Investigating the Role of Government in Addressing Crash for Cash Insurance Fraud: Future Recommendations and Studies

1. Introduction

Car insurance fraud can be categorized in many ways, depending on the intent behind the fraudulent action. This includes personal injuries stemming from accidents that never happened, excessive claims for injuries related to accidents, false claims for damage or loss, as well as claims made for activities not covered by the insurance policy. These activities are broadly referred to as "crash-for-cash" scams. Essentially, one party, such as a taxi driver or bus driver, intentionally causes an accident with another vehicle and later claims false injury, property damage, or both, that can only be fulfilled by the other motorist's insurance. Consequently, it is highly important to comprehensively identify these incidents, as they make for great misfortune when not able to be controlled. Not only are the insurance companies involved in these criminal activities, but also the parties committing the acts, such as automotive repair shops. This, of course, will not be beneficial to an economy anywhere, as it translates into state budget losses, income dissatisfaction, and increased risk in vehicle usage for honest drivers. This study aims to investigate how governments are encouraging crash-for-cash scams, as well as recommend courses of action that will help combat these damages in the first place. Government intervention is bound to be necessary, as insurance companies cannot take decisive actions against these cash-for-crash scams without violating data protection laws. Accidents involving personal injuries are being processed by a "pay and recover" model, where the adjuster of the defendant’s insurance company must comply and directly pay the accident victim without investigating the case, as long as claimants can generate third-party injuries. In the meantime, the fraudsters have up to three years to recover their costs without being immediately required to pay for repairs.

1.1. Background and Significance

Insurance fraud is broadly defined as a crime where an individual receives a benefit or an advantage from the submission of false information to an insurance company. This can take many forms, including false claims, filing for damages that did not happen, or inflating the cost of damages. Fraud is a serious crime affecting the whole insurance industry and the general public. Fraud committed against UK insurers stands at £3.6 billion for 2019. Of this total, £1.1 billion was insurance fraud detected and prevented, including fraudulent claims and insurance applications. Further, £2.5 billion of detected and prevented premium underpayment fraud was identified, which includes fraudulent collection of no-claims discount or use of fake no-claims discount. Interestingly, in 2019, one in 15 (6.6%) insurance frauds was detected due to whistleblowing or tip-offs; this was a sharp increase from only 3% of tip-off detections in 2012. It is clear that fraud is a serious issue from which all members of society are negatively affected in one way or another, and action needs to be taken. (O'Brien, 2021)

Even within road traffic accidents (RTAs), there has emerged a particular type of fraud called crash for cash (C4C). This occurs when an individual or group purposely instigates an RTA to receive financial compensation from insurers. A common method of this type of fraud is inducing a rear-end collision by a sudden and unnecessary emergency brake. Whereas the innocent driver is often blamed, it becomes increasingly difficult to provide evidence that this was not an accident caused by negligence. Researchers advocate adopting a public database of insurers and vehicles implicated in suspected C4C that can be leveraged to detect fraud in future claims; still, nothing of the sort has been done thus far. In August 2020, a fraud worth an approximate £809,000 was investigated in London involving 21 vehicles. This case demonstrates that C4C can have serious and rapid effects, especially with insurance premium inflation at 10.2% above general UK inflation. This has sparked a push for action towards detecting and combating C4C both by insurers, drivers, and the government. (Abdul–Lateef, 2020)

2. Understanding Crash for Cash Insurance Fraud

Despite the increased awareness of the issue, very little research has investigated crash-for-cash insurance fraud, and as such, there is little agreement on the profile and motivations of these fraudsters. The aim of this paper, therefore, is to assess the role of government in facilitating the development of a comprehensive and collaborative strategy to fight the fraud. The research found links with various criminal activities, from small-time offenders to large organized criminal syndicates. The necessity of cross-agency and collaborative working both across the public and private sectors was also recognized and further explored. These conclusions were then used to make some recommendations for future government financial crime strategy and some future research studies. (Ribeiro et al.)(Brooks & Stiernstedt, 2022)

Insurance fraud is an intentional act committed by one or more individuals to defraud an insurance company. This type of fraud is usually very difficult to detect because the perpetrators go to great lengths to keep their activities secret. Insurers worldwide estimate that approximately 10-20 percent of all claims contain some degree of fraud, and this is costing the insurance industry billions every year. The phenomenon is more complex than what many think; it is not a victimless crime and not something that most people believe they should be concerned about. However, the effects extend beyond just a mild inconvenience when attempting to settle a claim. This type of insurance fraud affects most people, as it increases insurance premiums and can potentially be used to fund large organized criminal activities. (Morgan, 2021)(Ismail & Zeadally, 2021)

2.1. Definition and Types

The term "crash for cash" refers to a type of insurance fraud that involves staging or provoking accidents in order to claim compensation for vehicle damage, personal injury, or even whiplash. Perpetrators benefit from huge payments as a result of the fraudulent claims or as a result of exploiting vehicle passengers, who might often share the "compensation" with them. The implementation of fraudulent schemes can be very risky and directly threatens the lives of thousands of innocent road users. As a result of the increasing number of accidents, crash for cash fraud has become a critical issue. It has been estimated that this dangerous type of incident might continue to rise, causing further significant economic, social, and personal impacts on the country. The previous section provided a clear and comprehensive overview of the crash for cash insurance fraud phenomenon. Moreover, several related fraud scenarios were introduced. This chapter will focus specifically on the role of the government in confronting the problem caused by this complex phenomenon. Initially, the definition of crash for cash fraud will be briefly presented before presenting several examples of the various types of fraudulent accidents orchestrated for gaining illegal profit. (Bas2020)

3. Current Government Interventions

Investigating the Role of Government in Addressing Crash for Cash Insurance Fraud: Future Recommendations and Studies

3. Current Government Interventions

3.1. The Regulatory Role of the Financial Conduct Authority

Insurance is seen as a member of the service sector with numerous local and national indicators that it is a consumer detriment on issues such as premium driving service and claims handling. The oldest levy had its powers broadened by an Act of Parliament in April 2013, giving the regulator clear power under the legislation if it follows its traditional model for general insurance. The Act aims to ensure that the London insurance market continues to attract syndicates and introduces the crime of being run by the FCA with a primary second law. This Act gives the FCA specific powers to require insurance claims case data and call evidence on any other person or organization involved in insurance on any matter relating to claims or communications made in connection with claims. The SRA has suggested that companies report the most inappropriate injuries within a fixed period after the accident and implement a new pre-action protocol for RTA claims that requires companies and claimants to exchange information at an earlier stage. The Financial Services Authority is responsible for regulating insolvency procedures and acts as a guarantor to protect the system and continue it. Data on the proceeds of insurance fraud is frequently reported incorrectly, meaning that the majority of insurance requirements exploited are never recovered. (Hilal et al., 2022)

3.1. Legislation and Policies

It is therefore necessary to continue to innovate and improve legislation that addresses insurance fraud. One way to achieve this is to build on the claims associated with digital identity as an essential first stage in the insurance process. A standardized and regulated approach to the use of digital identity would impact both new technology and cash for crash. Taking these steps, particularly digital identity, which is a global trend, and its policing, will assist all types of insurers, not just small, high-volume businesses. The areas of investigation that have been identified through this research are recommended as areas for future study by academic researchers. There is an onus on all stakeholders to continue to innovate, develop regulation, and make use of technological advancements to ensure that all customers benefit from the trauma and cost reductions consistent with their digital lives. (Burton, 2020)

The aim of this barrier should not be to prevent the use of technology as a basis for insurance, but to ensure that the technology works as required to minimize the opportunities for fraud. As the insurance sector currently stands, with people providing false personal details, false car details, false statements of damage, and false accident reports, there is no benefit to those who will be left behind as they turn their back on technology, except, of course, to open new fraudulent opportunities. The utilization of cash to limit losses is identified as a key driver of undetected fraud. (Hilal et al., 2022)

4. Challenges and Limitations

Despite the great advances that our team of computer scientists has made in the development of ICT to combat Crash for Cash, significant hurdles must be overcome before these innovations can be adopted. The challenge of transferring the system from the theoretical to a real-world environment is significant; government regulations both prevent and allow the implementation of certain technologies. We also need to recognize one of the fundamental challenges of government policy with respect to insurance fraud. The ideal outcome of our work would be to eliminate Crash for Cash fraud completely; individuals would be deterred by an increased likelihood of getting caught and, at the very least, by the enhanced regulations in the industry and increased insurance prices. This, however, is not the primary objective of government intervention. Certainly, these are important policy goals, but one of the key roles of government policy that we must pay attention to is, in fact, a sharing of costs. (Stern & Stiglitz, 2021)

By their nature, fraudsters do not pay for their recklessness. As insurance companies begin to lose profits, they are forced to make higher payout charges, and consumers end up burdening the losses incurred. This has several implications for the design of ranking malware. The system, and how government should intervene in the insurance market, needs careful study and empirical evidence. Government regulation could lead to the establishment of an industry and environment that no longer adjusts insurance premium prices to drivers' actual risk or any data charges in the actual levels of risk posed to drivers. Of course, elements of discrimination are important for any insurance system. Governments and regulators may not have the high-resolution data necessary to create such models. They are, in effect, price setters in an industry that does not control for the latest information on driver risk posed. While these insurers, who offer better-customized products for their clients, may face very severe competition.

Overall, in developing the ranking and scales, a careful assessment of the distribution of risk around this ranking will be required. These point to important implications for the decision of the ranking that should be used against drivers. Policymakers will have to consider the superiority of the ranking over any possibly large social cost associated with the fraud increase across drivers with low scores. Policymakers also need to ask whether this ranking and ranking-based insurance policy, in terms of the ranking performance, proves insufficient; then they can complete this ranking with public regulation. Additionally, policymakers could consider whether more targeted subsidies, which provide direct incentives to shrink the restricted use zone or leave the car at home, such as congestion or carbon pricing, are more adequate to meet both these economic and security concerns.

4.1. Enforcement Issues

The role of enforcement in addressing crash-for-cash insurance fraud is a complicated area. There are a range of reasons for the growth in the phenomenon. These are in part broad social reasons, such as the fact that the penalties for those who are caught and convicted are so low. It has been suggested that the majority of those who are convicted of fraud and theft in this area receive a custodial sentence of just ten months, which implies that many are not convicted. It was the view that these convictions far from reflect the serious nature of the crime of being involved in crash-for-cash insurance fraud. (O'Brien, 2021)

In addition, those who commit this type of insurance fraud are often charged with other offenses, notably dangerous driving or the lesser, but still serious offense of careless driving. In their view, these are not always added to the sentence, and so those who were convicted of crash-for-cash insurance fraud do not always receive the lengthier sentences required. As a result, it has been suggested that there are no sentencing guidelines.

5. Future Recommendations

The results of this study allow for a number of different areas of research to be considered regarding crash-for-cash insurance fraud and the role of the government in addressing this fraudulent behavior. The role of the victim is an area that has been integrated to some degree into the wider literature concerned with insurance fraud. However, previous research conducted within insurance fraud identified that victims are often the most overlooked in academic study, and more work needs to be conducted to better understand the effects of fraud on the victim. In the broad field of victimology, the focus on the victim is an even more recent focus, and it could be beneficial to link this concerning insurance fraud to the field of insurance fraud to see what role the government could play in supporting the victims of crash-for-cash insurance fraud. The role of the secondary victim is something that is explored in depth within very specific areas, such as rape, through providing some counseling within the criminal justice system. This support could provide protection for the secondary victim’s mental health. Future research should therefore consider the specific needs of the secondary victims of insurance fraud, how the secondary victim should be incorporated into future support provision, and the potential impacts of victimization on public sector budgets. What can be done practically to better support the victim(s) and to make more rigorous the principle that victims should be supported is just and fair.

An additional extension of the findings of this research should consider the impact that further quantitative research in this field has on people’s views of the role of government in insurance fraud. The majority of the public support the use of the law to address criminal or fraudulent activity but still expect personal responsibility for addressing offending to be taken. Additional work could consider the views of the public and whether, by not strictly adhering to these beliefs, the role of the government in combating crash-for-cash insurance fraud makes implicit any feelings of an entitlement culture, or whether they should be further supported by the state. The qualitative work conducted found that while participants generally thought it was important that crash-for-cash insurance fraud should be prosecuted under criminal law, because it had the potential to cause injury or death, they did not necessarily believe that the crash-for-cash insurance fraudsters or criminals themselves had the potential to cause injury or death. Future research governed through a large-scale national survey can incorporate respondents’ beliefs since this may permit a more robust understanding of how the support for criminal charges for crash-for-cash insurance fraud should be managed and the relationship between public sentiment and governmental policy. (Velasco et al.2021)

5.1. Technological Solutions

It is important for the government to explore the use of financial sanctions in cases of fraud, as well as explore technological means to detect insurance fraud and potentially deter fraudsters seeking to stage accidents to make fraudulent claims. Solutions are needed to detect fraud before fraudulent claims are filed, as well as at other points in the claims process. There are many technological solutions available in the market for early warning signs of crash-for-cash claims. However, many favor using cameras at the front and back of moving vehicles to detect potential crash-for-cash accidents before they happen. An alternative could be the use of devices mounted on vehicles that communicate with satellites and determine the time, location, direction, and speed of travel, or even of communication between participating devices mounted in the form of moving and fixed devices known to be in locations given the crash-for-cash history of individual locations. (Kapadiya et al.2022)

There are, of course, data protection and privacy issues to consider here, but relatively speaking, the use of technology raises fewer legal and ethical issues than such substantive issues as the use of insurance industry referral fees. It is possible that any technological solution could often be quite subtle, detecting potential fraudulent claims after they are filed but before there is no return, as occurred when potential crash-for-cash claims were submitted to insurance companies, only to find the company decided to pursue litigation about how these claims were settled. The claims then stopped out of necessity because there was no return from staged accidents staged by then convicted fraudsters and a no-win, no-fee deal with the law firm representing the claims farmers.

6. Areas for Further Research

In conclusion, empirical and case study literature were reviewed. Information from a number of governmental, private sector, or professional associations, and individual cases with excellent supporting resources were included. Practical and worthwhile policy and policing recommendations were then made related to future research by identifying many other possible government measures needed to address crash-for-cash fraud. These were suggested in relation to captures, criminal verification details, court orders, credits, disqualification, financial investigation, financial penalties, graffiti, interception of communications, juries, land registry, methadone, motor vehicle insurance, official certification of family members, onward prosecutions, reunification of children, sale of shares, secretarial evidence, sexual harm prevention orders, suitable adults, supply of information, witness anonymity, witness protection measures, and witnesses. These possible future governmental preventative measures against the problem of crash fraud encompassed far too many to be dealt with entirely. Future research would benefit from additional studies that help construct a comprehensive understanding of road traffic crashes.

Surface degradation needs to be examined by public authorities and public/private partnerships, as some kind of research service compromise may exist to extract the cracks, clear their content, and try to eliminate the latent demand for financial gains by morally scrupulous individuals who plan to take advantage of a related accident that is unrelated to that plan within the same time frame. Future inquiries should also seek to distinguish between both organized and spontaneous fraudsters and ascertain which extra tools might be needed, as well as identify the kind of restitution judges prefer. Research should also determine a possible hidden relationship between the number of crashes and especially the number of road interfaces between traffic safety and cash-for-crash insurance fraud. Moreover, future researchers might examine whether there was a hidden conflict of interest concerning software data captured from sources and surveillance equipment that is also geo-located. Ultimately, the association between all of the main variables identified in the data visualization metrics needs to be further investigated and tested upon the goodness of fit results from the whole data concerning the problem of fraud.

6.1. Impact of COVID-19 on Fraud Rates

The COVID-19 pandemic has had a substantial effect on road use and travel practices around the globe. It has reduced the number and length of car journeys because of lockdowns, remote working, or unemployment, and laid bare both the geographic differences in travel and the existing inequalities by race among car use along the lines of the environmental justice perspective. CCTV and dash cam footage of deserted streets without pedestrians and vehicles and the sharp decrease in overall traffic convinced the main motoring and property insurance businesses to return a total of more than £24 billion to drivers to reflect claims activity during the year because they ran their cars much less.

The lockdowns resulted in a decrease in movement and a reduction in the number of crashes, but the proportion of certain collision types, such as the cash for crash ruse, grew rather than diminished. Specific instances of excessive fraud have developed during both national lockdowns globally, despite the worldwide decrease in motor insurance claims. Since the general public has been deprived of the ability to respect the safety of social distancing, corrupt policyholders grabbed the opportunity to distort this empty road ecosystem and use the visual gap to plot particularly egregious traffic collisions to cover up some of the oldest versions of the fraud.

References:

O'Brien, S., 2021. The criminal act of committing insurance fraud: The challenges facing insurers when detecting and preventing insurance fraud.. dbs.ie

Abdul–Lateef, A., 2020. Road Traffic Accidents In Ghana: Examining Road User Attitude and Behaviour. ug.edu.gh

Ribeiro, R., Silva, B., Pimenta, C., & Poeschl, G., . Why do consumers perpetrate fraudulent behaviors in insurance?. Crime. up.pt

Brooks, G. & Stiernstedt, P., 2022. The Private Healthcare Insurance sector: A victim of fraud. Journal of Criminology. sagepub.com

Morgan, R. E., 2021. Financial fraud in the United States, 2017. ojp.gov

Ismail, L. & Zeadally, S., 2021. Healthcare insurance frauds: Taxonomy and blockchain-based detection framework (Block-HI). IT professional. researchgate.net

Bas, F.H., 2020. Insurance Fraud: The Case in Turkey. In Contemporary Issues in Audit Management and Forensic Accounting (Vol. 102, pp. 77-97). Emerald Publishing Limited. [HTML]

Hilal, W., Gadsden, S. A., & Yawney, J., 2022. Financial fraud: a review of anomaly detection techniques and recent advances. Expert systems With applications. sciencedirect.com

Burton, J., 2020. “Doing no harm” in the digital age: What the digitalization of cash means for humanitarian action. International Review of the Red Cross. icrc.org

Stern, N. & Stiglitz, J. E., 2021. The social cost of carbon, risk, distribution, market failures: An alternative approach. ckcest.cn

Velasco, R.B., Carpanese, I., Interian, R., Paulo Neto, O.C. and Ribeiro, C.C., 2021. A decision support system for fraud detection in public procurement. International Transactions in Operational Research, 28(1), pp.27-47. uff.br

Kapadiya, K., Patel, U., Gupta, R., Alshehri, M.D., Tanwar, S., Sharma, G. and Bokoro, P.N., 2022. Blockchain and AI-empowered healthcare insurance fraud detection: an analysis, architecture, and future prospects. IEEE Access, 10, pp.79606-79627. ieee.org