Combating insurance frauds  (2015/01/21)

President, on account of the rampant frauds involving the workmen's compensation insurance and motor vehicles insurance (third party risks), the insurance industry is persistently faced with losses in the operation of relevant businesses. This has led to an increase in insurance premiums, which in turn has a significant adverse effect not only on the transport industry but also on the catering, recycling and cleansing industries. This indirectly adds to the burden of consumers. I think that insurance frauds have undergone some changes in recent years, mainly including the following points.

First, insurance frauds are now syndicated. Different parties in these syndicates have a clear division of work and their operation is highly professional. The suspects of such crimes are familiar with the procedures of the certification of the incident and claims management, as well as the loopholes in the law. Around the middle of last year, the Police cracked down on a case in which a car company operated frauds involving motor vehicle insurance in a one-stop approach. It was found that loss adjusters were involved and over 10 insurance companies had fallen victim to its schemes.

Second, the modus operandi of the crimes is more subtle and wide spread. In recent years, with recovery agents and those engaged in champerty and maintenance becoming more pro-active, the problem is further complicated. The lawbreakers offer one-stop service to motorists involved in accidents andclaim that they will not charge any fees unless their claims are granted. They usually claim very high compensations from insurance companies through various tactics and divide the compensation successfully recovered among themselves. Insurance companies thus suffer heavy losses and the compensation that the policyholder deserves is also eroded. 

Third, the incentives are so strong that people may be tempted to make reckless moves. As the number of frauds is not large at present ― 34 cases in 2012, 46 in 2013 and 49 between January and October in 2014 ― it does not arouse much concern in society. However, with the compensation involved in each claim amounting to hundreds of thousands of dollars or even as high as tens of millions of dollars, coupled with the difficulty in cracking a case and gathering evidence, the legal risks are relatively low but the returns are high. Lured by the economic interest and large sums of money, recovery agents take the opportunity to scheme against insurance companies. They usually use various tactics to lure persons who are not well versed with the law to continue lowering their bottom line of morality to the point that they risk breaking the law and make fraudulent claims against insurance companies by fabricating or exaggerating the damages caused in an accident.

President, it is no easy task to eliminate such frauds, mainly because many people are not aware that they should abide by the law. They may think that insurance companies have the means and are willing to bear the responsibility of making compensation. Urged by recovery agents and being ignorant due to the lack of publicity by the Government, they would overlook the fact that they are committing a serious crime of fraud.

Of course, the loopholes of the legal aid system also indirectly encourage champerty. Under the existing system, legal aid applicants are allowed to choose the representative lawyers of their own. Therefore, the lawbreakers engaging in champerty can talk the victims sustaining injuries at work or in a traffic accident into applying for legal aid and choosing the recovery agents' own lawyers. Then they can engage in champerty with the huge resources obtained from legal aid.

In view of the features and causes of insurance frauds, I think that if the problem of insurance fraud cannot be resolved at source, the setting up of a "central employees' compensation fund" will only increase the Government's expenditure but will not help rid insurance companies of their long-term losses. At the same time, as the compensation fund is set up with public money, the Government will tend to be conservative in managing it. Hence the efficiency of handling the claim arrangements will certainly be much inferior to that of private insurance companies. Hence, Mr LEE Cheuk-yan's proposal is not practical. As to the prevention of insurance fraud, I have the following suggestions. 

First, the Government must face up to the harm done by insurance fraud to society and consider clamping down on this crime as an ongoing task. In the face of increasingly rampant insurance frauds, the United States has taken a host of strict measures to prevent and deal with it since the 1990s in the last century. In general, its philosophy is as follows: enactment of legislation first, enforcement by the government with the support of the industry, participation of the community and dealing with it with concerted effort. Thus it has built up a multi-layer and all-round anti-insurance fraud system to strengthen its enforcement and investigation force. Drawing from the experience of the United States, the Government may consider setting up an inter-departmental task force to take effective measures promptly against any irregularities found, thereby enhancing the deterrent effect of its law enforcement, squeezing out the room for this kind of offences and preventing the spread of such illegal activities.

Second, the authorities need to step up publicity campaigns to educate the public about the harm of insurance fraud. To help the public have a better grasp of that, the authorities can choose some typical cases and show them in the media to arouse the public's awareness of the consequence of committing insurance fraud.

Third, the authorities can consider offering appropriate awards to the whistle blower. Apart from helping the policyholders understand their right and obligation and volunteer to fulfil the insurance contracts, it can also appropriately encourage the public to report on insurance frauds. At the same time, through the Government and other stakeholders' monitoring, a certain degree of deterrent effect can be achieved in reducing and clamping down on the illegal act of insurance fraud.

President, even though the number of insurance frauds is small, the Government must not go off guard. The data of the past three years show that the number of such offences is on the rise. I hope that the Government will look squarely at the problem and formulate measures to strengthen Hong Kong's status
as a financial centre.

With these remarks, I support the original motion.