Catch me if you can

Total loss: but some motor claims are not all they seem to be

Motor insurance fraudsters go to great lengths to falsify claims, raising the stakes for insurers

By Bernice Han

Anthony has seen it all in his 20 years of investigating bogus motor insurance claims. He is familiar with just about every trick fraudsters have used to try to swindle insurers.

Deliberately setting fire to a car. Conspiring to fake a crash late at night in an obscure unlit lane. Staging a car theft. Or even making up a tale about how a car ploughed into a tree – usually blamed on a kangaroo or some other animal appearing out of nowhere.

“It never ceases to amaze me that some of these things have been going on for years,” says Anthony – who prefers to be known by his first name only. He is a senior investigator with Prime Investigations.

“People seem to think they can get away with it because they don’t know the extent of the investigations that will be conducted,” he told Insurance News.

“They don’t know the extent of what we can possibly find out. We can certainly uncover as much information as is available.”

And finding out as much as is possible is what firms like Prime Investigations, which helps insurer clients with suspicious claims, excel in. Anthony says poring over every detail, big and small, leaving no stone unturned, is crucial. The information gathered will decide whether or not a claim is legitimate.

Take as an example a collision. A claimant says he was travelling at about 60 kmh when a car emerged without warning from a side street and hit the rear end of his vehicle.

Anthony says there are several ways to verify if the accident was premeditated. A check of the tyres of both cars for skid marks will give an indication of the speed the vehicles were travelling at and the point of impact.

Signs of recent dents are another area of interest to investigators. “Quite often when they’re staged, a lot of the damage is already pre-done,” Anthony said. “Where they come unstuck is that the damage they do at the accident scene does not line up with the damage that was previously done.

“The damage needs to be consistent with the claim. It has happened many times where they make a claim and it’s just not consistent.”

Insurance fraud is a huge problem for the industry globally. Financial gain is the usual motivation. In the US, the Federal Bureau of Investigation estimates fraudulent acts to deceive insurers cost more than $US40 billion a year.

Of course, it also ends up hurting the hip pockets of the average American insurance buyer, who pays some $US400-700 more in premiums annually.

In Australia motor insurance fraud is equally concerning. Insurance Council of Australia (ICA) spokesman Campbell Fuller says a large proportion of suspected dishonest activity reported to the Insurance Fraud Bureau of Australia (IFBA) is attributed to motor-related claims.

The bureau was set up by ICA members in December 2010. While ICA has no breakdown of fraud by product lines, it says conservative figures last tabulated in 2017 put the cost of fraud, excluding statutory schemes such as compulsory third party, at some $2.3 billion a year.

The bureau believes motor vehicle insurance fraud is growing, possibly because of the economic impact of the recession and pandemic.

“However, this has not been quantified,” Mr Fuller told Insurance News.

Peak insurance bodies in New Zealand and the United Kingdom have warned of a potential across-theboard spike in fraudulent claims during this economic slump. They say that in previous downturns consumers have tended to submit more fake claims or exaggerate their losses.

While no exact figures for motor-related claims and fraud are available, a report by the Australian Securities and Investments Commission (ASIC) last year revealed how seriously insurers see the problem.

Out of 1.6 million claims received from September 2016 to September 2017, insurers flagged 4.85% as suspicious and investigated 1.1%.

Of the 17,587 claims that were investigated, ASIC found 4% were eventually declined for fraud, 10% were rejected for other reasons and 15% were withdrawn.

The five general insurers whose data were used for the study – Allianz, Auto & General, IAG, Suncorp and Youi – paid out 71% of the claims during the period.

The aim of the ASIC study was to review how insurers investigate comprehensive car insurance claims where fraud is suspected. The corporate regulator was scathing in its assessment of some of the methods used, saying insurers caused significant consumer harm.

Consumer research with 52 policyholders with valid claims that also formed part of the study found many felt the investigation process left them “feeling like criminals”.

Their claims were paid but they were angry, frustrated, helpless and overwhelmed with the treatment shown by insurers, the report said.

But ASIC agrees fraud is a real and serious issue.

“It is important for insurers to identify, investigate, decline and deter fraudulent claims,” the corporate regulator said in the report. “Fraudulent claims increase the cost of insurance for other consumers.”

Consumer Action Law Centre Policy Officer Tom Abourizk says insurers in some cases go to drastic and unwarranted lengths when investigating a suspected fraudulent claim.

“We hold concerns that insurers use the suspicion of fraud to justify fishing expeditions to try to find a reason to refuse a claim, or to encourage withdrawal of a claim, by making the claims process more difficult for consumers to manage,” Mr Abourizk told Insurance News.

He says in one case the centre handled, a client successfully challenged his insurer who had refused to accept his comprehensive motor claim, alleging the insured had intentionally crashed his vehicle.

Many flaws in the insurer’s investigation were pointed out during the external dispute resolution process. It took the insurer more than six months to agree to pay the claim.

“While there were some unusual circumstances to the claim, in our view these did not invalidate the claim or suggest fraud,” Mr Abourizk says. “The long investigation and dispute caused the client significant distress and financial hardship.”

In the last financial year consumers lodged 106 complaints against insurance providers for denying their claims on the grounds of fraud. The Australian Financial Complaints Authority (AFCA) gave no further details on how these claims have progressed.

“Where there are allegations of fraud, there must be clear and cogent information to support the allegation, such as information as to motive, opportunity, character and credibility and supported by independent expert forensic evidence,” AFCA says in a statement to Insurance News.

“If appropriate the Ombudsman may conduct an interview with all parties to allow for issues such as allegations of fraud to be clarified.”

AFCA says it approaches fraud-related complaints the same way it addresses other disputes. The dispute mediator is guided by the principle of what is fair in all circumstances with regard to legal principles, applicable industry codes and other relevant factors.

IAG, a major motor insurance player in the local market, says it uses an intelligence-led approach that includes fraud detection technology, data and analytics to identify and scrutinise claims with a higher level of risk.

The vast majority of IAG customers submit genuine claims, says Executive Manager Fraud and Investigations Anthony McGrath.

However, it is generally accepted across the local and global industry that 5-10% of all claims will be fraudulent or contain elements of fraud. Since the pandemic broke out in late March, the business has not identified any changing patterns or trends relating to insurance fraud.

“We don’t want [our customers] to be impacted by the cost of fraudulent claims,” Mr McGrath told Insurance News. “Our priority is to minimise any impact or delay in ruling out fraud so we can process our customers’ claims as quickly as possible.”

He says when fraudulent claims are uncovered, IAG assesses them individually to determine an appropriate response.

It could be one or a combination of the following measures: deny the claim; refer the involved parties to law enforcement; cancel the policy; refuse to renew the policy; refuse to offer future insurance to the involved parties; and/or closely review all future claims from the customer.

In a recent suspicious motor claim involving a collision between two cars, IAG had a factual investigator and forensic experts to help determine if it was genuine. The insurer felt it was necessary to investigate further after interviews with the insured and the other party whose car was involved.

The claim was denied after the forensic experts found supporting evidence to show the insured vehicle was not in a roadworthy state before the collision. From the damage sustained by the two cars it was also concluded that the accident, which happened at a roundabout, was planned.

Mario Bekes is the Managing Director of Insight Intelligence, a firm that works with insurance clients on fraud matters. He says the onus is always on insurers to prove there is intent to cheat, and they must have evidence to support their position.

“Money is always a great motive,” Mr Bekes told Insurance News. “Ninety-nine percent of people are decent, but 1% will go the other way because it is an opportunity.

“Fraud is very, very hard to prove and insurance companies have limitations. They are not a judicial system or law enforcement where they have more resources and logistics to deal with it.

“If [fraud] is not proved the claim gets paid, and this encourages other parties to do the same thing.”

Following are some rulings made by the Australian Financial Complaints Authority (AFCA) in disputes where motor insurance claimants have challenged insurers’ refusal to pay:

Case number: 673031. Insurer: Suncorp

Suncorp rejected a claim from a policyholder whose car was involved in a two-car collision in 2019. A forensic investigator hired by Suncorp concluded that, among other things, the accident could have been avoided. It was also found the Mercedes-Benz involved in the claim was insured well above the relevant market value. The complainant stood to gain nearly $19,000 if the claim was accepted.

AFCA ruled in favour of Suncorp.

Case number: 626535. Insurer: Hollard Insurance Company

The complainant’s BMW was involved in a collision in 2018. Forensic evidence gathered by the insurer showed the car was stationary at the point of impact, countering the complainant’s initial evidence that he was travelling at 30-40 kmh when the accident occurred.

AFCA accepted there was an opportunity to stage the accident and that the complainant stood to make a financial gain. The vehicle was insured for $24,000 more than it had been purchased for two months before the incident.

AFCA ruled in favour of Hollard.

Case number: 671930. Insurer: RACQ Insurance

The complainant gave different accounts about his accident. In his claim lodged last year, he said he braked but still could not avoid hitting a kangaroo. He later changed his story to say he did not collide with the kangaroo; instead, he had crashed into a tree while trying to avoid the animal. A forensic expert hired by the insurer found the claimant’s Toyota had pre-existing hailstone damage and collision damage prior to the incident.

AFCA determined RACQ was right to reject the claim.

insuranceNEWS October/November 2020