Parliament urges greater scrutiny of how insurance fraud is investigated

If the recommendations of a recent report by an influential group of UK MPs are adopted, the way in which insurance fraud is investigated will come under heightened public scrutiny.

The Home Affairs Committee of the UK Parliament is calling for greater regulation and oversight of private investigators (both individual and firms). This is driven in part by the increasing involvement of the private sector in certain policing roles, and in part by revelations at the Leveson Inquiry of just how far private investigators will go to obtain personal information.

The Committee heard evidence of a thriving black market in personal information. Private investigating is an unregulated activity, so while the sector is headed up by reputable firms, it is being undermined by a host of unscrupulous individuals prepared to work outside of the law.  Expert witnesses told the MPs about the difficulties of conducting lawful investigations where the investigator isn’t able to access information legally. The temptation is for investigating firms to subcontract such cases to less scrupulous individuals, in order to provide the client with a positive report.

This has lead the Committee to recommend a two tier regulatory system, with the licensing of private investigators and private investigation companies, and the registration of others undertaking in-house investigative work within regulated firms such as insurance companies. Both would be governed by a new Code of Conduct for Private Investigators and both would be made responsible for the actions of their subcontractors. Any breach of Section 55 of the Data Protection Act (relating to the unlawful obtaining, disclosure and selling of personal data) would disqualify individuals (licensed or registered) from undertaking investigative work. The Committee also recommends stronger penalties for breaches of the Act and more vigorous confiscation from those profiting from such breaches.

So what does this mean for insurers? As I’ve highlighted in earlier posts, insurers need a sector wide protocol for managing the way in which private investigators undertake work for them, down through the ‘information supply chain’. An arms length attitude is no longer tenable. It is telling that the Committee’s report, when illustrating some of the problems raised by those giving evidence, began with the level of complaints received by the Information Commissioner’s Office about “aggressive and inappropriate surveillance techniques used by investigators working for insurance companies”.

Insurers also need to become skilled at assessing the provenance of personal information that comes their way. It should come with a clear and complete evidence trail, both of how it was collected and the status of who collected it. This would avoid a repetition of the court case in Ireland earlier this year when Zurich, Travelers and FBD pleaded guilty to holding social welfare information on claimants, obtained illegally through a private investigator.

Perhaps the most crucial step that insurers need to take is for their claims directors to issue a clear message to all those involved in investigating cases of potential insurance fraud that breaking the law will not be tolerated. The ‘tone from the top’ matters.

An article last year in the Post Magazine suggested that complying with the law and upholding professional standards would put those investigating potentially fraudulent claimants on ‘the side of the angels’. The Home Affairs Committee would beg to differ.