Written evidence from Mark Boleat (CMI
28)
INTRODUCTION
1. This evidence is based on my experience
in a number of different capacities:
Director-General
of the Association of British Insurers, 1993-99.
Involvement
in the establishment of the regulatory regime for claims management
companies under the Compensation Act 2006, as a consultant (2005-06),
the regulator (2006-07) and again as a consultant (2007-10). Most
recently I wrote the Claims
Management Regulation Impact of Regulation, Third Year Assessment
(July 2010), the fourth of a series of impact reports.
Member of
the City of London Police Committee with particular responsibility
for economic crime (2006 to date).
COMMON GROUND
2. There is general agreement that:
The number
of motor insurance claims has increased in relation to the number
of accidents.
Claims management
companies (or more precisely intermediaries - most are mere introducers)
have played a role in this trend.
There is a
significant amount of fraudulent claims; the insurance companies
estimated undetected motor insurance fraud is running at about
£900 million a year, which is reflected in insurance premiums.
The motor
insurance market is very competitive; there is no question of
cartels or excessive profits.
CLAIMS MANAGEMENT
COMPANIES ARE
NOT A
CAUSE OF
THE PROBLEM
- DON'T
SHOOT THE
MESSENGER
3. It is wrong to blame claims management companies
or referral fees for the present situation. The analysis in my
most recent impact report concluded:
"A major
reason for the increase in the proportion of actual claims to
the number of potential claims is the reforms to the claims process
introduced in 1999 and 2000.
Claims management
companies were not an independent factor in increasing the number
of claims, but rather were the means by which a market opportunity
was exploited."
4. Claims management companies have helped
people obtain compensation to which they were entitled who would
not otherwise have done so. They have therefore contributed to
access to justice. Some of the discussion of this issue seems
to imply that people claiming compensation is a "bad thing"
and that it should be made more difficult. Advertising and marketing
play an essential role in this market as they do in any others.
Why is it right for insurers to advertise motor insurance (and
their "acquisition costs" - ie marketing costs, amount
to about 30% of premiums), but wrong for other businesses to advertise
for claimants? Restricting or controlling the volume of advertising
by claims management companies and solicitors (one of Lord Young's
recommendations that is unlikely to be implemented) is both inappropriate
and ineffective. Solicitors and claims management companies would
easily find ways round such a ban.
5. Banning referral fees is similarly illogical
and unworkable. They are a form of marketing. There can be no
grounds for banning what is in effect the outsourcing of marketing
by a firm of solicitors, while allowing solicitors themselves
to do as much marketing as they like. Referral fees have not pushed
up the cost of insurance; there is no transmission mechanism by
which this can happen. Rather, the reforms to the claims process
made personal injury claims a valuable commodity, which solicitors
have been prepared to pay for. Whether they pay for those claims
by their own advertising and marketing or by paying a specialist
company to do their advertising for them or by paying referral
fees is immaterial. It is relevant to note here that insurance
companies are themselves significant receivers of referral fees,
so presumably it is a practice that they are comfortable with.
FRAUD
6. The claims process reforms improved access
to justice, but like any measure that does this they also increased
the opportunities for fraud, and there is no question that there
are many fraudulent claims. If the cost of undetected insurance
claims is £900 million a year, it is surprising that the
insurers have not spent rather more money dealing with the problem.
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.
7. Motor insurance fraud is undertaken by
criminal gangs that are also engaged in other forms of crime.
While the insurers have made commendable efforts to deal the problem
individually and collectively, the problem can be addressed properly
only with the assistance of the police, and police action has
to target the enablers (solicitors, doctors and engineers) and
the masterminds behind the fraud, not the foot soldiers who perhaps
are paid £100 for claiming that they have had an accident
and received an injury. This is not a police priority, and the
necessary police resources to deal with the problem will not exist
unless they are funded by the insurance companies or other parties.
A useful analogy is the Dedicated Cheque and Plastic Card Unit
operated by the City of London Policy but funded entirely by the
banks.
8. It is relevant to note the sort of police
work that is necessary to deal with this sort of crime. Recently,
six professionals were charged as part of a City of London Police
investigation into a suspected multi-million pound fraud against
the UK insurance industry. The charges of money laundering and
fraud by false representation followed an investigation into allegations
that an organised crime group staged 'cash for crash' accidents.
The General Medical Council, Solicitors Regulatory Authority and
the Insurance Fraud Bureau supported the police investigation.
The five men and one woman, several of whom are linked to the
medical and legal professions, have appeared at City of London
Magistrates Court and are currently on bail.
9. As Head of Claims Management Regulation
at the Ministry of Justice I initiated the Fraudulent Motor Accident
Claims Strategy Group, comprising the insurers, police forces
and other relevant bodies. This has played a useful role in sharing
information and establishing contacts, but has not been sufficient.
I understand that productive discussions have recently taken place
between the insurance industry and the City of London Police and
I hope that these might lead to the establishment of a dedicated
police unit to tackle insurance fraud. The problem can be addressed
satisfactorily only by the Police and the insurance industry working
together at a national level. It will not be solved by individual
insurance companies dealing with individual police forces. Localism
will not work here.
December 2010
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