House of Commons - The cost of motor insurance

The cost of motor insurance - Transport Committee Contents

4 Fraud

38. The National Fraud Authority estimates that the insurance industry loses £2.1 billion per annum to fraud.[102] The Association of British Insurers told us that £930 million of motor insurance fraud went undetected each year, adding £39 to the cost of every premium.[103] Some estimates of undetected fraud are higher and motor insurance also accounts for a proportion of the detected insurance fraud which the ABI estimates adds £44 to every household's total insurance costs each year.[104]

39. Fraud takes a number of forms. Moneysupermarket.com informed us of research showing that 41% of parents claim to be the main drivers of cars actually driven for the most part by their children.[105] The MIB said that 17% of consumers under-declared driving licence data, such as penalty points, to their insurers.[106] The British Insurers Brokers Association said:[107]

some comparison websites prompt people to get cheaper premiums by making changes to their proposal and some personal finance websites such as 'Money Saving Expert' have even encouraged people to change their job title to seek a lower quote ... It is far easier for a customer to lie or fail to include a fact on a comparison website that makes assumptions about people and does not even ask them all the questions directly.

40. We also received worrying evidence about the scale of organised motor insurance fraud. The Association of Chief Police Officers referred to there being 30,000 staged accidents in 2009 and explained in some detail how such accidents are arranged to enable claims to be made. For example, Deputy Chief Constable Ainsworth said:[108]

I can give you an example without going into specific details where they set up their own claims management company. They have a doctor who could be a member of the family. On the legal side, a solicitor could be a member of the family. The victim of the collision is also part of that organised crime group, as well as the offender being part of the organised crime group. The entire incident is contained within a group who are well known, and often related, to each other. ... Others are staged collisions, and then there are collisions that are fictional. There is an audit trail of the collision having occurred and there is a vehicle. All the main players are there but, actually, a collision never did occur. It is quite varied in its nature, but it's very highly organised and clearly very profitable, but it is a high-risk activity.

DCC Ainsworth also said that it was lucky that there had not yet been fatalities as a result of staged crashes.[109] Saga claimed that some claims management firms encouraged fraud and that there was evidence of "sophisticated fraud rings" involving solicitors.[110] The ABI concluded that fraud was a "growing problem"[111] but this was disputed by MASS.[112]

41. Whether or not insurance fraud is a growing problem, it is a criminal activity which adds to the costs borne by drivers and may in some cases cause injuries or even deaths. We were surprised, therefore, to hear some witnesses suggest that the insurance industry was not doing enough to combat fraud. Mark Boleat, for example, said:[113]

It is surprising that insurers have not spent rather more money dealing with the problem [of fraud]. However, ultimately they do not meet most of the cost. Given that motor insurance is, to some extent, a compulsory product it makes little difference to insurance companies collectively whether fraud puts £10 or £50 on the cost of the average premium; it matters rather more to their customers.

The Credit Hire Organisation complained of "continual frustration in ... attempts to work with the insurance industry to identify and deal with suspect claims" and, similarly, the European Vehicle Secure Alliance (EVSA) said the insurers had shown a "disappointing reluctance to adopt a broad and collaborative approach to reducing vehicle related crime and disorder".[114]

42. Will Thomas of Confused.com said his firm took on good faith the information which was provided by customers seeking premiums although he recognised that more could be done to check for misrepresentation.[115] Duncan Anderson said "detecting with accuracy suspicious behaviour on a website is not trivial". In his view, this was an area insurers took seriously but "there is probably more that can be done".[116] The ABI refuted the suggestion that the industry was reluctant to tackle fraud, arguing that "our members are investing more resources in detecting fraud than ever before".[117] A number of witnesses called for more information sharing between the DVLA and the insurers to verify information provided by drivers.[118] The Minister said a detailed plan to enable such information sharing to occur would be in place "certainly within six months".[119] We welcome the Government's aim to ensure that insurers can gain access to information held by the DVLA about drivers when insurance is being arranged. We recommend that, in reply to this Report, the Government should specify more precisely when the new data sharing arrangements will be introduced.

43. Mark Boleat proposed that the insurance industry should fund a dedicated police unit aimed at tackling insurance fraud, modelled on the City of London Police's Cheque and Plastic Card Unit, which is funded by the banks. He said that "productive discussions" on the establishment of such a unit had begun.[120] EVSA gave examples of similar initiatives elsewhere in Europe.[121] DCC Ainsworth of ACPO spoke of both capacity and capability constraints on effective police action against insurance fraud. He argued that "we could work more collaboratively with the insurance sector".[122] The Minister said "in DVLA we already had embedded police working with us on fraud" and agreed that he would discuss "closer working" with the insurers.[123] In relation to the proposal to establish a dedicated police unit, Mr Penning said "that is something that has been pointed out to me literally in the last couple of days that we will look at".[124]

44. There appears to be significant scope for the insurance industry to do much more to combat motor insurance fraud. We call on the main players in the industry—particularly the insurance firms, brokers and comparison websites—to work together more proactively to achieve this. In particular, we welcome the initiative to establish a dedicated police unit on insurance fraud, paid for by the industry. We note the Minister's commitment to look at this proposal: he has a responsibility to law-abiding drivers to ensure that fraud is taken seriously by the industry and minimised. We recommend that, in reply to this Report, he update us on progress in discussions on this issue and on the action the Government has taken to assist in ensuring that a successful outcome is achieved, preferably by the start of the 2012-13 financial year.

102 National Fraud Indicator for 2011. Back

103 Ev 52 paragraph 3.11. Back

104 Ev 61, 63 paragraphs 2.4.2 and 4.3.1 and see Ev 43 paragraph 9 and Ev 48 paragraph 2.21 for other estimates. Back

105 Ev w5-6 paragraphs 2.2 and 3.4. Back

106 Q94. BIBA said 23% of endorsements were wrongly declared, Q95 and Aviva said one in six consumers misrepresent their conviction history, Ev w26 paragraph 3.2. Back

107 Ev 70 paragraph 2.15. Back

108 Ev 86 and Qq 166 and 168, Ev 55 paragraph 3.5.1 (on hotspots), Ev 63 paragraph 4.3.2, Ev w5 paragraph 2.2 and Ev w30-31 section 7. Back

109 Q166 Back

110 Ev w18 paragraph 16. Back

111 Ev 52 paragraph 3.11. Back

112 Q125. Back

113 Ev 84 paragraph 6. Back