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Claims Exaggeration

Posted: 14 June 2021

 

Fraudulent exaggeration occurs when the policyholder falsely inflates the value of their claim in order to receive more money from their insurer. Critically, the policyholder doesn’t need to falsify documentation in order to fraudulently exaggerate their claim. For example, they may have purchased an item several years ago for £2,000 and since then misplaced the receipt.  However, if they tell the insurer it was purchased for £4,000, this would be classified as fraud.  

Alternatively, the policyholder may exaggerate the extent of the damage to their possessions or claim for damaged contents which they didn’t own.

In terms of motive, it could be to cover the cost of the excess or to get reimbursement for other parts of the claim that might not be covered or be subject to a policy limit. Or it could simply be down to desperation and opportunity. 

Generally, fraudulent exaggeration is considered substantial if the exaggeration is over £1,000, unless the overall value of the claim is so high that it dwarfs the extent of the exaggeration.

When determining if a policyholder is fraudulently exaggerating their insurance claim it’s important to understand the difference between fraudulent exaggeration and slight (minimal) exaggeration. The extent of exaggeration should be viewed in financial terms; and the amount of exaggeration in proportion to the overall value of the claim. Case law helps us here. It’s apparent that fraudulent exaggeration generally starts from 11%, although it could be lower, depending on the specific case.

 

Value of exaggeration

Value of claim

% extent of exaggeration

Outcome

Tonkin v UK Insurance

£2,000

£707,998

0.3

Fraud considered de minimis (minimal)

Baghbadrani v CU (Obiter)

£3,000

£114,317

2.6

Obiter comment that £3k VAT on its own was substantial in context of the MD claim

Direct Line v Khan

£8,257

£72,267

11

Whole claim tainted

Galloway v GRE

£2,000

£16,133

12

Whole claim tainted

Savash v CIS

£31,950

£136,177

23

Whole claim tainted

Axa v Gottlieb

£20,574

£60,040

34

Whole claim tainted

Nsubuga v CU

£136,760

£156,760

87

Whole claim tainted

Baghbadrani v CU

£1,503,000

£1,614,317

93

Whole claim tainted.

*Allianz & DAC Beachcroft; Fraudulent & Exaggerated Claims, April 2019

Since its establishment in 2006, the Insurance Fraud Bureau (IFB) has diversified beyond motor fraud, partnering with the Insurance Fraud Enforcement Department (IFED) to tackle and prosecute of all types of insurance fraud.

Their investigations, along with the introduction of the Criminal Justice and Courts Act 2015, mean that fraudulent claimants now risk losing all of their claims payments, and may, in some in some instances, also have to pay costs.

In the event that a policyholder is found to have fraudulently exaggerated their claim, insurers can take the following actions:

  • Decline to pay the entire claim including the genuine elements
  • Void and cancel the insurance policy from the date of the fraudulent act (i.e. the date the insured started exaggerating the claim)
  • Retain the premium paid
  • Recover any sums previously paid out indemnifying the insured for their claim.

It’s important to note that when a policyholder exaggerates the value of their claim the whole claim is tainted and the insurer is not obliged to indemnify the insured even for the genuine portion of their claim. 

  • Talk to your clients about the consequences of fraudulent exaggeration
  • Scrutinise claims presentations, challenge presented costs and the validity of supporting paperwork or question the lack of validation
  • Let us know if you suspect fraudulent activity
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