Fraudsters migrating to niche areas to beat regulatory crackdowns

06 Mar 2019

Fraudulent claims are “like a water mattress” as fraudsters branch into new areas

  • BLM commissioned YouGov consumer research reveals new types of fraudulent claims emerging: mis-sold pensions and cavity wall insulation included
  • Claims management companies converting 22% of unsolicited* approaches into claims
  • Complex claims systems concealing fraudulent practises to consumers

Fraudulent claims are evolving beyond traditional whiplash and motor injuries, with claims management companies (CMCs) approaching consumers to encourage unsolicited compensation claims in new and increasingly niche areas, according to new research from insurance risk and commercial law firm BLM.

BLM commissioned YouGov to survey over 2,000 UK consumers on their attitudes to insurance compensation claims over the last three years. Motor accident and mis-sold financial products were unsurprisingly the top areas consumers had been approached by organisations to pursue, at 75% and 37% respectively. Claims in new niche areas show the claims industry is rapidly diversifying, demonstrating the scale of the fraudulent claims epidemic facing insurers and consumers alike. Fraudsters are rapidly diversifying due to changes in legislation which makes it harder to make money out of traditional areas like motor.

Respondents who had been approached for compensation claims in the last three years were asked to list all the different types of claims they had been contacted about. 19% had been contacted about mis-sold pensions and or investments, 4% had been contacted for noise-induced hearing loss, whilst 2% had been approached to make a cavity wall insulation claim. The research suggests that individuals are being persuaded to make multiple claims across a host of different product areas.

Sarah Hill, partner and BLM’s head of fraud, comments: “Fraud is like a water mattress – apply pressure in one area and it simply moves to another. The whiplash tariff system set to be introduced by the Civil Liability Act is already making claims in this space look less lucrative to rogue CMCs, as with the government’s clampdown on fraudulent holiday sickness claims. Rather than accepting defeat, fraudsters are evolving to other spaces that they believe are ripe for exploitation, such as mis-sold pensions and cavity wall insulation. Just ten years ago, claims for cavity insulation did not exist. These areas represent the future of fraud, and the industry cannot ignore them.”

The online survey showed that 41% of UK adults have been approached about compensation within the last three years, and 9% of people made a claim. Based on these figures, CMCs have approached and converted approximately 22%* into claims.

Telephone remains the most popular method for consumers to be contacted regarding unsolicited claims (93%), suggesting regulation to control cold-calling activity is not as effective as authorities may have hoped. Digital contact was also significant, from emails, to online pop-up adverts and social media, at 26%, 16% and 7% respectively.

Sarah Hill continues: “Close investigation of the true nature of the fraud industry shows layer upon layer of referrals and connections fuelled by new data. The current claims supply chain is a sprawling Pandora’s Box, with activity largely hidden from view. It leaves consumers, businesses and insurers equally exposed to exploitation. We need effective and operational regulation alongside increased industry-wide collaboration to provide consumers with better access to justice, and protect the businesses and insurers left vulnerable to scams.

“Industries and regulatory bodies are coming together to progress workflows (originating from the Insurance Fraud Taskforce recommendations) to make it harder for fraudulent claims to enter the system. But as quickly as we clamp down on current behaviours – new ones emerge. Our research demonstrates that collaboration has to be a continuous and evolving process.”

To download a copy of the report, click here.

*Figure calculated as 9% of people who made a claim from 41% of UK adults that have been approached about compensation within the last three years.

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Disclaimer: This document does not present a complete or comprehensive statement of the law, nor does it constitute legal advice. It is intended only to highlight issues that may be of interest to customers of BLM. Specialist legal advice should always be sought in any particular case.

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Sarah Hill

Sarah Hill

Partner,
Birmingham


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