Insurance fraud rises as debt increases at record rate

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This number amounts to 2,500 dishonest claims a week, or a total value of £1.3 billion.

As with the previous year, the ABI state that motor claims remained the most common type of insurance cheat, having achieved a tally of 70,000 and a total cost to the industry of £800 million.

The association have also used the release of such figures to affirm that penalties for fraudsters remain particularly "tough," with prison being the punishment for some scams.

However, even though the need to reduce insurance fraud is vital, it's equally vital to recognise that detected cases of fraud almost always rise in step with rises in personal debt.

That's why it's important to emphasise not just the fact that insurance tricksters face steep penalties if caught, but the other, much less riskier ways of coping with debt.

Tax and fraud

Beyond motoring insurance frauds, the ABI also note a rise in false claims relating to personal liability and property.

Fake liability claims, for one, increased by 36% to 26,900, and in value by 14% to £391 million. These are more commonly known as "slip and trip" claims, since they often involve someone pretending to fall over.

While not quite showing the same marked increase, false property claims rose by 7% to 27,500, although the value of the claims decreased by 2% to £107 million. They include applications concerning personal property, from houses to televisions and wedding rings.

While a peak in such cons may be alarming for the insurance industry, the ABI nonetheless took the opportunity to pre-emptively humiliate potential cheats by highlighting some amusing examples of bungled fraud attempts.

One example was the case of an ice cream man who staged several accidents in his truck, as well as that of an aircraft engineer who claimed for lost luggage later proven to have been completely empty when checked in.

Yet aside from exhibiting some rare humour, the ABI also said that fraudulent claims have the effect of raising premiums for everyone, including honest customers.

Given that car insurance premiums, for example, have risen by 19% since last year, such a statement is sure to be of great interest and relevance to motorists.

However, since the biggest premium increases have been concentrated on older drivers, and since a 19% rise in premiums is significantly higher than the 6% rise in detected frauds, it's not likely that fraudulent claims were the principal factor in the overall rise.

Also, in a different survey that recorded a 20% rise in motoring premiums for 2015, the AA identified the rise in Insurance Premium Tax as one of the chief culprits.

Introduced by the then-Chancellor George Osborne in November 2015, this increase brought the tax from a rate of 6% to 9.5%, helping to add just over £100 to premiums.

Therefore, while dubious insurance claims may indeed be a factor in rising premiums, it's important to note that they certainly aren't the only factor.

Debt

This importance becomes more apparent with the realisation that false insurance claims generally rise in parallel with increases in personal debt.

For example, in the immediate wake of the financial crisis and recession of 2008, false insurance claims rocketed by 17%.

Similarly, even though detected frauds have risen this year, long after the recession, household debt has risen at the fastest rate in more than a decade this year.

It climbed by 9.9% during 2015, incorporating the money owed on credit cards, personal loans and overdrafts.

If anything, this increasing debt shows how increasing financial pressure is being placed on people.

In the face of record high rents and wages that have yet to return to their pre-recession levels, they've become increasingly desperate. They've gone into debt in an attempt to maintain a more or less constant standard of living, yet many of them have been unable to pay off their loans.

As a result, insurance fraud has increased, and rather than simply demonising and mocking fraudsters, it would be far more constructive if time were actually taken to understand them.

In fact, it's arguably not so much constructive as absolutely essential, not least because the number of people defaulting on their debt is set to rise by 17% (to 4.7 million) by 2020.

Given this likely rise, more should be done to prevent false insurance claims than to point out some semi-comical cases and the increased likelihood of facing a stiff penalty.

As the ABI themselves argue, the "chances of getting caught have never been greater," yet the number of people committing insurance fraud nonetheless continues to rise.

Clearly, punishment and deterrence alone aren't enough.

Preventative advice

That's why it's particularly important that people take and are given more money advice, so that their chances of needing to do something drastic to pay their way become considerably lower.

As Citizens Advice have already asserted [pdf] in the context of debt, a more preventative and proactive system of financial advice should be championed by the Government.

Such a system would contact people at key stages in their lives and help them to plan for their future, thereby protecting them against the possibility of accumulating problem debt.

Organisations like the Money Advice Service already exist, so all the Government would really have to do is support them to a greater extent and give them a greater ability to reach out to the public.

If not, the insurance industry may discover that, once again, more of this public have attempted to treat their money woes with a very ill-advised quick fix.