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AXA's Behavioural Fraud Report

21st June 2016

The UK’s insurance sector makes a major contribution to the UK. By paying out nearly £200 million in claims every day, insurance helps people to manage risks, such as owning our own home or running a business, which makes modern life possible. However, the insurance market is being abused by a small minority intent on defrauding the system – to the detriment not just of the insurer but also of the many millions of honest policyholders. It has been estimated that fraud potentially adds hundreds of pounds to the average household’s insurance bill. What is more, it is clear that the scale of the problem has been growing in recent years.

Fraud is being driven by many factors. Not least a commonly held perception of insurance fraud as a victimless crime. Our report shows that 1-in-20 people admit to committing insurance fraud while nearly 4-in-10 of us did nothing when we became aware that someone we knew had committed a fraud. Combatting the issue will involve greater efforts to re-educate customers about the true impact of fraud. It will also require a more coordinated effort to report and investigate fraud wherever it occurs. Innovations such as the Insurance Fraud Enforcement Department have made a major positive impact. Yet there remains a continued challenge for the insurance industry in working with the law enforcement agencies, particularly when fraud is linked to serious organised crime. Criminal gangs who stage traffic accidents, the so- called ‘crash-for-cash’ accidents, are estimated to cost the industry nearly £400 million per year. And this figure doesn’t include the extra cost to the emergency services and the NHS.

It is also clear that the government can play a role in creating a legal framework which is less open to abuse. The creation of the Legal Aid, Sentencing and Punishment of Offenders Act in April 2013 marked a major milestone. Yet, it is clear that we still have gaps in the system, particularly as our report indicates, in the regulation of Claims Management Companies (CMCs). Our general approach to managing personal injury claims is also problematic: we place compensation at the heart of our redress system, rather than focusing on rehabilitation and the role of independent medical assessments. Furthermore, some of the reforms to date could actually be fuelling fraud. While AXA is totally supportive of the introduction of the Ministry of Justice’s (MoJ) Portal, given the intention to make the process more efficient and reduce costs, there have been some negative consequences. For example, since the portal was extended to include Employer and Public Liability Insurance, there has been evidence that it has helped to drive workplace-related claims higher.

It is clear that insurance fraud is a growing cost on society, and one which undermines efforts to grow our economy and prosperity. For example, we have evidence of firms selling operations in parts of the country where ‘crash for cash’ personal injury claims are most prevalent, potentially impacting consumer choice, market competition and employment in local economies. Further concerted action is required if this menace is to be addressed head on.

Click here to access the report.