Driving premiums down: fraud and the cost of motor insurance - Transport Committee Contents


Response from the Association of British Insurers


I am writing to you following the publication on 30th June of the Transport Select Committee's report Driving premiums down: fraud and the cost of motor insurance. We welcome the Committee's continued work to recognise the significant impact that fraudulent and exaggerated whiplash claims have on the premiums of honest motorists and the fact that you continue to work closely with the industry to examine ways to help effectively tackle the problem.

We are pleased that the Committee recognises that the current system does not result in the provision of robust and high quality medical reporting in whiplash claims. Further, we welcome the Committee's support for the creation of an independent medical panel of medical experts.

Within the report there were a number of areas where I felt it would be helpful to provide you with an update on the ABI's ongoing work aimed at combating exaggerated and fraudulent claims and our commitment to passing on costs savings to motorists through reduced motor insurance premiums.

Independent medical experts

As you will be aware, the Secretary of State for Justice has indicated that medical reports for whiplash injury claims should be supplied by independent medical experts (who are accredited professionals) using a standard medical report form. It cannot be right that claimant solicitors who commission medical reports and the medical experts who prepare them have any financial linkages which might have a bearing on the outcome of the examination and what is ultimately contained within the medical report.

The insurance industry considers this issue to be of such importance that we are prepared to fund the set up costs of an IT platform and we are working at pace with the Ministry of Justice to get the new system up and running as soon as possible. We envisage a system where the claimant solicitor will be randomly allocated a medical expert who has no financial link to the claimant solicitor and who is accredited to prepare medical reports.

The ABI is in favour of using a random allocation approach, where a central body is responsible for receiving requests for medical reports and allocating them to experts on a random basis based on the expert's availability/capacity and location. Medical Reporting Organisations (MROs) add value to the provision of medical reporting through the efficiencies they bring to the system and we support their continued involvement in the medical reporting system of the future.

Accreditation

Insurers have long argued that the fundamental underpinnings of the medico-legal reporting process are not fit for purpose. Making sure that the experts preparing medical reports are up to the job is absolutely critical. We are pleased to see that medical experts will be required to become accredited in order to carry out medico-legal reporting work.

The process of accreditation is essential to ensure that those responsible for diagnosing whiplash are suitably experienced, skilled and qualified to do so. The government is committed to setting up a full process of accreditation as soon as possible and insurers are working collaboratively with other stakeholders to develop an accreditation framework in which we can all have more confidence than we do now. The process will need to become self-funding over time and medical practitioners will need to choose whether they wish to become accredited and be part of the new framework.

Fraud data

The ABI collects information regarding detected fraud to provide our members and wider stakeholders with one indication of the extent of fraud that the industry faces at both the application and claims stage.

This activity does not provide anything more than an indication of the level of detected fraud impacting on the insurance industry. In turn, individual insurers have their own mechanisms for understanding their own exposure to fraud and taking steps to mitigate the related risks.

Reporting on and measuring all cases of fraud encountered by insurers presents some challenges. Insurers are able to report on and measure acts of clear detected fraud; that is where evidence of fraud is compelling. However, where an insurer has prevented an individual from obtaining insurance cover by way of, for example, its automated system-based fraud defences, or a claim is no longer pursued due to an insurer probing the circumstances of a loss, such scenarios are not always clear instances of detected fraud.

Insurers would positively welcome increasing the number of convictions for insurance fraud. However, there are two important factors to bear in mind. Firstly, despite significant investment from the insurance industry in the form of the Insurance Fraud Enforcement Department (IFED) within the City of London Police, there is currently insufficient Police resource available to respond to and manage the wider insurance industry referring cases of fraud for enforcement action on a daily basis. This has been compounded (over recent years) by regional Police forces reducing the resources they allocate to combat fraud and financial crime and having no specific objectives to devote resources to such criminality.

Secondly, insurers' attempts to combat suspected fraudulent whiplash claims have often proved to be fruitless. Given there is no objective medical evidence for whiplash type injuries, with diagnosis often being made on the basis of the claimant's subjective description of their injury, the ability to prove beyond a reasonable doubt that the claimant has not sustained an injury is both challenging and expensive. Therefore, whilst insurers use various tactics to dissuade fraudsters and defend spurious claims, the standard of evidence required means many such cases are not pursued in the courts.

As such, actual criminal convictions for insurance fraud clearly only represent the tip of the iceberg, and are not a true reflection of the level of fraud that insurers, and wider society, face on a daily basis.

Accordingly, the ABI has developed a list of scenarios in which we believe fraud is likely to be involved and ask our members to provide the numbers of cases which fall into those categories (see Annex A). Some of these cases may have an innocent explanation. But what is important to recognise is that many more cases of successful fraud are likely to go undetected, especially for whiplash.

The ABI's fraud statistics are therefore intended to provide an indication of the volume and value of fraud detected by the industry. These statistics do not include claims which involve exaggerated personal injury, particularly for whiplash, where that claim has been paid.

Pre-medical settlement offers

Pre-medical settlement offers are a useful method by which insurers are able to settle whiplash claims where the injuries sustained are very minor and do not justify the time and cost of a medical report being commissioned. Insurers do recognise that the lack of any medical evidence to substantiate a claim for compensation does provide the opportunist claimant the ability to pursue spurious claims where there is the possibility of requesting a pre-medical offer from the at fault insurer. Balanced against this, however, it cannot be right to assume that every claimant who requests a pre-medical offer is an opportunist looking to take advantage of the system. Insurers take the view that pre-medical settlement offers have a place within the system, by allowing minor injury claims to be settled quickly and without the need for unnecessary legal costs and disbursements being incurred.

We note that a number of claimant solicitors, and indeed the Committee in your report, call for a ban on the use of pre-medical settlement offers. I am, however, aware that claimant solicitors ask insurers to make a settlement offer before a medical report has been obtained and indeed recommend acceptance of pre medical settlement offers to their clients. Therefore, if claimant solicitors dislike the practice of pre-medical settlement offers, they might stop requesting them. I also note that, although considering pre-medical offers should be prohibited, the Ministry of Justice has indicated that this is a difficult issue and a new rule alone is not enough to address this particular problem. As a result, the new rules announced on 4 August and to come into force on 1 October were drafted to discourage the use of pre-medical offers.

Striking out of exaggerated claims and inducements

The government has indicated an intention to reform the law on "gross exaggeration" in personal injury claims following the Supreme Court's decision in Summers v Fairclough Homes. There is currently no clear disincentive to prevent claimants from bringing exaggerated claims given that, even where a genuine claim has been deliberately exaggerated, the courts will still order the defendant to pay the genuine part of the claimant's claim.

In essence, this is a no lose situation where the claimant will enjoy a pay day regardless. This is simply not acceptable and we are pleased to see this being addressed through the Criminal Justice and Courts Bill currently before Parliament.

Similarly, we are pleased that the distasteful practice of solicitors offering inducements like cash or ipads to claimants to make personal injury claims is to be banned. This practice only serves to reinforce to unscrupulous claimants that there is a compensation culture to exploit. It is positive that the Committee has supported this change.

Policing

We are pleased that the Committee recognises the vital contribution that IFED has made to counter the threat of insurance fraud since its inception in January 2012. We were surprised, however, by the Committee's assertion that IFED's funding "beyond this year appears to be uncertain" (paragraph 35). Please find attached a joint letter (Annex B) from Otto Thoresen and John O'Roarke to you dated 16 April 2014 which underlines the insurance sector's ongoing commitment to combatting insurance fraud, including through renewal of the IFED contract for a further three year period until the end of 2017.

The increased level of funding, which will provide for an additional investigative team, will enable IFED to continue to lead the national enforcement response to insurance fraud, bring more fraudsters to justice, recover and return more assets to the victims of insurance fraud and undertake more quarterly themed days of action.

The insurance sector will review its funding commitment beyond 2017 during the course of 2016. We do however, seek clarification of what the Committee means by its recommendation that the government should "oversee" IFED's funding arrangements to ensure that the unit has a long-term future.

Data sharing

MyLicence is a joint initiative between DVLA and the insurance industry, represented by the ABI and the Motor Insurers' Bureau (MIB), to use up to date and accurate information from the driver licence record. This supports the drive by the industry to reduce insurance fraud and help honest motorists save on their premiums. Some drivers could save up to £15 on their premium, due to the correct driver record and history being used at the point of a quote being offered for motor insurance.

Insurers will use MyLicence for motorists with a British licence who are insuring a personal car, van or motorbike. All other types of licence holders will need to continue to self-declare their driving endorsements and history. The MIB and DVLA are in the process of preparing the service for insurers to use, including extensive testing. Once we are satisfied the service is meeting all the performance requirements it will begin to roll out for use by motorists which we hope will occur in early September 2014.

Access to CUEPI - The insurance industry has agreed to share data from the Claims and Underwriting Exchange Personal Injury (CUEPI) database with claimant lawyers. The ABI has worked collaboratively with Motor Accident Solicitors Society, Association of Personal Injury Lawyers and The Law Society to define and agree how this can be delivered in practice. We have jointly requested that the Ministry of Justice consider implementing changes to the RTA Protocol to deliver the proposed new system and we are awaiting a response from officials on this issue.

Further work on whiplash

Although outside the scope of the Ministry of Justice's current whiplash reform programme, there are a number of other potential options available to further reduce the cost and number of whiplash claims. These include shortening the limitation period for soft tissue injury claims; raising the small claims track limit for personal injury claims to £5,000 or above (perhaps with the benefit of a predictable damages calculation tool); or even removing the entitlement to claim general damages at all, and providing for treatment in lieu of damages. The Committee is aware of the arguments in support of these proposals so I do not intend to repeat them here.

I have copied this letter to the Secretary of State for Justice.

I do hope that you find this information useful and of interest.

Yours sincerely

James Dalton

Assistant Director, Head of Motor

August 2014


 
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Prepared 24 October 2014