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Something rotten in the state of Denmark?

16 Jan 2012

The moral compass has broken.

It seems that everyone is at it these days, there seems to be no shame any more in being accused of lying as long as it means you can get what you want, when you want, from who you want!

Parents are found lying in 2011 to get their children into their school of choice; civil servants are accused of lying to Parliament over the Goldman Sachs tax bill (although I am sure that the lying track record of some politicians has influenced setting the bar at a new low for this to happen).

What is it about the British psyche that leads otherwise sane, sensible people to lie and in may cases quite big time? Science is trying to learn more to help counter the opportunist idiot that lurks within with lie detectors, face scanners and voice recognition software but still has a way to go.

So when does that little white lie turn into something darker that will, if it works, result in considerable sums of cash being collected as the individual “passes go”.

Researchers have found that the average Briton tells, on average, four lies every day. But I suspect that researchers would have some way to go to beat the insurance industry for finding opportunistic master-classes in the subject of fraud.

In 2009 fraudulent insurance claims hit a record high of some £730m with more than 100,000 fraudulent claims made and yes, the recession was blamed.

Dishonest home insurance claims were the most common types of fraud and in a separate survey carried out by YouGov for the ABI, stunningly 20% of respondents said they would not rule out making a fraudulent claim in the future.

David Hertzell, the Law Commissioner leading the England and Wales consultation project on insurance claim fraudin July 2010 said: “insurance fraud is relatively common and should be discouraged. But the law we have for dealing with it is confusing and contradictory. If the law is to act as a deterrent, it must be clear and easy to understand.”

False claims managed to plumb new depths in 2011 for sheer stupidity.

Take for example the recently convicted con artist Julie Pullman now serving 38 weeks in jail. She was sent to prison at the end of September for defrauding her pet insurance company of some £37,000. In this case though, she had invented the dogs, all eight, and their injuries. Not content with that she then faked the vets’ bills — even having a special stamp made up at her local stationery store to make the invoices look “kosher”. In the end, she was rumbled after her insurer, RSA, on a hunch that all was not right, called the vet only to get through to Ms Pullman instead.

Or what about a case in November of a British man accused of faking his own death as part of a £1.25 million life insurance fraud. Authorities had been searching for Hugo Sanchez a.k.a. Alfredo Sanchez, for six years. He was accused of fraud after police allegedly found his fingerprints on his death certificate.

Life assurers are not immune. They are finding an increasing problem with clients who either fake disability to make a claim or despite having a clearly fraudulent claim for CI dismissed for blatant non-disclosure then take the case to the FOS who exert, some may say, unfair pressure on the company to pay out despite clear evidence of client wrongdoing- lies in fact.

IFAs frequently see fraudulent attempts at gaining compensation. These days’s the claims will often focus on miss-selling of some sort that are driven by ambulance chasers. Indeed we looked at some examples last year.

Our survey of some 300 IFAs in April 2011 would suggest that the FOS needs to look closely at dealing swiftly with fraudulent claims, particularly as 90% of survey respondents thought that FOS rules place IFAs in a disadvantaged position from outset.

Some 97% of respondents felt that a claimant should have to produce all relevant tangible evidence to support the claim they make before the case can be considered within FOS jurisdiction and that a staggering two thirds of respondents had experienced false or manufactured claims in an attempt to gain compensation, often through claims management firms.

The FOS has a very important role to play both in society and the industry and they do some good work that may not always be appreciated. Time and again we hear about successful claims of miss-selling, mostly by banks it must be said, yet complaints against IFAs accounted for just 1.5 per cent of all FOS cases in 2010/11, down from 2 per cent in 2009/10. Of these 53% were upheld but this statistic was distorted due to a very large number of the 2010/11 complaints being made against one firm- Towry with 345, a hundred more than Barclays who came second.

So we hear very little about the 47% of rejected complaints that shall we say could be “choc full of lies”? Perhaps an FOI request would reveal the extent of false accusations against IFA firms?

IFAs take complaints seriously and will always be happy at a rejected outcome but dismayed at the cost and stress involved plus the time spent proving innocence when the complainant has failed to prove guilt twice- once when the complaint was rejected by the firm and a second, case fee generating stage at the FOS.

With this in mind, it is interesting to look back to issue 21 of the Ombudsman News from October 2002 on the subject of fraudulent and dishonest claims.

The then Ombudsman, Walter Merricks, stated that “fraudulent and dishonest claims are a major problem for the insurance industry and fraud is alleged in a number of the cases we see. These can be difficult to assess. To establish that fraud has taken place, some concrete evidence of lies, inconsistent statements or acts of deception must be present. The fact that members of a firm’s staff are personally satisfied of the claimant’s bad faith is not sufficient proof of dishonesty’.

But surely it is a starting point?

He went on to say, “The essential components of fraud are intent to deceive and desire to induce the firm to pay more than it otherwise would. Establishing these points can require an analysis of the claimant’s motives. Inevitably this is a largely subjective exercise. Where a firm suspects fraud, it should make its views known to the customer, who can then respond to the allegations. We are unlikely to support a firm’s position if, instead, it uses a separate and spurious reason to justify rejecting a claim”.

Where fraud is suspected by a firm, a process should exist within the regulatory framework to deal swiftly with it yet it seems time and again that despite clear evidence being available the process either cannot or will not see it.

As Douglas Adams famously said, “If it looks like a duck, and quacks like a duck, we have at least to consider the possibility that we have a small aquatic bird of the family anatidae on our hands”.

With fraudulent complaints the same logic applies.

Perhaps the time has come for IFA firms to bypass the Ombudsman process where clear evidence of fraud exists and has evidentially been demonstrated to the complainant. Firms could go to the police or even consider the practicality of resorting to the courts themselves. The immediate effect of such a move would be to take the complaint out of FOS jurisdiction as the FOS cannot deal with cases that are subject to legal process. But such action would no doubt fall foul, perversely, of TCF rules.

Small IFA firms are particularly vulnerable to opportunist claims. In fact from our research on the subject, many small IFAs will confirm that they see the FOS as home of choice for the opportunist complainer or ambulance chaser, their motto being “nothing ventured, nothing gained”.

This may be why the FOS are increasing staff by a third over the next year. In 2012/13 staffing costs are expected to total £149.4m.

But remember the wise words of Rolling Stone (not Tenet) Keith Richards who said, "In the business of crime there’s two people involved, and that’s the criminal and the cops. It’s in both their interests to keep crime a business, otherwise they’re both out of a job.”

It is regulation presenting an unchecked opportunity that represents the problem. It can transform someone into a liar.

Dealing with fraud costs by way of time, emotion, stress and money. It is not a victimless crime and those caught “at it” should pick up the tab in a very expensive and draconian way.

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