Insurers' fraud stats are not fit for purpose, says claimant lawyer
New analysis suggests insurance industry employs a distorted definition of fraud
Fraud statistics published by the Association of British Insurers (ABI) are not fit for purpose, according to the Access to Justice (A2J) campaign.
Andrew Twambley, managing partner of Amelans Solicitors and spokesperson for the A2J campaign, said an analysis of motor fraud conducted by Capital Economics cast serious doubt on industry claims that fraud adds £50 to the average premium for UK insurance policies.
In his 2015 Autumn Statement, George Osborne announced that personal injury claims worth up to £5,000 would be moved to the small claims court. In addition, claimants would no longer be able to recover compensation for pain and suffering, although they would be able to claim for physiotherapy and loss of earnings.
The chancellor said this would remove over £1bn from the cost of providing motor insurance: 'We expect the industry to pass on this saving, so motorists see an average saving of £40-£50 per year off their insurance bills.'
Speaking at the Association of Personal Injury Lawyers's annual conference last month, justice minister Lord Faulks said that many claims are 'driven by a substantial industry that encourages unnecessary, inappropriate or even fraudulent claims through cold calling and other social nuisances'.
Now, an analysis published by Capital Economics suggests that fraud statistics are inaccurate due to the insurance industry's distorted definition of fraud.
Twambley said that the ABI arrives at the £50 figure by 'lumping together "proven" fraud and "suspected" fraud, and we think it is plain wrong to say that suspected fraud is actual fraud'.
The ABI defines fraud as any claim where a claimant withdraws an application, fails to submit documentation or ceases communication with the insurer.
'Most people would say proven fraud means a successful prosecution in court or a police caution,' said the Manchester-based personal injury lawyer, who is also a director and spokesperson for Injurylawyers4u.
'Yet according to the insurance industry, if an insurer refuses a policy application, that is a proven fraud. If the insurer repudiates a claim, that is also classified as proven fraud.'
Commenting on the paper, which was funded by A2J, Twambley added: 'Using the ABI's own estimates for fraud, Capital Economics says that, overall, motor fraud is equivalent to £27 per policy, but this includes "suspected" fraud as well as "proven" fraud.
'This figure falls to around £4 per policy if the ABI's estimate for the value of "proven" fraud is considered alone. This is based on just under 26 million private car policies written in the UK in 2014.'
Turning to suspected fraud, Twambley argued that there were numerous reasons why a claimant may withdraw a claim: 'Insurers don't like paying claims, because it impacts their profits, so it is in their interests for a customer to drop out of the process.
'Thanks to their own criteria, that customer is also branded a fraudster by the insurance industry. That's a win-win for the insurer because they aren't making a payout and can use unfairly swollen fraud statistics to lobby the government.'
While accepting that insurance fraud does happen, Twambley urged the government to disregard the ABI's 'spurious statistics', obtain empirical data, and make insurers take practical steps to combat fraud.
'Convicted fraudsters need to be fined or locked up. If the risks of prosecution rose significantly, and insurers did their job properly, most fraud would be stopped in its tracks,' he added.