James Daley: Insurers are cannier than you think

The amazing story of John Darwin's "resurrection" and arrest on suspicion of fraud made for captivating reading this week. I should be clear from the outset that there is no evidence that Mr Darwin or his wife have committed any kind of fraud, but the whole episode left me wondering just how common deception really is in the insurance world.

According to a recent report by the Association of British Insurers, more than one in 10 general insurance claims have a fraudulent element to them. Most of these are car or homeowners inflating the value of the items that have been lost, stolen or damaged. For example, when their house is burgled, a sizeable proportion of people will happily throw in a few extra items on to the list of stolen goods, or will claim that their Casio watch was in fact a Rolex.

The report also reveals that certain demographic groups are more likely to make fraudulent claims than others. People who live in the north of England, for example, are 1.7 times more likely to commit insurance fraud than the average person. Men, as well as people with unsecured debts of over 1,000, are also more likely to exaggerate or falsify a claim.

But perhaps more surprisingly, the ABI discovered that people with high levels of savings are also more likely than the average person to make a fraudulent insurance claim, illustrating the fact that modern-day insurance fraud has become a very middle-class crime.

According to the Financial Ombudsman Service, one of the most common types of deception these days is a practice called "fronting", where families name one of the parents as a primary driver on their child's car, and put the teenager down as a secondary driver. This dramatically reduces what are usually punitively expensive premiums for younger drivers but is totally fraudulent and illegal. According to Zurich insurance, more than one in 10 (predominantly middle-class) families are now guilty of fronting, many of whom are not even aware that they are in breach of the law.

As fraud levels have grown over the past few years, insurers' techniques to catch the perpetrators have become all the more ingenious. A number of insurance companies now regularly use lie-detector technology to analyse customers' voices when they call in to make a claim, referring them to a specialist investigator for an hour-long interrogation if they fall foul of the test.

One of the insurers most vocal about its use of such techniques has been Esure. The company claims that it has had great success with its lie-detector software (technology that was originally designed for Israeli border-control guards, no less).

Once it has singled out someone using its software, Esure gets one of its investigators to spend an hour getting the customer to tell the story again. Then the investigator goes back to somewhere in the middle of the timeline and asks the customer to talk about what happened just before. This jumping around almost always trips up fraudsters.

Disappointingly, very few perpetrators of insurance fraud are ever actually prosecuted. With the average fraudulent claim coming in at around 800, it's not worth the insurer's costs to take a civil case after all, they've already saved themselves having to pay the claim.

The Crown Prosecution Service is also reluctant to take on such cases because of a lack of resources, even though the insurers have usually already done most of the work for them. This means that, perversely, there's no real incentive to not give relatively small-time insurance fraud a go. Fortunately for the insurance companies, the vast majority of people are too honest to try it on.