Motion on “Combating Insurance Frauds” (2015.01.21)

MR CHAN KIN-POR (in Cantonese): President, I move that the motion, as printed on the Agenda, be passed. Insurance frauds have become unmanageable, and among them, the worst cases are those about workmen’s compensation insurance and motor vehicle insurance which involve personal injuries or death. What is more, the frauds have become syndicated. Very often, an extensive network of recovery agents, loss adjusters, lawyers and doctors is involved. In the face of persistent losses, insurance companies were forced to keep increasing the insurance premium, which has in turn forced members of the public, including employers and vehicle owners who are statutorily required to procure insurance, as well as owners and passengers of taxis and minibuses to foot the bill resulting from the frauds.

I would like to cite a number of authentic cases. Injured in a traffic accident, a motorcyclist was granted a prolonged long sick leave by a public hospital. But when he drove his motorcycle while on sick leave, he encountered another traffic accident and attended another public hospital. It so happened that these two public hospitals have granted him the same length of sick leave, and he has subsequently claimed from two different insurance companies. It is most ridiculous that after the trade relayed the case to the Hospital Authority (HA), the latter refused to conduct an investigation on the pretext of patient privacy.

As a matter of fact, insurance companies may refer dubious cases to private detectives for investigation and video-recording. An example is that, a worker who has reported work injuries was videoed to be wearing a neck brace and walking on crutches when he sought medical consultation, but then took off the neck brace and walked freely without the crutches after the consultation. However, when the video clips were submitted to the HA to request for a review, the latter refused to watch or conduct a review on the pretext that this involved the privacy of patients. Privacy is certainly important, but it is indeed too bureaucratic and absurd for the HA to turn a deaf ear to real-life problems or its own mistakes on such ground in this open society today.

Another case is concerned with a newly recruited bus captain who slipped when he was working in a bus depot a few days after he reported duty. Due to his back injury, he was granted a two-year sick leave respectively by a hospital and a private practitioner. However, according to the assessment result of work injuries assessed by the Labour Department, he had only lost 5% of his earning capacity. With the assistance of the lawyer engaged by the Legal Aid Department (LAD), however, the bus captain claimed $6.5 million, of which $3 million was for the compensation of future income loss; $1.6 million for the loss of free bus rides entitled to him and his family members; $630,000 for the loss of overtime compensation and Mandatory Provident Fund, and $500,000 for the pain and suffering and loss of amenities. After hearing his claims, I think ordinary people would consider him asking for an exorbitant price. Worse still, the reasons provided by him are absurd.

The trial was completed in August 2014. The Judge ruled that the bus captain was not seriously injured and the reasons for compensation were absurd, and he was a dishonest person who had avoided working on the pretence of being ill. In the end, the bus captain only received a compensation of $350,000. As he has already received a compensation of $590,000 … since he is not required to return that sum of money under the existing law, this case has cost the insurance company a considerable amount of lawyers’ fees. Given that the prima facie evidence of fraud in many such cases are not obvious and fails to substantiate the fraud, even the Court can do nothing about them. This has also subject the insurance companies to huge lawyers’ fees.

Some fraudulent cases related to work injuries do raise eyebrows. Recently, an insurance company came across a work injury case in which the young claimant in his early thirties claimed for work injuries for eight times. The insurance company believed that he had taken prolonged sick leave on eight occasions, and the total number of days on leave was probably more than the number of days at work. The claimant can be said to be a professional in work injuries as he is familiar with the claim procedure, and has obtained a huge sum of compensation insurance premium.

In another case, a person claimed $320,000 from an insurance company but the latter bargained to pay $270,000. However, after the claimant was granted legal aid and secured assistance from a lawyer engaged by the LAD, he revised the claim amount to $3 million. Although the claimant received only a few hundred thousand dollars in the end, this has cost the insurance company concerned an extra few hundred thousand dollars of litigation fees.

I have actually repeatedly highlighted the operational deficiencies of the legal aid system, which has indirectly encouraged champerty activities of recovery agents. Under the existing system, an applicant for legal aid may choose a lawyer to represent him. Lawbreakers thus take advantage of this loophole to talk the victims who were injured in industrial or traffic accidents into applying for legal aid on the one hand, and then choosing their lawyers to represent them on the other, so that they can carry out champerty activities with the huge resources obtained from legal aid. Members of the trade stated that for cases handled by recovery agents, the clients often received only one third of the insurance payouts minus lawyers’ fees from the insurance companies, whereas the recovery agents and lawyers received the remaining two thirds.

Insurance frauds have caused the insurance companies to suffer losses, and the hardest hit is workmen’s compensation insurance. For the 10 years between 2004 and 2013, it has recorded a total loss of $2.8 billion, representing an annual loss of $280 million on average. The year-on-year deficit has forced the insurance companies to keep increasing the premium for workmen’s compensation insurance. In 2009, the total premium was $4 billion, but it gradually rose to $6.7 billion in 2013, representing an increase of 67% in five years. Notwithstanding that, the loss incurred by insurance companies continued to climb and they can just keep increasing the premium. As a result, employers procuring insurance became the major loser, and the winner is the insurance fraudsters.

Over the past year or two, certain industries, especially the scaffolding, environmental protection, catering and cleaning industries, often encountered difficulties in procuring workmen’s compensation insurance. As workers in these industries are more prone to work injuries, insurance companies would be particularly cautious about the insurance procured by these industries. Companies that have been awarded huge compensation will encounter even greater difficulties in procuring insurance.

The motor third party insurance business in respect of taxis is still suffering heavy losses, and the accumulated loss is more than $120 million in the past decade. Taxi insurance premium has increased from some $9,000 in 2008 to presently over $20,000. Insurance premium for minibus has also increased from $20,000 in 2009 to presently $40,000. Not only the transport industry, but also passengers and the insurance sector have suffered.

In fact, the Legislative Council of the previous term formed the Joint Subcommittee on Issues Relating to Insurance Coverage for the Transport Sector (the Joint Subcommittee) to look into motor insurance frauds. A number of recommendations have been made, which include rectifying the abuse in the issuance of sick leave certificates and establishing a central reporting mechanism to receive complaints relating to insurance frauds. Although the report has been completed for two years, most recommendations have sunk into oblivion and the HA has simply neglected them. Luckily, the Police have responded proactively and decided that the Commercial Crime Bureau should be tasked to receive reports from the insurance sector. This has achieved certain success in the past two years, including the crackdown on a case of one-stop motor insurance fraud involving loss adjusters, vehicle repair workshops, recovery agents and vehicle owners, who were allegedly involved in more than 100 such cases and over 10 insurance companies were allegedly cheated.

The Hong Kong Federation of Insurers would like to take this opportunity to commend the efforts of the Police in particular, and hope that they will mount an all-out attack on other insurance frauds as well, especially those of workmen’s compensation insurance. Workmen’s compensation insurance frauds have profound effect on the insurance sector and small and medium enterprises, and the amount cheated is the largest on the whole. As an international financial centre, Hong Kong should not turn a blind eye to the astronomical number of fraud cases, otherwise fraud offences will continue to grow and turn the insurance sector into an “automatic teller machine” of lawbreakers.

I certainly understand that if the problem is not tackled at root, all the efforts of the Police will be futile. Given the extensive reach of insurance frauds, I propose that an inter-departmental task force be set up to pool the efforts of various departments, including the HA, Police, Social Welfare Department (SWD), Labour Department and Office of the Privacy Commissioner for Personal Data (PCPD), to comprehensively combat insurance frauds and plug the loopholes in the existing system so that fraudsters will have no chances.

The HA plays a pivotal role in combating insurance frauds because people who want to cheat for insurance compensation must first cheat for medical certificates. The Joint Subcommittee has, at its last meeting, thoroughly discussed the issuance of medical certificates by HA doctors. Despite the difficulties explained by the HA, I think HA doctors have granted medical certificate of sick leave lasting for weeks, months and even years, too laxly, which has caused serious problems. The HA should make reference to overseas practices and establish a review mechanism for sick leave lasting for a few months. If doctors issue medical certificates too laxly, patients genuinely injured at work may not be able to receive proper treatment and become incapacitated in the end.

Furthermore, the Police should step up the combat against insurance frauds. More covert operations can be conducted to combat these illegal activities and focus on those syndicated frauds.

At present, the financial sector has already introduced the sharing of positive credit data for the examination of the borrowers’ credit condition. However, due to privacy consideration, the insurance sector has yet to maintain a database on insurance frauds for prevention purpose. Even if a fraudster cheated a number of insurance companies in a row, we can do nothing about it. Thus, we hope that the PCPD can help the industry solve the technical problems and set up a central claims database for the insurance companies to get the relevant information. This may also serve to deter insurance frauds. While loss adjusters are often involved in traffic accidents, their work is not subject to statutory control and there is no qualification requirement either. This will definitely give rise to many problems and the Government should therefore consider bringing loss adjusters under control.

On the other hand, the SWD has implemented the Traffic Accident Victims Assistance Scheme to help victims of traffic accidents. While the intention is good, the approval procedure is too simple as it only requires an applicant to report to the Police and produce a medical certificate. Fraudsters thus tend to make up accidents to cheat for government assistance. Once they secure government assistance, they will move on to cheat for insurance compensation. Therefore, the SWD should review the existing approval procedure to prevent manipulation by fraudsters. Worse still, loopholes found in the existing Employees’ Compensation System have resulted in a spiraling increase in lawyers’ fee, and it now accounts for more than half of the total compensation. It is therefore necessary for the Labour and Welfare Bureau to look categorically into the matter.

Lastly, if the Government can set up an inter-departmental task force and successfully combat against insurance frauds, it will not only stop fraud offences, but will also significantly cut down on the total compensation and insurance premium, thereby bringing benefit to both employers and members of the public.

I so submit.

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