Fraser McAndry, head of Credit Hire Fraud at Keoghs, reviews the credit hire fraud landscape over the last 12 months, our experiences and what we can expect to see in the short to medium term in this growing fraud area.
Credit hire fraud continues to have a major impact on client costs: we estimate that 10% of the annual credit hire bill can be attributed to fraudulent credit hire organisations (CHOs) and the claims being presented.
With the forthcoming Government reform of the whiplash “culture” unlikely to reach credit hire, we can see no change to the current landscape in this area. Indeed, the proposed whiplash reforms (if they progress as they currently stand) would place greater emphasis on the credit hire element and other heads of loss becoming the vehicle (pardon the pun) for the rest of the claim including the injury and costs. We will also continue to see the claimed value of hire, recovery and storage claims increase to counter the suppression of the whiplash injury value and recoverable costs. Indeed, we have seen an 8% increase in hire claim value from 2016 to 2017 and I predict a similar, if not greater, rate of claim inflation in 2018.
At Keoghs, the majority of our fraud risk cases emanate from the non GTA market which is wholly unregulated, notoriously wide-spread and populated by many CHOs to whom insurers will have minimal exposure, if any. Had the 2014 CMA introduced a mandatory GTA or a ban on referral fees then the non GTA market may have been squeezed but, lamentably, the opportunity was missed and fraudsters were reinvigorated.
Analysis of our own data identifies well over 2,000 different CHOs on our database with new-to-market CHOs coming to our attention on a depressingly regular basis. Within our own Advanced Data Analytics (ADA) database we have the details of over 170 CHOs with whom we have had a previous negative experience.
In 2017 our pre-litigation and litigated credit hire fraud teams had a record year for instructions leading to:
As our statistics show, credit hire fraud claims are presented by a wide spread of opponents. It is the exact opposite of the GTA “standard” market in that regard. There are very few “volume” opponents and there are some CHOs who we will only see once or twice a year but we remain vigilant in respect of those CHOs just as much as the more well-known opponents.
What our data also demonstrates is that there is clear evidence of fraudsters in other areas moving into credit hire which they see as an easy and lucrative fundraiser. In 2017 we saw claims involving 54 CHOs who we had not previously seen in credit hire fraud claims but we had seen them associated to other fraud types. We have seen (and will continue to see) the migration of fraudsters from other fraud areas to credit hire fraud, as they see this as a lucrative area given the current situation in the personal injury market. The number of new-to-market non GTA CHOs is evidence of this migration. We have seen over 60 new credit hire companies in 2017 alone and the chances of those entities being legitimate are, I would suggest, slim. A robust “Know Your Opponent” strategy has never been more important.
The credit hire fraud process can be divided into four component parts:
First and foremost, identification of the potentially fraudulent credit hire claim, through a robust system-driven identification model, is vital. The risk without this system means not only hard leakage but also the CHO seeing that insurer as a soft target. Make no mistake, these small, agile organisations are well aware as to which insurers are alive to the issue of credit hire fraud and are set up accordingly to exploit them.
At Keoghs we utilise our ADA system to flag potentially fraudulent claims whilst reducing false positives through robust rule sets. This has led to a detection rate within our pre-litigation non GTA claims team of 18%.
By having a heavily populated database we can find who is behind the particular CHO and what other companies they are involved in. It is not uncommon to see the Director of ABC Car Hire Ltd to also be director of other CHOs, medical agencies or accident management companies. Again, “knowing your opponent” has never been more difficult or important.
Credit hire fraud can present itself in many different guises, both fraudulent and genuine. It is absolutely vital to remember that a fraudulent credit hire claim can arise from a wholly genuine accident as much as it can from a fraudulent case. I have undertaken a number of audits and process reviews recently where the handler has ruled out credit hire fraud solely due to the accident being genuine or the lack of a personal injury claim (beware – this may well follow on later). Many insurers fall into this trap and it can be an expensive one both financially and reputationally.
Credit hire fraud can be carried out by very different types of fraudsters. I have seen very “opportunistic” claims where the word “amateur” does not do justice to the quality of the documents submitted. I have seen some documents riddled with spelling errors and very obvious evidence of forgery. Often, the fraudster will submit a low-value, sub £1,000 invoice but the greedy ones will generate grossly exaggerated invoices. Conversely, credit hire fraudsters can be highly organised and systematic using credit hire as a fund raiser for much more serious criminal activity. That said, we have to be vigilant in identifying the correct cases.
So, in 2017 where did we see credit hire fraud come from? It can often be linked to staged / contrived claims, as well as induced accidents and low speed impact claims, but increasingly we are investigating a claim purely from a credit hire point of view. Instances of credit hire fraud emanating from genuine accidents or non-injury claims are very definitely on the increase.
There has been some noticeable change in the last 12 months as to the “hot spots” for credit hire fraud. London (inner and outer) continues to lead the way but Bolton comes in at a creditable second in the country for volume of claims and CHOs with whom we are concerned. There are now 21 different CHOs in Bolton who feature in our ADA system. Birmingham and West Yorkshire remain in the charts, and two areas that have seen significant growth in the last year are Bradford and Liverpool. However, we continue to see low volumes of claims from virtually every area of the country from the North East of England to South Wales and the South West.
The credit hire fraud war rages on and shows no sign of letting up in the coming year. Therefore, the challenge remains to ensure that our identification processes remain robust and well maintained in order to keep up with our small, agile opponents. The world of credit hire has never looked more attractive or lucrative to the fraudster as the PI market gets squeezed as a result of the planned Government reforms. Migration from the standard PI market into credit hire will be a continuing feature in 2018. The reforms seek to tackle “traditional” PI fraud perpetrated by individual claimants but do not address the enabler-led fraud which we are seeing more and more of. This must be a major concern for the industry. Vigilance is vital.
The savings are, undoubtedly, there to be had as can be seen from our own team’s performance. However, without the identification model those savings will never be realised.
Potentially Bogus CHO
A saving of over £30,000 was achieved on a claim from a London based CHO which had appeared to have used the registration details of another organisation. The claim was initially investigated due to staged concerns but these were ruled out.
Credit hire fraud concerns persisted as searches against the hire company established that the company registration and VAT registration numbers did not relate to the name of the CHO on the agreement. The V5C document also confirmed that the hire vehicle was registered to a different organisation to that named on the hire agreement.
The documentation provided by the company was incomplete and did not cover the hire period that they were attempting to claim for and there were also concerns as to whether the claimant had sufficient need for storage.
The claimant was invited to withdraw their claim based on these issues and the claim was discontinued.
Bogus Hire & Mileage Inconsistencies
The credit hire fraud team retained a claim from a Manchester based CHO due to concerns regarding the enforceability of the hire agreement and Keoghs’ lack of exposure to the company. A review of the claim showed concerns with the need for hire, recovery and storage and the veracity of these claims.
An Experian Autocheck search conducted against the hire vehicle showed that the date the vehicle was registered was dated after the end of the hire period. This suggested that the vehicle was either not on the road and the hire did not occur as alleged, or the vehicle was on the road before being fully registered and therefore being used illegally.
A review of the MOT history and engineering evidence for the claimant’s vehicle established that the vehicle had covered 170,000 miles during a six month period including the hire period. This again strongly suggested that the vehicle had been in use during hire and the hire had been exaggerated or entirely fabricated.
The claim was repudiated and the CHO confirmed that they would no longer be pursuing the matter.
MOT Concerns & Overlapping Hire
Keoghs received a claim from a newly incorporated hire company in Bradford. This company had links to another hire company within the Keoghs Intelligence Database through the address and the individuals operating the business.
We had concerns with the claim as the claimant’s vehicle had undergone an MOT three weeks after the hire ended. This suggested that the damage to the vehicle had not been rectified during the period of hire. When these concerns were put to the third party representatives, alongside a request for further documents, the solicitors confirmed that they had closed their files and were no longer pursuing the claim.
Later in the year, we received a second claim from the company. This claim was flagged by ADA as high risk due to the involvement of the CHO. There were also concerns in relation to potential duplicate or overlapping hire also flagged by ADA.
A review of the claim established that the same hire vehicle featured on both claims and there was a twenty day overlap between the two hire agreements. The relevant DPA requests were exchanged between the files to obtain documentary evidence in support of these concerns. This evidence was presented to the third party representatives who quickly confirmed that they would again be dropping the claim.
The service you deliver is integral to the success of your business. With the right technology, we can help you to heighten your customer experience, improve underwriting performance, and streamline processes.