While early results have been impressive, some still believe the industry funding the Insurance Fraud Enforcement Department is a step in the wrong direction

If, two years ago, the industry was told there would be a police force dedicated to tackling insurance fraud on the horizon, market leaders would have been forgiven for scoffing. It was only recently that frustrated insurers complained of difficulties in approaching the police, their cases rarely followed up and seldom ending with prosecutions.

Fast forward to 2012 and, in an office near Liverpool Street, a new police fraud unit has been established to investigate fraud cases referred from insurers.

The Insurance Fraud Enforcement Department has barely unpacked since its launch on 3 January. Crates and boxes are piled high in the corners of the office while the team waits for the rest of the furniture to arrive. Yet this has not stopped its officers â the IFED has made more than 25 arrests since its inception.

Since its beginning, the unit has been heaped with praise. The insurance industry seems relieved that the burden of fraud investigation will be shared with the police. Hopes are high the unit will be as successful as the banking sector’s Dedicated Cheque and Plastic Crime Unit â now in its 10th year â and lead to a much wider multi-agency approach to tackling insurance fraud.

However, some are concerned that insurers are taking on a financial burden that should be shared by government. Comparisons have even been drawn between IFED and 17th century public/private sector relations. As a consequence of the 1666 Great Fire of London, insurers funded fire brigades with fire fighters only attending to a blaze if their paymasters covered the property. Some industry players are now questioning if the private/public sector relationship is regressing to a time when only industries with deep pockets reap the benefits.

Dangerous territory

Ecclesiastical’s fraud and risk manager, Simon Arundel, thinks insurers could be drifting into dangerous territory. “Insurers are, in principle, willing to do things that help reduce risks to our customers, but I think this could take it a step too far,” he said.

“Where does this end? Does an ambulance only turn up to help someone with medical insurance? At what point do we cross that threshold into what is politically unacceptable? That is where we are drifting.

“There was a time when the fire brigade only served those who paid a fire insurance premium. Paying the police to devote resources to tackling insurance fraud feels like a retrograde step. It raises political issues around how national resources can only be acquired by those who can afford them and the consequences for those who can’t.

“There is a perception that insurers have money to burn. IFED is the last in a long line of requests for insurance funding. Insurers have been approached to fund the Stolen Vehicle Unit for example. The implication is that these units would not exist unless they were sponsored.”
Groupama’s anti-fraud manager, Andrew Pagett, is adamant the government should fund the unit. Despite his delight that IFED recently arrested three individuals for selling fake Groupama policies to motorists in Manchester, Pagett says insurers were painted into a corner to sponsor the department.

“Funding for law enforcement should be the responsibility of the government, that on the one hand provides the legal framework to prosecute offenders under the Fraud Act 2006 but not the manpower to enforce,” he explains.

“Pre-IFED, approaching the various police forces to report an offence under the Act was hit and miss. The longer-term prospect was bleak, which very much forced the industry’s hand in funding IFED.”

Detective chief inspector Dave Wood, who leads IFED, says the sponsors will not wholly determine the unit’s direction. According to Wood, the unit guarantees that no insurance fraud issue will be ignored.

“There is a feeling among insurers that police forces are reluctant to take on these investigations, probably because they are more concerned about antisocial behaviour and domestic burglary etc,” he said.

“Companies were struggling to get investigations taken on but the City of London Police is the national lead force for economic crime, so fraud is one of our key priorities.”

Scott Clayton, claims fraud and investigations manager for Zurich, concedes the industry would have found it difficult to secure government funding.

“We are not naive to pressures on the public purse. We know police forces are being cut. At a time of cutbacks, if we expected a government-funded police unit to back the insurance industry that would be overly ambitious,” he said.

“If it was a choice between having an insurance industry-funded police unit or losing the officers from the police force, the industry would almost certainly pay to retain a fraud unit. As an industry, we cannot afford to do anything but put our weight behind it.”

Paying for itself

Some commentators believe, however, that, with the saving made on fraud, the unit will pay for itself. According to Garry Simmons, head of property and liability claims at Sterling, the cost of the unit pales in comparison to losses the industry suffers due to fraud.

“Fraud costs the industry £2bn, compared to £9m to fund the police unit. When you look at it like that, IFED doesn’t seem so expensive. In these current economic conditions it would be unrealistic for government to put substantial investment into insurance fraud,” he said.

Others hope the success of the unit will encourage the government to share some of the future expense. Axa Commercial Lines claims and underwriting director David Williams says: "The government should have funded the unit. We were presented with a fait accompli. If we pushed back too much we might have lost some of the support. It should be a shared cost but maybe that is the next stage.

“If we were going to lose the services completely through government spending cuts, it’s regrettable we have to pay but let’s get as much as we can from it. I don’t see fraud going away.”

Despite his concerns, Williams suggests the unit demonstrates the blossoming relationship between the industry and public sector.

“It is difficult to get the police interested in taking on prosecutions. We need to look at what the relationships help us produce. IFED will improve relations between the industry, the Insurance Fraud Bureau and the police,” he said.

“I hope by building ties through the force, we are seen as a supportive industry; that they give our requests greater time and consideration and also ask us what information they need from us to secure prosecutions.”

A collaborative approach

IFED regularly liaises with local police forces, HM Revenue and Customs, the Insurance Fraud Investigators Group, the Ministry of Justice, Solicitors Regulation Authority, the Home Office-funded National Fraud Investigation Bureau, and the Department for Work
and Pensions.

DCI Wood explains: “Public sector bodies such as the DWP are often involved in investigations at an early stage. If we find out people are fraudsters we would contact the DWP if they are in receipt of benefits. We are trying to be more joined up.”

For many insurers, increased data sharing between the public and private sectors continues to be an area with room for improvement. Arundel suggests the DVLA and HMRC could share more information with other bodies.

“The DVLA has to provide information to prevent and detect fraud and other crimes but demonstrates a reluctance to do so for fear of the Data Protection Act. HMRC could make information more readily available and create a more powerful fraud protection resource for the private sector,” he said.

John Beadle, UK counter-fraud manager at RSA, says both sectors should learn from previous successes.

“The sharing of data within the provisions of the DPA would be mutually beneficial to both insurers and public sector bodies. We know from experience this has taken place in a limited way between the IFB, DWP and the Serious Organised Crime Agency and had a positive impact,” he said.

Loss adjuster Cunningham Lindsey has a data sharing agreement with the Association of Chief Police Officers. The firm’s investigation services business development director, Cath Williams, says that, as long as the bodies involved in data sharing adhere to certain rules, there is no reason why there cannot be greater collaboration.
“ACPO know us and feel comfortable enough with us to share data using strict criteria. Industry players should reassure public sector bodies that the information is confidential and that they will share information too. It is a two-way street,” she said.

“Greater co-operation and information exchange for the purpose of fraud detection and prevention could be achieved by the wider application of memorandum’s of understanding between private and public sector bodies.”

Improved relationships

However, Clayton calls on insurers to improve the industry’s own data-sharing relationship first. “Insurers need a more collaborative approach. It is better than it has been in the past but there is still a long way to go.”

Almost all insurers agree that the new unit has paved the way for a greater multi-agency approach, particularly in tough economic times.

“It is important for insurers and public sector bodies to have a closer relationship. If government resources are stretched and insurers have to mitigate risks they need an intelligent way to do it,” Arundel explains. “Where there are gaps in the service provided by the public sector, the private sector looks to fill those.”

But Axa’s Williams warns there is still a long way to go: “The public sector needs more persuasion to adopt a multi-agency approach with the industry partly because of our industry’s reputation. There is good progress but we need to keep pushing away.”

Original Article 17th February 2012: Post Online