The car insurance scam we are all paying for

This couple took advantage of car insurers' complacency with a successful scam. And we are all paying for it.

When I bought motor insurance online recently, I had to send the insurer all manner of extra stuff a few weeks after I had been accepted and paid. It demanded identity documentation, plus proof that I owned the car I had covered.

What had I done differently to attract all this extra attention? The insurer refused to tell me directly for “security reasons” but I know it was because I had found the same cover on more than one comparison site. I was interested, naturally, to see if it was cheaper on one than on another, or if one found a completely different deal.

To make everyone even more suspicious, I also put in details which did not mention a recent loss of no-claims discount and then had a second go with the reality of the minor crash. It was to test how much I had been penalised for the scrape – obviously the details I submitted in my real application were genuine.

All this extra documentation demanded probably had something to do with the case of Elina Jaksone and Gagik Manucharyan who were both jailed for five years earlier this month for insurance fraud – among a whole raft of other offences, including tax evasion and false social security claims.

And while there has been comment about the couple's lifestyle – nice home, big car, luxury holidays, plus public school education for their child – the motor insurance industry has escaped blame. Yet it is because cover providers were so lax that nearly 10,000 phoney policies were issued, leaving drivers without protection in the event of a claim. Victims of these high risk motorists would have had to try their luck with the Motor Insurers Bureau, which pays some but not all claims caused by uninsured drivers.

For the couple had found an easy to exploit motor cover loophole. Insurers are so busy signing up new customers that they did not check that these future customers were real or that they owned the cars the policies protected.

You don't really have insurance

What they did was simple. They set up what appeared to be an insurance brokerage from their home on the Kent coast. In return for a £100 commission fee, they would contact insurers on behalf of their clients, giving the companies false information that they knew would result in low premiums. So they would stress experienced driver, mature age and no previous claims.

The scam worked for seven years, during which time thousands of drivers thought they had bought insurance. At the very least they believed they had bargain cover.

The pair concentrated on young Eastern Europeans who were often rated expensively by insurers due to their lack of experience on UK roads and their youth. Many had left hand drive cars for which insurers also charge more. Even with the £100 fee, their clients paid a lot less than the going rate for the risk.

The fraudsters lied about the drivers, they lied about the addresses of the car owners, they lied about the cars themselves and they lied about any past offences or claims. Any of these lies is sufficient to void a motor policy so it will not pay out if there is a claim.

At their trial, some 30 motorists gave evidence, saying they believed they had legitimate policies. Unlike some motor insurance scams where so-called brokers just pocket the premiums, hoping there are no claims, the couple made their money out of the commissions they charged, handing over documents which would have been genuine if they had resulted from honest answers to the proposal form questions. But insurers did not check.

We are paying for their lies and the insurers' complacency

Amongst the near 10,000 policies the pair caused to be issued, there must have been a number of claims. Some of these will have been paid out because insurers believed them to be genuine.

This was fraud on the motor insurance world – and the rest of us whose premiums go up to pay for these rip-offs – on an industrial scale. But who brought them to court? Which organisation did the investigation leading to the successful prosecution?

If you thought it was the motor insurance firms, then you are wrong. They did nothing until the couple already had their expensive collars felt.

The authority which did the work was Her Majesty's Revenue and Customs. In one of its frequent trawl of adverts and addresses, it discovered the couple were leading a champagne lifestyle without even a cider-level tax return. Once the tax folk got their teeth in the pair, all the other frauds became evident.

Remember how Al Capone got caught?

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