Whiplash reforms: how fraudsters have adapted in the face of legislative change

This month sees the long-awaited launch of whiplash reforms which are intended to improve the management of low value personal injury claims following road traffic accidents.

With the best intentions of reducing insurance premiums for all motorists while reducing the ability for fraudulent personal injury claims (in particular from staged or contrived road traffic accidents (RTAs)), this legislative change has been largely welcomed. But fraudsters will always find a way – and these unintended consequences are set to impact guaranteed asset protection (GAP) providers, and motor finance providers alike. 

What are the whiplash reforms?

According to the Motor Insurers’ Bureau there are around 600,000 personal injury (PI) claims annually in the UK. Yet with improved vehicle safety, reduced reporting of RTAs to police and fewer patients presenting in hospital with RTA based injuries, these figures seem somewhat contradictory.

The cost of PI claims – amongst other factors - keeps insurance premiums high for the average motorist. This prompted the Government to introduce the Civil Liability Act 2018, which includes a range of measures to help insurers offer cheaper premiums whilst ensuring genuine claimants continue to receive proportionate compensation.

In brief the measures introduced via the Civil Liability Act 2018 include:

• a legal definition for a whiplash injury
• fixed tariff values for injuries lasting up to two years
• a ban on settling claims without medical evidence
• an increase to the small claims limit from £1,000 to £5,000.

The reforms were first intended to come into force in April 2019, before being pushed back to April 2020, October 2020, April 2021 and finally May 2021 as a result of the coronavirus pandemic. 

So how has this impacted the fraud landscape?

Historically fraudsters would use older, lower value vehicles in staged or contrived accidents, deliberately crashing vehicles into each other or into innocent road users with a view to pursuing fraudulent whiplash PI claims. As claims can no longer be settled without medical evidence and a fixed tariff for injuries has been introduced, the commercial appeal of this MO has greatly diminished*. Instead, we’re seeing a tangible shift to prestige brands and much newer vehicles (under three years old) being used in contrived or staged accidents with the aim of getting the vehicle declared a total loss.

There’s a triple-whammy of consequences here.

• Newer vehicles cost more to repair due to their technological enhanced features – headlights on some prestige vehicles can cost up to £2,500 per unit to replace – meaning relatively low speed impacts can cause sufficient damage to render a vehicle close to being uneconomical to repair.
• A ready supply of parts is available by fraudsters stealing donor vehicles from credit hire and / or self-drive hire providers, or even financing new vehicles often using the compromised identities of innocent victims, enabling cars to be put back on the road while further lining the pockets of the fraudsters involved.
• In addition to the lucrative damaged vehicle market, newer vehicles often have GAP insurance policies associated with them which fraudsters have been quick to exploit. Where the RTA insurer has paid the total loss value, GAP providers are being put under pressure to follow suit.

It is now becoming commonplace for GAP insurers to investigate and prove staged / contrived accidents based on their own suspicions after the RTA insurer has paid out on the same claim. In instances where the claim is driven by a professional enabler it is often the innocent vehicle owner who ends up out of pocket and runs the risk of being branded a fraudster themselves. 

What can be done about it?  

Tackling fraud remains a hugely complex topic. The counter fraud industry in the UK employs tens of thousands of very clever people and yet fraud is recognised as one of the highest volume crimes which is still rising. While there remains no ‘silver bullet’, a multi-layered solution has proven to be very effective in managing risk and reducing losses to fraud.

• A robust KYC process is a must – traditionally this, and strong ID&V checking, was limited to finance application screening but as fraudsters move so easily from one sector to another, methods to combat ID theft / impersonation fraud have become a requirement for all.
• Make best use of both people and technology - well trained and motivated people remain the strongest asset any business can deploy in the fight against the ever-changing face of fraud, yet you can’t ignore the endless march of technology. Two-factor authentication, device profiling, biometrics and machine-learning are all crucial layers in a successful technological defence.
• Cross-sector intelligence and data sharing - keeping intelligence in a tight knit circle such as your own business, or industry sector, just isn’t good enough. Every player in the motor industry needs to talk to one another to share knowledge, experiences and expertise.

*Whilst PI claims do continue as a result of staged or contrived RTAs, these are often now presented as lower back, legs, arms, hands and even psychological injuries which are not covered in the Civil Liabilities Act and therefore excluded from the fixed tariff.