Leading insurance firms that reported unprecedented revenue and headcount growth in their counter-fraud teams in 2011 expect this trend to continue in 2012.
Many firms have some capability in insurance fraud, however the biggest reported growth in the sector is undoubtedly within motor fraud. This is a practice area dominated by regional and national firms such as Keoghs, Hill Dickinson, DWF, Berrymans Lace Mawer, Weightmans and DAC Beachcroft. All saw sizeable increases within their teams in 2011.
Peter Oakes, head of the 200-strong fraud team at Hill Dickinson, said his team had a fee income of £13.4m from its motor fraud team alone last year, 13% of the firm’s £100m turnover. This is up from £9.4m in 2010 and Oakes is predicting £18.5m turnover from motor fraud for 2011/12. The firm acts for major insurers, including CIS, Markerstudy and Chartis, and Oakes does not see the market slowing any time soon.
‘Fraud is so embedded in our culture, the market will continue to grow; we have only just started to scratch the surface,’ he said.
Keoghs, a firm set up to defend insurance claims, acts for major insurers Axa, Zurich and Liverpool Victoria. It reported a turnover of £44.6m in 2011, up £5.3m from 2010. While it could not say how much of this turnover is derived from its fraud practice, counter-fraud is a large part of its business, which reported a 40% growth in instructions last year. After recruiting 56 people to its fraud division in 2011, the team – which numbers more than 250 employees – is looking to expand by another 15-20% in 2012.
‘Fraud is so embedded in our culture, the market will continue to grow.’
Peter Oakes, Hill Dickinson
James Heath, Keoghs’ director of counter-fraud strategy, said: ‘Insurers are having to work harder than ever before to tackle the sheer volume of cases they face and so we’re continuing to invest in new talent to help them meet these challenges.’
The firm is also looking carefully at external investment to fund growth. In January the Manchester Evening News reported that Keoghs had appointed Deloitte to advise it on external capital opportunities under the new Legal Services Act, while in February the newspaper said that the firm was in exclusive discussions with Bowmark Capital, with a view to the private equity firm buying a stake in its business.
The counter-fraud services market has some relatively unusual characteristics, one of these being a high volume of staff turnover due to short supply of experienced fraud lawyers. At senior level, partner Stuart Smith joined Hill Dickinson in February 2012 from Weightmans, while Jamie Taylor left Hill Dickinson, where he was head of motor fraud, to join DWF as counter-fraud director in January.
2011 also saw further expansion in London. Typically, teams are based in Manchester and Birmingham, but following the merger of Barlow Lyde & Gilbert (BLG) and Clyde & Co in November, BLG’s Manchester-based counter-fraud team now has a significant presence in London and has seen new instructions increase during 2011 by 300%.
It remains to be seen, however, whether London will be a viable option for this practice area. Firms have historically based their teams in the regions to be closer to large insurer clients and to take advantage of lower overheads. Damian Ward leads the 50-strong team at Clyde & Co and sees a London presence as key: ‘It provides the opportunity to broaden the scope of the fraud team and particularly is important on the intelligence side.’
Counter-fraud and motor fraud in particular has been doing very well in a short space of time, despite being a relatively new practice area for law firms. As fraud is particularly prevalent during a recession, it raises the question of whether this service line shows any signs of slowing down for firms.
Latest figures from the Association of British Insurers show the cost of fraud to the insurance industry is estimated to be £2bn a year, adding an average £44 a year to the policyholder. It is no wonder that insurers are on a constant battle to detect fraud and have been turning to their lawyers for help. It is estimated the average cost of an undetected fraudulent claim to an insurer is £20,000.
Organised ‘cash for crash’ schemes operate in the UK and often not only involve the claimant who commences a false claim but accident management companies and credit hire companies.
Oakes believes that insurance fraud will always be prevalent. ‘It is too easy for claims to be made in the UK and fraudsters will always find different ways to commit insurance fraud in the UK,’ he said.
Ward agrees: ‘The sheer volume of attempted fraud means that insurers cannot stand still for a moment.’
Another unique factor in insurance fraud practices is the amount of investment a law firm has to put into its team, both in terms of staff and software systems.
Law firms now also have large, similar databases of their own, spending thousands of pounds on software and teams of full-time analysts to organise data and investigate claims.
Hill Dickinson goes a step further with its unique product NetFoil, which uses data capture and mining tools to create a large database of around 40 million claims, bringing in information from many claims sectors and therefore linking previously unconnected cases.
Firms are therefore keen to invest in very costly teams and systems to help their clients detect fraudulent claims. However, with Hill Dickinson claiming that it has saved clients over £100m that would otherwise have been paid out, the advantages of instructing a well-equipped law firm team are obvious.
The key players agree that insurance fraud will not be declining any time soon and expect further headline growth in 2012.