legal sector.
The Insurance Fraud Taskforce, which has spent more than a year analysing the subject, said more can be done by insurers, solicitors and regulators to bring down fraudulent claims.
Key conclusions include:
- Proposed reform of the PI sector will ‘substantially reduce’ insurance fraud;
- More should be done by the Solicitors Regulation Authority and claims management regulator to detect and prevent fraud;
- Many noise-induced hearing loss claims are fraudulent or exaggerated;
- Insurers should be more willing to defend claims and should reduce the inappropriate use of pre-medical offers;
- If PI claims come in six months after an accident, recoverable costs should be reduced.
The report identified particular concern about the preponderance and costs of fraud in low-value personal injury claims.
The report was clear that the SRA should take a ‘tougher approach’ to combatting fraud, taking more evidence from insurers about claimant firms suspected of abuses.
The government should also consider reviewing the fining powers of the SRA and introduce a mandatory requirement for referral sources to be included on claims notification forms.
If an insurer believes legal representatives are acting without instruction, a standard letter should be made available, agreed by representative bodies on all sides, to be sent to the claimant themselves.
The report acknowledges that reforms to 'no win, no fee' agreements have reduced the costs of cases, but said more can be done and the recommendations ‘reflect and support’ government plans for the personal injury sector.
Changes since the 1990s have created a ‘lucrative market’ for claimant representatives, as the number of new entrants demonstrates.
‘Although most claims are honest it is equally true that fraud "follows the money",’ the report adds.
‘Costs within the system attract a small number of professional enablers, such as solicitors and medical professionals.
‘They can play a key role, consciously or unconsciously, using their professional standing, expertise or qualifications, to give the appearance of legitimacy to claims allowing fraudsters to succeed.’
The report says measures such as raising the small claims limit to £5,000 and scrapping compensation for whiplash are likely to reduce incentives for both claimants and their representatives and ‘substantially reduce’ insurance fraud.
Where the government has intervened to reduce income from personal injury work, this led to a large increase in the number of notified noise-induced hearing loss claims.
But with insurers reporting that 85% of these claims are rejected, the report suggested that ‘many’ are fraudulent or exaggerated, bringing with them ‘substantial’ costs.
The taskforce also reported that pre-medical offers from insurers have contributed to the perception that claims for whiplash represent ‘easy money’.
‘Some insurer behaviours and practices may fuel a perception that insurance fraud is relatively low risk,’ it adds. ‘Many insurers settle PI claims before they ever reach court and without seeing supporting medical evidence.’
The report said the Association of British Insurers should ‘discourage’ the inappropriate use of pre-medical offers, with the insurance industry as a whole establishing good practice in defending court proceedings where they suspect fraud.
The government welcomed the report and said the recommendations will ‘galvanise’ efforts to tackle fraud.
The ABI said it will do ‘whatever it takes’ to clamp down on the dishonest minority. The Motor Accidents Solicitors Society said the IFT missed an opportunity to have a genuine cross-industry debate, with that ‘bias’ reflected in the report.