Taxi licensing and insurance fraud – Kevin Hocter published by Institute of Licensing

Originally published by Institute of Licensing. To view the original, please click here.

Hackney carriage and private hire drivers and operators across the UK are subject to a licensing process which requires that they are ‘fit and proper’. While a vast majority are law abiding and honest individuals, Horwich Farrelly Solicitors in Manchester have Court findings of Fundamental Dishonesty against over 100 taxi drivers nationwide. In layman’s terms, this means that a judge in a civil court has ruled they have brought a fraudulent insurance claim – the penalties for which can be severe.

As an Intelligence Analyst at Horwich Farrelly Solicitors who has spent his whole career investigating road traffic accident (RTA) claims, I know that ‘insurance fraud’ is wide ranging with instances of people recklessly crashing cars on purpose, attacking their own vehicles with crowbars to make damage look worse and claiming against insurers for debilitating injuries whilst secretly running marathons, parasailing or going the gym, on a daily basis.

What if a taxi driver deliberately crashed their vehicle while carrying innocent passengers, in an attempt to legitimise the ‘accident’. What if the passengers were children? These scenarios have taken place and been discovered by, Horwich Farrelly acting as legal service providers to the UK insurance industry. Such activities go straight to the heart of any debate about whether the individuals are ‘fit and proper’.

Insurers instruct us to investigate and defend suspicious RTAs. Unfortunately, it’s a fact that many end up being found to be fraudulent. These range from genuine accidents with an element of exaggeration, to deliberately induced collisions staged or contrived purely to make money from an insurance company – which in turn of course leads to increased premiums for honest policyholders. You may know of these accidents by the common media term ‘crash for cash’.

Historically, some accident management companies and solicitors would benefit financially from someone bringing a personal injury claim following an RTA. As a consequence of recent legislative changes however, the amount of money they can make from such claims has reduced significantly. There is however, one area that remains unregulated and which, subsequently, could be exploited by the unscrupulous; ‘Credit Hire’. Credit Hire is the means of hiring of a like-for-like replacement vehicle on, usually, very expensive credit terms, whilst your own vehicle is off the road, either for repair or whilst a replacement is sought.

Whilst there are agreements and charging structures in place between some of the larger Credit Hire Organisation’s (CHOs) and the insurance industry, the credit hire industry itself is largely unregulated. Anyone can set up such a credit hire company, and CHOs can – and routinely do – charge whatever daily rate they want for the hire of replacement vehicles; often many times above and beyond the rates charged by any of the well-known high street car hire companies.

Accrued credit hire charges are usually recovered against the ‘at fault’ driver following an accident. Payable by their insurance company with the effect of increased insurance premiums for the average road user, ultimately it is normal motorists who are, through no fault of their own, funding this enterprise.

Further analysis of the tens of thousands of claims involving credit hire shows that many of these feature taxi drivers. Why is this? Taxi drivers are naturally on the road much more than the average driver and are therefore statistically more likely to be involved in an RTA. Secondly, given the tight restrictions on vehicles suitable for use as a taxi, many CHOs have fleets of vehicles ready quickly, and specifically, for such use and this allows them to charge premium rates for their hire – some as high as £400 or more per day!

As a result, is often the case that following even complex RTAs of some value, the amount claimed for credit hire will exceed claims for personal injury of driver’s/passenger’s!

Many CHOs deliberately and solely supply the replacement taxi industry. Many have cultivated closer ties to taxi operators, and there are cases where taxi drivers are incentivised to bring claims by the payment of ‘referral fees’ (often for thousands of pounds), to use the services of a particular CHO.

This approach provides the motivations for bringing a claim, and as a result it’s easy to see why a driver would become involved in a deliberately staged or fraudulent ‘accident’. Now consider other motivations.

Industry-wide data shows that, in times of economic downturn, through need, people turn to other means of income. In such times, fraud nearly always increases. Both ourselves and our clients see myriad examples of spikes in fraudulent claims during recessions. Consider Covid-19 too. Repeated lockdown’s have reduced the need for licensed drivers as more people work from home. Many have sought alternative employment and relinquished their licence. With vehicle sales also impacted, involving a taxi in one last RTA could be seen as a way of recovering its value.

There are further concerns about licensed vehicle ‘owners’, i.e., an individual seemingly buying and licensing vehicles, to then ‘hire’ them to drivers. We’ve seen evidence of vehicle owners with close ties to CHOs. Often, a high value credit hire claim follows an accident. It’s not uncommon for Horwich Farrelly to defend credit hire claims valued as high as six figures.

The claims process can be arduous and drawn out. It can involve protracted discussion on liability or fault. If the claim is disputed, or a concern is raised, it will then lead to investigation and, potentially, litigation. There will then need to be forensic examination of documentation, both for the drivers and their vehicles. By the time a disputed claim reaches court and we become involved, months may have passed – potentially even a year.

This is where Taxi Licensing departments enter the scene. Pursuant to Section of 50(3) of the Local Government (Miscellaneous Provisions) Act 1976, a taxi driver is legally obliged to report an accident within 72 hours. Completing a Taxi Licensing Accident Report Form is often the first documented evidence of an accident. As such, it is key evidence when investigating a claim. Subsequent records relating to inspection and compliance testing of licensed vehicles – or medical records where a driver claims they sustained injury – are also key.

Working with our local council’s licensing team on an investigation, led to conversations about ways to address exaggerated and possibly fraudulent claims, and the related dishonesty issues. In the public interest, and to ensure safe travel and good levels of service, the Council wanted unscrupulous drivers off the road.

It was clear to both Horwich Farrelly and our local authority licensing team that there was clear mutual exposure and a real desire by both to do something about it. Together we could make limited progress, but a wider collaboration involving more licensing authorities would be invaluable We canvassed views initially from a number of licensing authorities, feedback from whom was overwhelmingly positive, and in December 2019, we hosted an inaugural ‘Insurance Fraud & Taxi licensing conference’. Designed to strengthen relationships, tackle fraud and assist authorities in taking dishonest licence holders to task, it was attended by representatives of over 20 authorities from across the North of England and the Midlands.

Topics discussed included different types of motor fraud, driver licensing, due diligence and intelligence sharing protocols, and outcomes where a specific finding of fraud is found against a licensed driver.

Following the conference, a close relationship was established with all attendees, particularly John Garforth and Kay Lovelady of the North West region of the Institute of Licensing (IoL). Consultations took place with a view to holding further events in early 2020 and to establish a practical workshop to discuss licensing/legal documentation and accident reporting. We also discussed how Horwich Farrelly, as a representative of the insurance industry, could work with licensing departments to combat credit hire fraud.

Most significantly, the intention is to involve licensing authorities in the investigative and ligation process. Judgments of Fundamental Dishonesty (fraud) could then be shared with licensing authorities, enabling them to review licences. If licence holders are not ‘fit and proper’, they shouldn’t be on the road.

Despite Covid-19, lockdown and the world pausing, we maintained contact with the IoL, and local licensing authorities and we are already seeing the results of our collaborative efforts in defeating claims. Since working closely with licensing authorities we’ve seen a 30% increase in findings of Fundamental Dishonesty (fraud) against licensed driver’s bringing claims in court. A startling increase during a period when a pandemic has resulted in less vehicles on the road, and less accidents.

With the world now slowly reverting to normal we are once again proactively working and meeting with IoL members and licensing departments to defeat spurious claims. We look forward to meeting and speaking with you over the coming months.

I’ll anticipate now your first question will be “Do people really crash cars on purpose to make these claims”? To which our answer will be “Yes. Here, let me show you…”

Publication Author:

Kevin Hocter