25 January 2016
Insurers need to resist the Big Brother temptation
Insurance fraud is bad news for all of us. People who lie on their application form, or make fraudulent claims, push up the price of insurance for everyone.
The worst and most expensive frauds are the ones engineered by the professionals - people who stage accidents to take a few bob off their insurance company. Then there's the "weak neck" claims - thousands of people who claim for whiplash, egged on by claims management companies. Some of these are genuine claims, many are not. But as it's basically impossible to diagnose whiplash, most of them end up getting paid.
And then at the margins, there's all sorts of opportunistic insurance fraud - often committed by otherwise respectable people who think it's ok to exaggerate how much their stuff was worth when their house is burgled. Or people who lie about how many miles they drive each year in their car.
Let's be clear - these kind of lies still constitute fraud. And it's right that the government and industry work together to find ways to clamp down on these smaller frauds, as well as the larger organised ones.
A task for a taskforce
Last year, the government stepped into action by setting up the Insurance Fraud Taskforce. It's a working group whose members include the insurance trade bodies, as well as consumer groups like Citizens Advice. Its final report was published last week - and makes some sensible suggestions to tackle the problem of fraud, such as better information sharing between insurers, and tighter regulation of claims management companies.
But the report's ideas about tackling smaller, opportunistic fraud are less convincing. The Taskforce highlight comparison sites as a new gateway for dishonest customers, and suggest that these aggregators should be sharing suspicious customer behaviour with insurers. In theory, this could see people being black balled by insurers - or overcharged - simply for playing around and experimenting with their answers on comparison sites.
An uneven playing field
Comparison sites are a great resource for consumers - and it's quite right that as things stand, they don't share our every move with insurers. The British insurance market is so complex that it's impossible for the average consumer to understand how the price is set for their car, home, travel or any other kind of insurance. In many cases, the pricing decisions that insurers make are counter-intuitive. For example, on Hastings Direct's site last week, I discovered that opting in to protect my no-claims discount put my price down - not up. No claims protection is an additional insurance that most insurers charge for. But Hastings obviously takes the view that people who buy it are less prone to risk - and so deserve a cheaper price overall.
Some insurers will also put up your price if you increase your excess too much. Others will load your premium for choosing to pay monthly. Most will charge you more if you were involved in an accident, even if it wasn't your fault.
In this environment, where the rules of the game are completely hidden, it's only fair that the customer should be free to experiment. Each insurer has thousands of different pricing pots for different types of risk. The truth is that most of us fit into dozens of different pots.
I've long recommended that people try finding different ways to describe what they do for a job. I've come up with at least half a dozen ways of legitimately describing what I do. Naturally, I go for the cheapest.
Or what about my home insurance - where I'm asked if there's usually someone home in the day. The truth is that there's someone in about 50% of the time. So I see which one gives me a cheaper quote and go for that. As long as I'm not lying, there's nothing wrong with that.
Obviously, there's a difference between this kind of experimentation and deliberately lying about your circumstances. But how will insurers tell the difference? It sounds like a good idea in principle, but it could end up with lots of innocent people finding themselves penalised for being good consumers.
Winning back customers' trust is the key to tackling fraud
The insurance industry can't have it both ways. If it wants the convenience of acquiring large numbers of customers through comparison sites - it needs to accept that it can't be as close to its customers.I'm fully supportive of stronger anti-fraud messages on comparison sites - and on insurers' websites too. But I'm 100% against Big Brother-style surveillance over customers before they've even completed a purchase.
Interestingly, the Taskforce recognises that one way of reducing fraud is to build a better relationship between the industry and customers. That's exactly right.
At the moment, too many people think the industry is pitted against them - looking for excuses to turn down claims, and penalise customers. The Taskforce's suggestion that the industry communicates more clearly with its customers is entirely sensible.
But insurers also needs to go much further to win back customers' trust. They need to remove some of their more arbitrary unfair pricing tactics, keep additional fees to a minimum - and give customers the benefit of the doubt more often.
The danger with a Taskforce that focuses only on fraud is that it misses the bigger picture. It needs to be careful with how it goes about implementing its suggested remedies.