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Insurance chiefs are calling for a new spirit of public honesty, as fraudulent claims break the £1bn a year barrier.

The Association of British Insurers (ABI) now estimates that around 10% of motor, and 15% of household claims, are thought to be fraudulent.

Better and rapidly improving fraud detection techniques are enabling insurers to expose more fraud. From this, it is becoming clear that the actual cost to the industry is much higher than previous estimates.

The latest public attitude survey on insurance fraud, commissioned by Royal & SunAlliance, reveals that:

76% of people agree/strongly agree that fraud is common in making insurance claims

69% would make a dishonest claim, if they thought they could get away with it

46% agree/strongly agree that most people inflate the value of a claim, by at least one third

88% agree/strongly agree that inflating the value of a claim is dishonest

71% think dishonest claims do have an impact of an insurance company

86% think insurers should prosecute claimants

To illustrate the issue, the ABI has released details of three insurance fraud cases:

Over The Edge

A policyholder claimed his vehicle was stolen from a car park. The car was discovered at the bottom of some nearby cliffs, with no obvious signs of forcible entry. Closer investigation revealed that the policyholder was heavily behind in his HP (hire purchase) payments on the car.

While this in itself was not enough evidence to point to fraud, a local newspaper carried a picture of the car, at the bottom of the cliff, two days before the policyholder claimed it was stolen. He then admitted that he had, in fact, pushed the car off the cliff, in order to pay for his HP debt.

Loft and Found

A claimant made a claim, following an alleged burglary. The claim included a computer, for which he was unable to provide a receipt. Further enquiries with the retailer revealed that many of the 'stolen' items were, in fact, being kept in his loft. He had sold the TV, and video, to a relative.

Making Up The Shortfall

The policyholder submitted a claim for a £21,000 theft. It was discovered that the computer-generated documentation to support the claim was a fake. Also, the policyholder had failed to disclose that in a claim he had submitted to his previous insurer, VAT fraud was discovered. The policyholder admitted that he had fabricated the second claim, to make up the shortfall from the first claim.

"Fraudulent claims are a major problem for the insurance industry, and our customers," says ABI director general Mary Francis. "Honest policyholders pay the price for insurance cheats, which is why the industry is committed to re-doubling its efforts to reduce the scale of the problem.

"Improved fraud detection techniques, and greater use of shared information are enabling insurers to expose greater numbers of dishonest claims, and the industry is working on more ways of detecting fraud".

"Our message to potential cheats is: Fraud is a crime, and it is now more likely to be exposed, than ever before".

Through the ABI, insurance companies are targeting fraudsters more intensively than ever, through measures such as:

Greater pooling of resources and expertise, including sharing best practices between insurers

Developing a bespoke, single industry-wide anti-fraud database

Stepping up liaison, and co-operation, with all other interested agencies, such as Government and Police, to reduce overall levels of financial fraud

David Neave, chairman of the ABI's anti-fraud committee, which is steering the industry's fraud reduction strategy, said: "Honest policyholders should be reassured that we are turning up the heat on insurance cheats.

"Insurers are determined to work closely together to reduce the problem, rather than simply pushing the problem from one place to another. While there is no quick fix to this costly problem, there is a strong commitment for a more strategic and concerted industry approach."

The Association of British Insurers (ABI) is the trade association for Britain’s insurance industry. Its nearly 400 member companies provide over 94% of the insurance business in the UK. It represents insurance companies to the Government, and to the regulatory and other agencies, and is an influential voice on public policy and financial services issues. ABI member companies hold up to a sixth of all investments traded on the London Stock Exchange, on behalf of millions of pensioners and savers.

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