Fraser McAndry, head of credit hire fraud at Keoghs, looks back at credit hire fraud trends and statistics over the last couple of years and the safeguards required to ensure that fraudulent claims are being correctly identified, validated and investigated.
Credit hire volumes and spend continue to greatly concern the motor insurance industry, with current industry estimates indicating an annual credit hire bill of circa £800m. Litigation rates in the arena remain steady and, this year alone, Keoghs will deal with over 5,000 litigated credit hire claims and 42,000 pre-litigation payment packs. This gives us an unrivalled insight into CHO behaviours and tactics across the market and visibility in respect of fraudulent activity and those individuals and entities attempting to raise revenue through dishonest means.
Credit hire fraud remains hugely prevalent and there is currently no light at the end of the tunnel. I estimate that 10% of the annual credit hire bill can be attributed to these fraudulent credit hire organisations (CHOs) and claims. When I talk to our clients, they regularly list credit hire fraud within their top three fraud “hot topics”.
At Keoghs, the majority of our fraud risk cases emanate from the non GTA (NGTA) market which is wholly unregulated, notoriously wide-spread and populated by many CHOs to whom insurers will have minimal exposure, if any. Within our pre-litigation credit hire fraud team we retain approximately 18% of all NGTA claims upon which we are instructed by our various insurer clients. These claims are validated and investigated by the team before being repudiated or resolved.
Analysis of our own management information 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 370 CHOs with whom we have had a previous negative experience.
In 2015 our pre-litigated and litigated credit hire fraud teams dealt with hundreds of cases. In 2015 we saw the following:
These statistics starkly illustrate that credit hire fraud claims are presented by numerous wide spread opponents. It is the exact opposite of the GTA “standard” market in that regard.
There has been no let up in the number of CHOs entering the non GTA credit hire market and I believe that this perfectly illustrates the fact that fraudsters (whether they be the opportunists or the more organised variety) continue to see credit hire as an easy and lucrative fund raiser. For those who have access to our monthly intelligence report you will be aware as to the number of new-to-market CHOs we report upon on a month-by-month basis. So far in 2016 we have seen over 120 CHOs for the first time. That might be our first exposure to that CHO or they were, as a company, only set up this year. Either way, the sheer volume of new CHOs demonstrates that credit hire is seen as an attractive proposition.
This sustained “attack” on motor insurers means that it is more important than ever to have an effective credit hire fraud model in place which must include a robust identification model.
The credit hire fraud process can be divided into four component parts:
Identification of the potentially fraudulent credit hire claim is the vital, first part of the process. The absence of a robust, system-driven identification model could lead to a fraudulent claim being validated and paid. This would result in hard leakage on that particular claim but of much more concern is the risk that the fraudulent CHO will continue to target that insurer, seeing it as a “soft target”. Make no mistake that 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%. We strive to ensure that the quality of data input into the system is “clean” and without ambiguity.
The system must be populated with the names of errant CHOs, storage companies, repairers and engineers to enable any claim they present to be flagged up for investigation and validation. This is no mean feat - it is simply impossible to know all of the CHOs in the market by name, there are just too many – as can be seen by the eye-watering number of CHOs on our database. What is important is to know 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. “Knowing your opponent” has never been more difficult - or important.
Credit hire fraud can present itself in many different types of cases, 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 in terms of market reputation.
Credit hire fraud can take different guises and 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 also seen some documents riddled with spelling errors and very obvious evidence of forgery. Often, the fraudster will submit a low-value, sub £2,000 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.
Credit hire fraud takes many forms and we have to be vigilant in identifying the correct cases.
These typologies can occur in stand-alone credit hire fraud cases emanating from, say, a genuine accident. However, of course, they can also be caught up in the other strands of a fraudulent motor claim. So, where do 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.
Credit hire fraud can, of course, be opportunistic but we are seeing more and more instances of organised credit hire fraud. After the motor reforms, fraudulent CHOs and accident management companies have been squeezed into other areas such as EL/PL claims and disease claims. They have also realised the potential for massive profits within the non GTA hire market and are reaping the rewards.
Within the fraud rings team at Keoghs we have a significant number of operations with a predominant credit hire element to them. In 2015, there were 277 different CHOs linked to just fraud rings. Not only this, but when we looked to see if any were key attractors, we found 18 instances where a CHO was a key attractor on more than five claims within a fraud ring, a number which would be far higher if we were to look below five claims. In addition, we have a few recently-established fraud rings which are almost exclusively concerning credit hire. Operations Pennine and Hamburg are great examples of rings with a heavy credit hire element to them. The savings made in relation to Operation Rivington in 2015 and 2016 where extremely impressive with many findings of fundamental dishonesty at the trials that have taken place.
There has been little 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 22 different CHOs who feature in our ADA system. That isn’t bad at all for a town in Greater Manchester. Obviously, as with our main motor fraud index, Birmingham and West Yorkshire remain in the charts.
I have talked about credit hire claims in some detail here and the “size of the prize” is evident with our pre-litigation credit hire fraud team having saved over £2,000,000 in 2015 and on course to exceed that achievement in 2016. However, it is also worth referring to the claims for vehicle recovery and storage that we see on a high proportion of credit hire fraud claims.
Our own experience in the Keoghs pre-litigation credit hire team should sound a warning bell for all. Of all the claims handled by our team in 2015, 60% of them featured a claim for storage and recovery charges with cumulative charges totalling an eye watering £393,818.34. The average claimed figure was £1,386.68. These figures certainly demand our attention. The sheer volumes of these claims for storage and recovery mean that they warrant validation and investigation just as much as the credit hire claim that it accompanies.
Whilst storage and recovery claims featured on 60% of the claims handled, we paid nothing at all on 127 of those claims. On the claims we did settle, we paid an average of £140.15, a far cry from the average claimed value of nearly £1,400.00. These savings made an important contribution to the team’s 2015 savings figures and demonstrate the importance of identifying, validating and investigating suspect storage and recovery claims.
The credit hire fraud war rages on and shows no sign of letting up in the foreseeable future. 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 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.
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