The UK Government is opening its cheque book to pay compensation to victims of a flawed IT system. While the Post Office IT scandal has nothing to do with insurance, it is something I would strongly urge insurers to keep an eye on.
Between 2000 and 2014, the Post Office successfully prosecuted hundreds of sub-postmasters and sub-postmistresses, based on erroneous outputs from its Horizon IT system. The High Court has since quashed most of those convictions. And now the Government has agreed to fund whatever financial settlements are reached with those who were wrongly convicted in court.
So why should this interest insurers? For several years now, I’ve been concerned about the governance arrangements for the sector’s counter fraud initiatives. And I’m not the only one to have those concerns – law professors in both UK and US universities have talked to me about similar concerns.
With data and analytics now at the heart of every counter fraud initiative, the need to achieve the right scope and depth of oversight has never been more important. Yet the oversight in place in UK insurance seems to lack independence and challenge. The dangers of ‘group think’ are obvious.
That lack of challenge can be seen in the Liberty Mutual case, the consequences of which proved very expensive for that insurer. And that was just for mobile phone insurance.
Scandal on its way?
At some point, I fear a scandal will engulf counter fraud operations in insurance. The trigger will be either an individual being wrongly convicted, or an insurer’s decision systems being found to be unfair or discriminatory.
While it is right for sector leaders to talk about the importance of catching criminals, they need also to remember that how that is done is just as important (remember Blackstone’s famous ratio). Furthermore, the reality is that six out of seven cases of what the sector calls ‘fraud’ relate to application fraud. That makes how the sector tackles fraud relevant to all of us. We are all in effect being judged as potential fraudsters.
Back to the Post Office. Insurers should keep a watch on what levels of compensation are paid out by the Government, and the language accompanying them. Who knows – it’s possible they may have to face something similar themselves at some point. At the very least, they could well be caught up in a public storm triggered by the practices at a competitor. Either which way, something is on the horizon.
