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Are private prosecutions the solution to post-Covid insurance fraud?

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United Kingdom

With incidents of insurance fraud expected to spike amid the UK's post-pandemic economic turmoil, Fieldfisher corporate crime experts Kyle Phillips and Ellen Austin consider how private prosecutions can speed up access to justice and deter fraudsters from abusing their policies.

  Insurance fraud involves any misuse of insurance policies to illegally gain or benefit from the insurance cover.

This type of fraud occurs across every type of insurance, from motor (including "crash for cash" and stolen car frauds) and home cover (such as intentional damage, fraudulent theft and overstated property values), to travel and health insurance.

The Association of British Insurers (ABI) states that detected fraud costs over £1 billion every year, while undetected fraud is estimated to cost a further £2 billion on top of that.

As well as increasing premiums for policyholders, insurance fraud exacts a financial toll on wider society, as public resources, including the police, courts and NHS, are diverted to deal with fraudulent claims.

Insurers invest hundreds of millions of pounds in fraud identification and prevention each year; however, the problem persists, as the volume and sophistication of frauds continues to increase.

The number of fraudulent claims tends to rise after natural disasters, recessions, or other unusual events that put economic pressure on individuals.

As Covid-19 continues to have serious implications for public health, businesses and the economy, unemployment levels are escalating and the number of fraudulent insurance claims is also likely to grow.

The consequences for those found to have committed insurance fraud vary. At the most lenient end of the scale, the claim may simply be refused, but the policy could also be cancelled and recorded with the Insurance Fraud register.

The most punitive outcome of a proven fraudulent claim is a criminal conviction and a potential prison sentence for the fraudster.

Pressure on public prosecutions

Due to significant budget cuts to the police and the Crown Prosecution Service (CPS), many confirmed insurance frauds are not being prosecuted, and many are not even investigated by law enforcement.

The Covid-19 pandemic and associated lockdown has added to pressures on the public justice system, as jury trials were suspended in March, adding to an already extensive backlog of cases.

This means it is likely to be a long time before new criminal cases are tried in the courts.

The CPS has predictably reviewed its priorities in the wake of these challenges, with their new Coronavirus: Interim CPS Case Review Guidance and Interim CPS Charging Protocol indicating that certain serious, but non-urgent, cases are likely to be put on the back burner for the foreseeable future.

This is bad news for companies (and other victims of crime) who have been defrauded, especially if the losses from fraud compound economic damage already caused by Covid-19.

Private prosecutions

Increasingly, insurance companies are left to investigate matters for themselves and are seeing the benefits of bringing a private prosecution against those making fraudulent claims, rather than rely on the public justice system.

The Prosecution of Offences Act 1985 provides the right for individuals and companies to bring a private prosecution. These prosecutions are often quicker, more focused and efficient than public prosecutions and civil actions, and more cost-effective.

The party bringing the prosecution may reclaim the prosecution costs, including the cost of investigation, from the defendant if they are convicted. 

A private prosecutor can also recover reasonable costs from government central funds, win or lose, provided the private prosecution has been brought properly and the prosecutor commenced the prosecution in good faith.

As long as the case has been brought properly, it is unlikely that the prosecutor will have to pay the costs of the defendant, if they are convicted. This is in contrast to civil proceedings, where the losing party is normally required to pay costs to the other side.

Private prosecutions help victims of crime, including insurers who have been defrauded by policyholders, to achieve justice. They also provide a greater deterrent than civil remedies, as they ensure offenders are meaningfully penalised for criminal wrongdoing, demonstrating to others who may be contemplating a fraudulent claim that such acts do not go unpunished.

For more information on Fieldfisher's private prosecutions service, please contact a member of the FCCI team.
 

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