Credit hire claims remain an expensive thorn in the side of all motor insurers in the UK with current estimates indicating an annual credit hire bill in the region of £800,000,000. Claims volumes within this arena remain steady - in the last twelve months, Keoghs alone have dealt with approximately 5,000 litigated credit hire claims and 20,000 pre-litigation payment packs. Here, Fraser McAndry talks about the importance of counter-fraud processes.
Credit hire was the subject of much debate (and subsumed a great deal of insurers’ time and resource) during 2013 and 2014, however the Competition and Markets Authority (CMA) report into the private motor insurance industry released in October 2014 drew a lamentable blank as to how to tackle the frictional costs generated by credit hire claims. Therefore, the challenges and issues remain in place for insurers.
Credit hire fraud has also grown into a considerable problem, we estimate that approximately 10% of the annual credit hire bill is accounted for by fraudulent credit hire organisations (CHOs) and claims. The non GTA CHO market is notoriously capricious and disparate. Analysis of our management information identifies over 1,000 different CHOs featuring on Keoghs’ database and litigation rates in the non ABI GTA arena remain punitively high.
It appears the CMA investigation outcome and, in particular, its failure to do anything that controls this area of the market has reinvigorated the fraudster who sees credit hire as a lucrative, “soft touch” fundraising opportunity. We continue to see new-to-market CHOs springing up, keen to get a slice of the action. It has, therefore, never been as important to have effective fraud identification and validation systems and processes that identify these “unknown” operators whose aim is to fly under the radar (their volumes with each individual insurer often being relatively low) and avoid detection.
At the core of this is the ability to apply the correct, robust strategies for dealing with each claim. Of course, the majority of credit hire claims are low value, non-controversial claims that can be agreed and many can be paid with the minimum of fuss. However, conversely, there are claims where settlement cannot be achieved and litigation threatened. That dispute may arise from a genuine quantum dispute or, in cases of credit hire fraud, concerns over the bona fides of the CHO or the hire itself.
If the strategy applied to a particular case is inappropriate or applied incorrectly then the inevitable consequence is leakage and increased indemnity spend. Often, ensuing litigation could also have been avoided thus saving unnecessary legal costs. Worse still it can lead to an insurer being targeted.
Any credit hire fraud claims process can be split into four component parts:
The identification of the potentially-fraudulent claim, is the most important piece of the jigsaw, if too few claims are identified fraud leakage increases, but if the process produces too many claims which should not be validated and further investigated then this will lead to the tying up of valuable resources. Fraud indicators are key at this stage and where possible the utilisation of advanced data analytics screening, such as Keoghs’ ADA solution.
The second part of the process is validation, and again this stage is crucial to ensuring that scarce fraud investigation resources are targeted in the right areas. Following the validation stage a strategy for investigating and resolving the case must be set and implemented and must set out how to get to the correct end point (whether that be repudiation or settlement) in the optimum period of time.
It is vital to undertake a periodic stock-take of the evidence obtained on the claim and to review the evidence in the context of the strategy. If the claim is repudiated and the CHO persists with the claim, it is necessary to be absolutely satisfied that, if the case were to litigate, litigation was both necessary and appropriate.
Credit hire fraud detection relies on robust strategies and processes, good technical knowledge and excellent intelligence. However, it is equally important to have a thorough understanding of the weight and impact of the evidence in any claim to ensure that only the appropriate cases with strong evidence and prospects of success are allowed to litigate. The costs of getting that wrong will be significant.
In 2014 Keoghs’ pre-litigation credit hire fraud team dealt with claims for hire, storage and recovery totalling over £1.5 million. Average savings equated to 81%, and 90% of the claims dealt with emanated from the non ABI GTA CHO community. In employing a robust identification and validation model which includes advanced data analytics screening and periodic evidential reviews, the team achieved these impressive results whilst at the same time keeping litigation rates very low, demonstrating that an effective counter-fraud strategy in the credit hire arena, makes clear economic sense.
This success is also mirrored in our experience of engaging in evidential reviews with some of our credit hire fraud clients. Keoghs were instructed by one client in relation to a credit hire fraud evidential review where the client was considering making an offer of settlement to a CHO where, seemingly, investigations had come to an end and the “silver bullet” had not been uncovered.
The CHO, based in Bolton, were not known to the insurer but Keoghs had exposure to them on 14 cases. We were able to advise the insurer that the accident circumstances were consistent with the CHO’s MO on the majority of the cases we had with them. We were also able to prove via searches that the claimant was linked to one of the CHO’s directors. Finally, we advised that the contractual claim for interest on the hire charges was in contravention of the EEC Directive on Consumer Credit and, therefore, the agreement was likely to be unenforceable. We rated the case as a “red” case and recommended a zero offer. This lead to the insurer making a repudiation in full on a claim where they would otherwise have made an offer.
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