Sunday 18 March 2018

Dearbhail McDonald: The insurance sector likes to court sympathy - but it may be its own worst enemy over bogus claims

'And let's not pretend that there are no deterrents, sanctions or consequences for those who lie in accident claims or exaggerate the nature and extent of their injuries.' (stock photo)
'And let's not pretend that there are no deterrents, sanctions or consequences for those who lie in accident claims or exaggerate the nature and extent of their injuries.' (stock photo)
Dearbhail McDonald

Dearbhail McDonald

You wouldn't think it, from the banshee-like wails from the insurance industry, that Ireland has one of the most draconian legal regimes when it comes to dealing with fraudsters.

Indeed, the greatest achievement of the insurance industry and its cheerleaders over the last 15 years has been successive rounds of intensive lobbying for ever-more stringent laws. This has effectively created a rebuttable presumption in the minds of the public that all accident victims, even genuine ones, are rampant criminal fraudsters - until proved otherwise.

Ireland's claims legislation is the envy of our European peers and there's a new kid potentially on the block. The latest demand, this time for a dedicated perjury law - and driven in all sincerity by the Irish Small and Medium Enterprises Association ISME) - is fine as far as it goes. Again, you mightn't know this, but we already have a common law, if rarely used (more of that anon), offence of perjury.

ISME's call is not entirely without justification. There is no harm in putting a whole raft of common law offences (laws developed by judicial decisions rather than by legislation) such as forgery or contempt on the statute books: criminal law is much more effective when you know what you're dealing with. But let's not pretend that there is an existing remedy for insurers who can prove porkies. And let's not pretend that there are no deterrents, sanctions or consequences for those who lie in accident claims or exaggerate the nature and extent of their injuries.

Instead, let's take a wee trip back to 2002 when compensation culture anxiety peaked amid claims of rampant fraud.

Sound familiar? Back then the Government introduced a series of unprecedented measures to tackle a then (as now) genuine insurance crisis, with wide-ranging reforms that were the envy of insurers and police forces across the globe. These included the setting up in 2003 of a mandatory, non-adversarial, lawyer-free Personal Injuries Assessment Board (now Injuries Board), ostensibly aimed at cracking down on costly litigation. A Book of Quantum, recently revised, was introduced to help the Injuries Board keep a lid on compensation.

The Government also introduced a series of draconian laws to tackle fraudulent and exaggerated claims, including plaintiffs paying the Injuries Board's costs if you fail to beat their award in court.

Since 2004, parties to a personal injuries action in Ireland must swear a court statement verifying any assertions and allegations contained in any pleadings with the prospect of a criminal prosecution - yes, you read that right - if they have lied or embellished their story. In recent years, particularly over the past 18 months, judges have thrown out a series of claims where they believed the "victims" lied.

As well as hitting fraudsters with costs, judicial strike-outs provide great opportunities for insurers to bring such chancers - who are inflating all of our premia - to book.

But is the insurance industry overstating the fraud problem? There has been no major increase in either claims or awards to warrant rises of 70pc in the average premium over the last three years.

And as Dorothea Dowling, founding chair of the Personal Injuries Assessment Board, has highlighted, there's €1bn difference between the premium income of Irish insurers and published awards. Go figure.

And if fraud and exaggeration are as extensive as claimed, is the industry - many of whose motor insurers are under investigation by the European Commission for potential breaches of EU antitrust rules that prohibit cartels and the abuse of a dominant market position - guilty of enabling that culture? Only 10pc of personal injuries cases go through the courts - the same percentage before the last crisis. Only 20pc of cases are assessed through the Injuries Board. This means that seven out of 10 claims are being settled privately outside of either mechanism. Does this mean a lot of fraudsters are being financially rewarded for their misdeeds? Perhaps.

Prosecutions of fraudulent claims are rare, but they will remain so if insurers take a view that it is cheaper to settle suspicious claims than invest in the difficult task of proving them. Of course, there is a solution, namely compelling insurers to share the number and value of claims and the claims history of "suspects". Data on the number and value of claims which informs pricing is priceless, of course.

But there's more chance of pigs flying than that veil of commercial sensitivity being pierced for the sake of hard-pressed consumers.

Sunday Indo Business

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