London - This scam came out in Britain, but it could just as easily happen in South Africa, where some insurance companies give application forms only a cursory glance, and put innocent motorists at risk by failing to check the identities of customers who apply for car cover.
That allows fraudsters to offer insurance that looks good on paper - but will never pay out. The policies are being taken out by unscrupulous British brokers, who use fake names and addresses to get rock-bottom prices on motor insurance - and then sell those policies to customers in high-crime areas where car cover is usually expensive.
By using rural addresses they can get cover at a third of the price in cities - for instance, a 40-year-old motorist in Aberdeen typically pays £395 (R6570) a year, compared with £1265 (R21 000) in Bradford.
Fraudsters are thought to be targeting less sophisticated customers who don’t realise it’s a scam. And police fear some desperate drivers buy the deals knowingly. These customers often avoid detection because their car simply shows up as ‘insured’ on the database police use in roadside checks.
But if they are involved in a crash, however, the policies are deemed invalid by insurers and the motorist is classed as an uninsured driver.
In this instance, the other party will be forced to take responsibility for the damages and claim on their own policy.
That could mean innocent motorists lose no-claims bonuses, face higher premiums - and even have to pay for repairs while the police investigate, which can take months.
Marc Gander, founder of campaigners Consumer Action Group, says: “This is a shocking discovery. There is no reason why insurers can’t come up with a method of quick customer checks - it just means investing some of their profits.”
Industry body the Insurance Fraud Bureau is probing around 50 so-called ghost brokers who are thought to have obtained fake policies for thousands of drivers.
The City of London Police says the addresses of hundreds of properties in remote locations are being used fraudulently and has launched its own investigation. Homeowners only realise they, or their address, are being used when they receive the policy documents in the post. Those affected fear their properties could be blacklisted, barring them from getting their own insurance deals.
‘In good faith’
One reader in a rural location has received policies in the names of eight people - none of whom he knows. All the letters came from insurer Direct Line. Every policyholder seemed to be in their early 20s - a difficult age range for which to buy genuine insurance - and had insured cheap cars, such as a 16-year-old Opel Corsa or Ford Escort. Most included a spouse on the policy.
Public records showed none had lived at the reader’s address in the past.
Direct Line wrote to the reader when he complained, saying it was “under no legal obligation” to check customer details and that policies were accepted in “good faith”.
“At the time the policy was incepted,” the letter said, “we took address details to be correct as the policyholder was under obligation to ensure that it was.”
A spokeswoman for Direct Line said: “As soon as the customer called us, we passed the case to our fraud team and voided the policies. We have since tightened our address matching process, making it much harder to commit address fraud. We are confident the extra steps we have put in place will help prevent fraud like this in the future.”
Mike Gray, a hotel porter from Aberdeen, received two letters from Privilege insurance, part of the Direct Line Group, addressed to a customer with the name of an Eastern European, whom he had never met. He received a stream of letters and a policy in the stranger’s name in 2015.
Privilege Insurance, however, says no policies are currently registered at his address.
Malcolm Macleod, 59, was told by City of London Police that his address was being used by scammers during an investigation in the north of Scotland this summer. He received insurance addressed to strangers in 2014.
Macleod, who lives in the remote district of Ness on the Isle of Lewis, where crime is extremely rare and his insurance is only a few hundred pounds a year, says: “I can only think the fraudsters chose my home because it is the first house in the street.”
Another tactic used by criminals is to buy a policy and take out a loan to pay for it using someone else’s name and address.
Katharine Smith, 60, a freelance writer from Taunton in Somerset, has not been behind the wheel of a car for 40 years. Yet, over the past two months she’s received a stream of letters and policies from insurers, brokers and credit firms about two vehicles of which she has no knowledge.
The insurers say the policies have been cancelled - presumably without the loans being repaid - but Mrs Smith is still receiving demands from the firms.
The letters from insurance firms iGO4, Zenith and Vanlinedirect were all addressed to a Mr K Smith. They were followed by details of a loan to pay for the policy, which was in her name, but used a stranger’s bank details. On the policy with Vanlinedirect and Zenith, her date of birth was also incorrect.
“I was really worried when I saw someone was using my details,” she said. “I wondered what other information they had on me.”
Vanlinedirect, which issues the policies for Zenith, said it checked the application, but no problem was red-flagged.
Insurance Fraud Bureau director Ben Fletcher said: “Insurance companies’ systems are designed to provide a service to genuine customers - that means accepting the policy in good faith. Checks will be made, but there is no foolproof system to check where a customer is living.”
Just one in three insurers uses a database called MyLicence, set up by insurers and the Government in 2014, to check whether customers have different postcodes on their driving licences and bank cards.
Mark Allen, fraud and financial crime manager at the Association of British Insurers, said: “There are a number of databases and systems that insurers can and do use to help identify potential fraud when people are buying motor policies.
“Anybody being sent insurance documents in someone else’s name should contact that insurer.”