Car insurers: stepping up the fight against 'fronting' fraud

A recent study has discovered that a large percentage of parents falsely claim to be the main driver of a vehicle to reduce their child's insurance rate, in just one example of the problems facing this loss-making market. Insurers are planning to spend more in future on cracking down on this practice, using a number of different tactics.

Research by The Co-operative has found that 41% of parents deliberately 'front' in order to cut the car insurance premiums paid by their children. This occurs when a parent claims to be the main driver of the car when their child - who is registered as a named driver - is in fact the primary user. Worryingly, the survey also revealed that 61% of parents would start or continue fronting in the future.

This is part of a wider problem of non-disclosure and fraud in the industry, which makes it hard for insurers to accurately price risks. This is compounded by the difficult underwriting climate the market is facing, with 2009 FSA returns suggesting that the combined ratio for the UK private motor market was over 120% and that most insurers therefore made a loss that year.

In its UK Private Motor Insurance 2010 report, Datamonitor has found that insurers are investing heavily in point-of-sale validation by scrutinizing the information provided by customers. Some of the tricks of the trade include checking the make and age of the car and whether it matches up against the policyholder's risk profile. For example, a high earner would not typically drive a modified 1995 turbo hatchback. Other ways of spotting potential fronting can include investigating the number of cars insured within a household and whether the named driver was added before a spouse, and running further occupation and car location checks. With respect to uninsured driving, the continuous enforcement insurance scheme due for implementation in the spring of 2011 will help insurers by allowing them to cross-check the databases of the Driver and Vehicle Licensing Agency and Motor Insurers' Bureau.

For the future, market sentiment is that more effort and investment will be made in point-of-sale validation, raising the profile of fronting and making parents understand that there are serious legal implications for those found guilty of such behavior.