The Magic Pudding of Claim Farming

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Geoff Atkins explores the escalating costs in CTP and motor insurance driven by the intervention of third parties.

In 2012, I wrote about the many problems in UK motor markets from what has broadly been termed “claim farming” (that article can be found here). I finished with the question: could it happen in Australia?

Well, it’s now clear that it’s happening here in a big way. We fear that unless concerted action can be taken to cut out farming, it will spread and become so embedded that we’ll never stop it.

The visible part of claim farming is the cold call to an individual asking about a recent accident. The hidden part includes the exaggerated CTP claim, the inflated car repair bill, the excessive fees for a rental car – all paid for by the unknowing policyholder.

Our silos make us vulnerable

Unlike the UK, our insurance products for motor vehicle property damage and bodily injury are totally separate. And the CTP schemes are all state based. The claim farmers don’t care about these distinctions. We are more vulnerable, and much less able to respond, because of our silos. Participants are spread across public and private sectors, have no regular communication channels and (in the past) no clear common interest in tackling a systemic problem.

Did you know?

  • The ACCC reported over 2,700 complaints about unsolicited calls in the seven months to November
  • 2016 from just three states (1,700 in NSW, 600 in Qld, 400 in SA). With 2,700 complaints, how many have received a call?
  • By 2014, two thirds of all British motorists had been contacted by a claims management company, and one in three had received more than ten calls.
  • The frequency of CTP claims for minor injury in NSW is now 2.5 times the 2011 level, and Qld is seeing an increase in minor claims, while the accident rate is stable – coincidence?
  • The average cost of a third party property damage claim in motor has been rising quickly, with a significant proportion coming from car hire costs – coincidence? In this context, the main victim of the claim farming exercise is the insurer of the vehicle at-fault. The third party claim presented to them is largely out of their control.
  • Phone calls seem to come from overseas call centres. Callers frequently misrepresent themselves as being from the regulator, an insurer or law firm, and they appear to have confidential accident details.
  • It remains unclear whether this activity is illegal or not.

What can be done?

It is hard. In the UK, the insurance industry and government have been actively fighting claim farming since the mid-2000s, with only limited success. The UK government is now consulting on still more law changes.

And who really cares in Australia? For an insurer faced with a dubious claim, it is often cheaper and easier to grit the teeth and settle it. There is no perceived value in pursuing the individual motorist for fraud. An insurer, whether government or private, can live with the pain, put up its premiums, and still be fine. The average motorist paying around $100 a year more because of claim farming is none the wiser and just grumbles about the insurers.

So do we care enough? Are the many elements of the insurance system willing to leave their silos, put aside competitive interests and work together? How can we mobilise the scarce resources of regulatory and crime fighting authorities to tackle the dark side of the motor insurance business? Some government and private institutions are acutely aware of this emerging issue. Various investigations are underway and actions are being developed and implemented, but actions are not likely to succeed unless they can influence many parts of the claim farming networks and ultimately get to the core of the problem.

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About the author

Geoff Atkins

Geoff Atkins is a Principal of Finity, and has been consulting in general insurance since 1984. Geoff’s experience covers a wide range of insurance issues in both the public and private sectors. He has been an adviser to many insurance and reinsurance companies and also to a number of CTP and workers compensation schemes in Australia and NZ.

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  1. JDR says: 3:16 am, July 15 2017

    Good article, Geoff.
    To me it seems that the adverse impact of fraudulent and/or exaggerated claims accrues to the premium-paying motorist but motorists have to rely on others - regulators and insurers - to address the issues and find solutions. Motorists will not be well served if this DOESN'T happen. I would have thought that CTP regulators should be leading the way here, on behalf of their motorist clients?
    I wonder whether there are any data/privacy issues or competition issues which might preclude optimal co-operation between the multiple affected parties. But it seems clear that the public interest requires the fastest and most effective possible response.

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