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UK: Update on insurance fraud - dishonest claims, inducements and medical fees all targeted by government in fight against insurance fraud

28 August 2014
Government legislation aimed at tackling the growing scourge of insurance fraud is making its way through Parliament. The government is also looking at other initiatives that may help to appease a frustrated insurance industry and cut the cost of fraudulent claims.

In posts in April and June 2014 we looked at both the costs of insurance fraud and a number of cases that, over the past few years, have left the insurance industry feeling somewhat let down by the judiciary's perceived failure to act against fraudulently exaggerated claims. In this post we intend to look a little more closely at the government's proposed intervention.

On 3 August 2014 Justice Secretary, Chris Grayling announced plans to limit the fees for whiplash medical reports to £180 starting from October. Whilst this may not seem the most obvious first step in tackling insurance fraud, it has been welcomed by the Association of British Insurers (ABI), which estimated that whiplash claims alone cost insurers over £2bn per year and represent approximately 20% of the average motor insurance premium. Limiting the amount medical professionals can charge to £180 (against fees of up to £700 that some medical professionals are currently quoting) is aimed at quelling concerns that such fees are being used to generate profit to the detriment of the insurance industry.

At the same time several other measures will come into effect through new court rules, including:

  • Introducing an expectation that medical evidence will be limited to a single report, unless a clear case is made otherwise, and allowing defendants to give their account of the incident directly to the medical expert, when appropriate.
  • Discouraging insurers from settling whiplash claims without a medical report confirming the claimant’s injury. In the past insurers have settled claims without evidence in order to deal with them quickly and cheaply – meaning questionable claims are not always challenged.
  • Stopping experts who produce medical reports from also offering treatment to the injured claimant, to ensure there is no incentive for them to encourage unnecessary treatment.

Alongside these measures, legislation requiring the courts to throw out an entire claim where it is fundamentally dishonest continues to make its way through parliament in the Criminal Justice and Courts Bill.

Within this bill there are two clauses that specifically target insurance fraud.

Clause 49 of the bill requires courts to throw out personal injury claims in their entiretywhere the claimant has been fundamentally dishonest (rather than just throwing out the dishonest element of the claim). The only exception to this rule is where the claimant would suffer substantial injustice if the claim were dismissed.

Clause 50 goes on to prohibit inducements to make personal injury claims, preventing personal injury law firms or others from offering incentives to potential claimants.

While there is ongoing debate as to whether or not the phrase "fundamentally dishonest" is unequivocal enough to have the desired effect, there is no doubt that both clauses 49 and 50 of the bill are focused on the incentive or motivation of the potential claimant to submit a fraudulent claim or fraudulently exaggerate their genuine claim.

The next stage in the progress of the bill is the House of Lords Report Stage which is expected to take place in mid-October. If the bill is able to navigate through Parliament and into law before the general election next year, it will be interesting to see how the volume of 'dodgy' claims is affected, if at all, and whether such changes have the impact the insurance sector hope them to have - with a subsequent knock on effect on premiums over the coming months and years.

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