Fraud in Personal Injury Claims: A Changing Landscape
Fraud, unfortunately, has been a feature of Personal Injury Claims since the Railway Passenger Assurance Company underwrote the first accident insurance policy in the late 19th century. Courts in the UK still use the judgement of Lord Herschell in the leading case of Derry v Peek  when assessing the existence of fraud:
“Fraud is proved when it is shown that a false representation has been made: i) knowingly; ii) without belief in its truth or iii) recklessly, careless whether it be true or false.”
It is, therefore, easy to question whether the industry has learnt anything from the last 100 years.
The reality is, however, that great strides have been made in fraud prevention and detection often in the face of significant social, political and legal obstacles. Motor fraud has arguably become a ‘managed risk’ over the last decade with improved fraud awareness, advanced strategies, greater police engagement and high-level data sharing resulting in increased detection rates and the wider deployment of deterrents such as prosecutions, bankruptcy and IFR registration (Insurance Fraud Register).
Unfortunately, it is too early to celebrate and whilst we may be winning a battle or two we are a long way from winning the war.
Employers’ liability, public liability and disease: new lucrative areas for fraudsters
Legal developments, such as the Legal Aid, Sentencing and Punishment of Offenders Act (LASPO) and The Criminal Justice and Courts Act 2015 have made the pursuit of motor personal injury claims less profitable with the banning of referral fees and the restriction on recoverable costs. The claims culture has been pushed into other more lucrative areas such as employers’ liability, public liability and disease with claims farming techniques targeting particular communities or workplaces. Fraudsters have not been slow to react to this changing claims landscape either with many diversifying their business models to protect their profit margins.
Increases in NIHL claims but fewer payouts
Against this backdrop, insurers have reported unprecedented increases in claim volumes involving Noise-Induced Hearing Loss (NIHL) with many reporting a 300% increase over a four year period. It is not difficult to draw the conclusion that fraud is a viable reason, at least in part, for the increase observed.
History shows, however, that NIHL claim volumes are highly influenced by economics and social conditions. Significant peaks in claim notifications were observed between 1991 and 1994 when the country was in recession and unemployment was mounting. What is arguably different about the current peak is the repudiation rates observed by insurers. Most report making no payments to 70 – 75% of claimants and the Institute and Faculty of Actuaries figures mirror these results (The UK Deafness working party Aggregated Summary 2014) with repudiated claims significantly exceeding settled claims.
Industrial deafness claims not immune from fraud
These statistics are highly suggestive that there is more at play than a simply economic influence. A view that is supported by the Insurance Fraud Bureau (IFB) who included Industrial Disease as a target market within its five year strategy published in October 2015.
This concern is further strengthened by the emergence of repeating patterns through claim and trend analysis. Insurers are reporting distinct claims categories within their repudiated claims data including:-
- Repeat Claimants – Individuals making multiple NIHL claims
- Fabricated Employees – Individuals who, armed with local knowledge, make claims against employers for whom they have never worked but against whom others have made successful claims.
- Recycled Audiograms – The repeat use of text book audiograms to support a completely fabricated claim or a claim where causation would ordinarily be in dispute
Fraudulent Deafness Claims: largely opportunistic
The nature of the fraud seen in suspicious NIHL claims is, however, different from motor fraud. The vast majority of claims currently involve opportunistic claimants rather than the organised criminal gangs seen in ‘crash for cash’. With this differential comes both pros and cons in respect to detection. Opportunistic fraudsters are often less sophisticated and uninformed about the legal process. Careful questioning and investigations should expose inconsistencies in their stories in respect to both negligence and causation. However, the spontaneous nature of opportunistic fraud can render some usual fraud detection techniques, such as trend analysis and credibility checks, ineffective.
The involvement of professional facilitators also introduces another level of complexity to the detection of fraudulent NIHL claims. Coaching of claimants and the provision of ‘perfect’ supportive documentation can camouflage fraud indicators. Similarly market research identifying companies with historic unsafe practices or poor record keeping can identify ‘perfect’ targets.
The landscape of personal injury claims is changing and fraud is following suit. Deafness claims are clearly not immune to this evolution and whilst the majority of suspect claims appear largely opportunistic the high prevalence of professional facilitators means that the involvement of organised fraudsters may not be far behind.
About the author. Jason Bleasdale is a Partner at international law firm Clyde & Co LLP, in the Casualty and Healthcare group.
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