Spanish Motor Insurance Fraud Gibraltar Insurance Institute February 2016

1. Spanish Motor Insurance Fraud Gibraltar Insurance Institute February 2016 Ana Romero | aromero@cremadescalvosotelo.com Jesús Pérez | jperezmorilla@cremadescalvosotelo.com Natalia Astigarraga | nastigarraga@cremadescalvosotelo.com Rachel Walters | rwalters@cremadescalvosotelo.com

2. With offices all over Spain, as well as presence in many other countries including Argentina, Colombia, Chile and Portugal, Cremades & Calvo-Sotelo has over 150 highly qualified staff who are passionate about the law and providing our clients with the very best legal advice and strategic guidance. Our international insurance practice is renowned and highly regarded. We can therefore pride ourselves of having expertise and experience in this field which is second to none. We put our clients first and exceed their expectations. Thanks to this philosophy of work today we can be proud of having advised major insurance companies in Spain and internationally, providing legal advice that is complemented by an in depth knowledge of the business reality. The consolidated structure of Cremades & Calvo-Sotelo allows us to face, in real time and with material and human resources needed, any insurance operation both nationally and internationally. We are convinced that you will find in Cremades & Calvo-Sotelo a firm where to put your confidence for all your legal matters…complete trust, total confidence. www.cremadescalvosotelo.com Our Firm

3. Cremades & Calvo-Sotelo is currently among the top ten law firms in Spain and has one of the most serious and dynamic teams of lawyers in our country. This is availed by numerous legal publications such as Chambers & Partners and European Legal Expert. We regularly handle technically challenging multi-jurisdictional cases and our expertise and experience in cross border issues is second to none. We are able to put together, as necessary and at short notice, a multi- disciplinary team that can deal with all aspects of any insurance matter to help you achieve a positive outcome. Our philosophy: • Innovation and efficiency in the most competitive terms • Service Excellence • Independence • Technical Rigor • Second to none client care Our Firm

4. Ana has over 15 years of professional experience in the Tort Law and Insurance areas and has been involved in major litigation, both nationally and internationally. She is specialised in spinal and head injury claims, defective products and medical malpractice as well as maritime and aircraft accidents. The team Ana Romero Partner / Head of Tort and Insurance aromero@cremadescalvosotelo.com Tel. (+34) 952209860 Ana Romero Partner / Head of Tort and Insurance aromero@cremadescalvosotelo.com Tel. (+34) 952209860 Jesús is specialised in Tort Law and Insurance and has over 10 years experience in this field. He has represented clients in claims for damages caused by serious road traffic accidents (including those arising from transport of passengers), defective products, medical responsibility and liability of companies such as construction companies and hotels. Jesús Pérez Associate jperezmorilla@cremadescalvosotelo.com Tel. (+34) 952209860 Natalia graduated in Law in the Universities of Málaga and Regensburg (Germany) and is specialised in Tort Law and Insurance. She is regularly instructed by English Legal Expenses insurers and has extensive experience in claims resulting from road traffic accidents and claims against public bodies such as local authorities. Natalia Astigarraga Associate nastigarraga@cremadescalvosotelo.com Tel. (+34) 952209860 Rachel graduated with honours from the University of Sheffield (United Kingdom) in Hispanic Studies, later obtaining her Masters in English Law from the University of Huddersfield. She joined the Personal Injury department of Irwin Mitchell in 2006. She later went on to focus her expertise in Motor Insurance acting in claims involving foreign claimants in Spain. Rachel Walters Paralegal rwalters@cremadescalvosotelo.com Tel. (+34) 952209860

5. Motor Insurance Fraud in the News Seis de cada 100 siniestros fueron intento de fraude al seguro del coche 18th January 2016

6. Motor Insurance Fraud in the News El fraude en el seguro de coches se multiplica por 3,5 durante la crisis 18th January 2016

7. Motor Insurance Fraud in the News La crisis dispara los intentos de fraude al seguro 18th January 2016

8. Motor Insurance Fraud in the News Los conductores españoles justifican el fraude a las compañías de seguros 18th January 2016

9. Motor Insurance Fraud in the News El fraude al seguro se triplica con la crisis 19th January 2016

10. Introduction Insurance is based on the principle of mutual benefit and is designed to protect against significant, but uncertain, losses. Insurance fraud weakens this system, as fraudulent applications and claims reduce the funds paid in by the many honest customers to cover genuine losses. Impact on society because insurance fraud can be used to fund criminal activity.

11. Elements to be considered • Fraud has become a high priority for insurers. • Insurance fraud undermines profitability for the insurance industry and detriments social and economy structures. • All honest policyholders are victims of fraud. • Prevent abuse. • Detecting characteristics that distingish valid claims. • Focus our attention on early screening as well as during the claiming process.

12. What is Insurance Fraud? Criminal definition of fraud • Requirements: • material misrepresentation, • intention to deceive • aim of gaining an illicit benefit • Diference with the abuse of insurance: absence of this three key elements.

13. What is the scale and impact of Motor Insurance Fraud in Spain? The urgent need for more adequate legal protection and insurer control • The Motor Insurance Industry is the sector widest affected by fraud • ICEA – 7 out of 10 cases of detected fraud occur within Motor Insurance Sector • Linea Directa – 6% of all motor claims made are attempted fraud • Linea Directa - Estimated annual cost of fraud in this sector = 1,190 million euros (a 20% increase compared to 2013) Geographical analysis of Motor Insurance Fraud in Spain Mapa del fraude en España- ABC.es

14. What are the consequences of fraud? Detected fraud in AXA last year supposed a 4.86% saving to motor premiums in 2015

15. Implementation of a claim fraud detection strategy 1.- Claims screening. 2.- Claims investigation. 3.- Negotiation / Litigation

16. Implementation of a claim fraud detection strategy Claims screening • Policy issuing: • questionnaire • evaluation of the risk • close relationship with broker and underwriter • first firewall to prevent the fraud • Claims handling: • data gathering • sources of information • necessary information about the incident • well-structured communications • Damage evaluation: • expert evaluation (material damages or injuries) • shared information of any step • coordination between departments • alerts

17. Implementation of a claim fraud detection strategy Claims investigation Skills and duties. Investigation resources.

18. Implementation of a claim fraud detection strategy Negotiation / Litigation Cases of fraud (hard fraud or soft fraud). Cost incurred and reputation. Strategy to reduce or drop the claim.

19. Regulatory and supervisory bodies in Spain DGS: Insurance sector regulator (life and general) SEPLAC: Executive Service of the Commission for the Prevention of Money Laundering and Monetary Offences Main Insurance and reinsurance trade organisations UNESPA: Association of Insurers and Reinsurers (Unión Española de Entidades Aseguradoras y Reaseguradoras) ICEA: Investigation Association of Insurers and Pension Funds (Investigación Cooperativa entre Aseguradoras y Fondos de Pensiones)

20. Fraud prosecution in Spain Regulation in criminal law Fraud vs. Abuse Best way to deal with fraud in court Relevant case law

21. Focusing our fraud investigations in the right areas – who commits fraud? ICEA – The insured is the person who endeavours to commit fraud in some 70.4% of all cases of fraud in this sector. • Men are more likely to commit fraud than women • Average perpetrator: • 26 year old man • Unstable employment / Unemployed • Most common fraud committed – including pre-existing damages • Women however, tend to exaggerate injuries more often. • Most common reasoning for committing fraud: • Man : In order to maintain the vehicle in perfect conditions • Woman: In order to look out for home economy Statistics taken from Linea Directa 3er Barometro del Fraude en el Seguro de Autos ICEA – significant increase in low quantum (under 500 euros) claims suggests increase in non-professional fraud

22. Most common types of fraud The most common type of fraud in the motor insurance industry is the attempt to conceal previous damages or pre-existing injuries. ICEA statistics show that this is in fact the case in some 37.4 % of all analysed cases of fraud. This is closely followed by claims where quantum is exaggerated; this type of claim makes up some 23.1% of all cases of detected fraud. Division of fraud Statistics taken from Linea Directa 3er Barometro del Fraude en el Seguro de Autos

23. Types of material damages fraud Average material damages fraud cost 550€ Statistics taken from Linea Directa 3er Barometro del Fraude en el Seguro de Autos

24. Personal Injury Average PI fraud cost 17,300€ PI fraud is 31.45 X more costly to the Spanish market than material damages fraud Statistics taken from Linea Directa 3er Barometro del Fraude en el Seguro de Autos

25. Material damages fraud in detail Non-accident related damages • Accident is genuine, but damages claimed are superior to those actually incurred. • Usually pre-existing damages. • Province Audience of Barcelona (criminal section) • Sentence number 457/2007 of 14 September • Material damages must be linked to the RTA • Province Audience of Malaga (criminal section) • Sentence number 1251/2005 of 5 December • Damages claimed are not linked to the accident. • PH presents claim for damages to whole left wing of the vehicle, he claims to be parking • damages for colliding with post. • Vehicle assessor confirms that various sets of damages involved. • Our suggestions for combating this type of fraud: • ■ Instruct a reputable and independent vehicle assessor – biomechanical study if necessary. • ■ Compensate the damages believed to be caused in the incident at hand within 40 days in • accordance with Art 18 of Ley 50/1980 of the 8th October, Ley de Contrato de Seguro. • ■ Malicious intent = study the possibility of cancelation of the policy in accordance with • applicable law.

26. Material damages fraud in detail Simulated accidents • False declaration of an accident in order to benefit either the insured or a third party (requires complicity). • Duplicate damage claims (damages from previous incident, compensated but not repaired) • Supreme Court (Criminal Section) • Resolution of 12 December 2002 • Complicit completion of DAA for non-existent accident • Supreme Court (Criminal Section) • Sentence number 1455/2003 • Material damages resulting from a previous RTA • Province Audience of Cádiz (Criminal Section) • Sentence number 3/2012 of 13 January • Accident caused by the own claimant • Supreme Court (Criminal Section) • Sentence number 739/2006 of 28 June • Plan to fake a RTA • Province Audience of Murcia (Criminal Section) • Sentence number 237/2005 of 14 October • Insurance company proved in court that the car has no • damage relating to supposed accident • Our suggestions for combating this type of fraud: • Duplicate damage claims • ■ Ensure the vehicle is actually repaired by means of follow-up • by the vehicle assessor • ■ Create a network of trusted garages • ■ Only compensate on presentation of invoice

27. Material damages fraud in detail Inflated quotes Presentation of falsified/inflated quotes/repair invoices by insured or with complicity of garage. TP presents quote for damages for >2,000 euros to Fiat Punto. Instruct vehicle assessor who confirms damages of less than 200 euros. Garage later confirms that TP intentionally requests garage to include non- accident related damages. Settled case for 188.25 euros. Our suggestions for combating this type of fraud: ■ Always instruct vehicle assessor – do not compensate on basis of quote unless damages are minimal. ■ Create a network of trusted garages

28. Material damages fraud in detail Mechanical damages/Wear and tear disguised as accident damages Accident may or may not be genuine, but damages claimed include damages that are non accident related, mechanical damages relating to wear and tear. PH places claim for accident damages resulting from vehicle coming out of side road and colliding front right wing of the vehicle. PH states that all warning lights on the vehicle light up when in motion. Our suggestions for combating this type of fraud: ■ Instruct a reputable and independent vehicle assessor. ■ Compensate the damages believed to be caused in the incident at hand within 40 days in accordance with Art 18 of Ley 50/1980 of the 8th October, Ley de Contrato de Seguro. ■ Malicious intent = study the possibility of cancelation of the policy in accordance with applicable law.

29. Material damages fraud in detail Simulated fire/theft • Fire or theft claims in an attempt to receive compensation usually to settle debts or immediate economic problems. This fraud is very difficult to prove despite investigation suggesting the same as the proof must be irrefutable. • Province Audience of Madrid (Criminal) • Sentence number 729/2013 of 19 November • Province Audience of Pontevedra (Criminal) • Sentence number 360/2015 of 24 June • Province Audience of Madrid (Criminal ) • Sentence number 692/2014 of 11 November • PH reports theft of vehicle. • Criminal proceedings show that vehicle had been scrapped 2 weeks previous, order was given by insured’s partner. • Our suggestions for combating this type of fraud: • ■ Always obtain “denuncia” and obtain copy of legal proceedings for theft. • ■ Investigate family and business finances in order to check embargoes or payment difficulties • ■ Best system against this type of fraud is prevention by ensuring correct methods at moment of contract (ensure detailed review of high end vehicles, requesting ownership papers and purchase invoices etc.)

30. Material damages fraud in detail Others • Falsification of data • This type of fraud is used in order to elude policy exclusions, age restrictions, previous convictions etc. • Also, falsification of accident date. • Province Audience Vizcaya • Sentence number 363/2008 of 27 June • Insurance policy taken out after an accident has occurred in order to avoid payment of damages derived from civil liability • Our suggestions for combating this type of fraud: • ■ Obtain correct documentation at the moment of policy inception and claims investigation • (request driving licences to contrast ages and previous convictions) • ■ Check accident details completely with official reports (police), TP versions etc.

31. Material damages fraud in detail Others • Garage fraud • Intentional falsification of damages, can consist of false invoicing as previously discussed • Provoking further damages to the vehicle in order to include pre-existing damages or ensure other parts of the vehicle are painted. • Repair using 2nd hand parts • Repair/replacement of parts before the arrival of the vehicle assessor in order to inflate repairs prices. • PH claims for damages, vehicle assessor is instructed. • Garage refuse access to vehicle until vehicle almost completely repaired. • PH non cooperative with insurer and presents paid invoice in excess of 10,000 euros. • Assessor notes vehicle repaired with 2nd hand parts, suspension not repaired, vehicle total re-spray. • Compensate 4,000 euros. • Cancellation of policy due to aggravation of risk. • Our suggestions for combating this type of fraud: • ■ Ensure complete follow-up by vehicle assessor. • ■ Create a network of trusted garages.

32. PI fraud in detail Only 2% of fraudulent injury claims relate to pre-existing injuries, with the other 98% being made up of simulated injuries or exaggeration of the entity of those injuries, with the now infamous “whiplash” being the most frequent of all injury frauds[1]. [1] 3er Barómetro del Fraude en el Seguro de Linea Directa

33. Victims of RTA

34. Personal Injury Fraudulent Claims 98% Simulated or exaggerated injuries • Intentional extension of the period of temporary incapacity • Excessive Injuries in attendance to the specific circumstances of the accident • Tribunal Supremo (Criminal Section) • Resolution number 1672/2012 of 11 October • Province Audience of Cáceres (Criminal Section) • Sentence number 125/2015 of 19th March • Our suggestions for combating this type of fraud: • ■ Detail study of the medical documentation provided by the claimant as well as the accident circumstances. • ■ Formal request of additional medical evidence if we suspect that the personal injuries are not completely linked to the accident or if the period of temporary incapacity has been delayed or extended intentionally to increase the compensation. • ■Instruct our medico legal expert to determine whether the injuries are caused by the RTA. • ■ Made an offer out of court only for the injuries considered linked to the RTA as per the medical opinion of our doctor. • ■ If the claimant initiate civil court proceedings, request that an objective medical expert physically examinee the claimant and prepare a report.

35. Personal Injury Fraudulent Claims 2% Pre-existing Injuries • Injuries resulted from previos RTA or other accidents or personal illnesses • Province Audience of Valencia (Criminal Section) • Sentence number 332/2006 of 15 June • Province Audience of Murcia (Criminal Section) • Sentence number 38/2007 of 30 January • Our suggestions for combating this type of fraud: • ■Detail study of the medical documentation provided by the claimant as well as the accident circumstances. • ■ Formal request of additional medical evidence if we suspect that the personal injuries are not completely linked to the accident or if the period of temporary incapacity has been delayed or extended intentionally to increase the compensation. • ■ Instruct our medico legal expert to determine whether the injuries are caused by the RTA. • ■Made an offer out of court only for the injuries considered linked to the RTA as per the medical opinion of our doctor. • ■ Reject the claim out of court if the amount claimed include pre-existing injuries. • ■ If the claimant initiate civil court proceedings, request that an objective medical expert physically examinee the claimant and prepare a report.

36. Law reforms that will help tackle PI fraud 2015 – A year with many changes for the insurance market 1. Reform of the Spanish Criminal Code (Código Penal) Law 1/2015 of 30th March: applicable from the 1st July 2015 2. New personal injury valuation guidelines Law 35/2015, of the 22nd September: applicable from the 1st January 2016

37. Criminal Code - Law 1/2015 of 30th March - In place from the 1st July 2015 - Minor Crimes - Decriminalization of offenses - Auto de Cuantía Máxima * Only for death cases

38. Bareme for victims of RTA – Law 35/2015 of 30th March • - Accidents occurring after the 1st January 2016 • - Obligation of OFFER-RESPONSE 3 months • - Documents exhibition Art. 37

39. STOP

40. Law reforms that will help tackle PI fraud How? Art. 135 of the Law 35/2015 Pain without medical evidence will be considered as a temporary injury, NOT lifetime effect. Consequently, lifetime effects will be compensated only if based on medical evidence. Causal link criteria: 1. Exclusion 2. Chronological 3. Topographic 4. Intensity

41. Law reforms that will help tackle PI fraud Expected results Fewer criminal proceedings based on fraud Fewer civil proceedings based on exaggerated injuries

42. Conclusions • 60% of fraud in the motor sector is detected at the claim handling stage, with one of the most effective tools in fighting fraud being the vehicle assessor or medico-legal expert. • - Experienced claim handling team • Experienced legal team • Specialised vehicle assessors • Competent and specialised medico-legal experts • Accident date and time (usually close to policy inception) • Recent policy modifications (usually to cover) • Previous accidents • Surname/addresses/similar professions etc. • Damages/injuries that seemingly do not coincide with circumstances • Joint declaration by PH and TP • Contradictory elements • Presentation of quotes Important Trigger factors

43. Our Services Cremades & Calvo-Sotelo is dedicated to providing the comprehensive advice which is required by insurers. We pride ourselves of a dedicated team of professionals with extensive experience and knowledge of the Spanish and international insurance sector. Our unique and privileged position enables us to offer expert advice to insurers and underwriters of any risk in Spain and abroad.Cremades & Calvo-Sotelo provides individualized customer service, in order to bring you legal solutions tailored to your needs.The professionals of our firm have access to the most advanced internal management and control systems which, coupled with in-depth knowledge of the Insurance Law, reverts as a real benefit to all our customers by providing swift and efficient management of their cases.Our clients include a broad range of foreign and Spanish insurance companies, brokers and agents who we represent across all matters related to the insurance business. Similarly we intervene in disputes that require more complex multidisciplinary teams tailored to the needs of the particular issue.

44. Our Services • Legal department with lawyers specialised in all aspects of motor claims, PI, cross border claims • Specialised claims handling department • Nationwide network of vehicle assessors • Nationwide network of medico-legal experts • Private investigator services

45. References

46. BioNatur Invernaderos Biológicos References

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