It’s better to be in the red than ‘dead’

Recent events in Britain have highlighted just what people may be prepared to do for the sake of money. The country has been gripped by the story of John Darwin, who apparently successfully faked his own death, so enabling his wife to claim on his life insurance policy.

The British media went into a frenzy about "the man in a canoe", desperately trying to catch up with the Daily Mirror, the newspaper which published a photograph of the couple in Panama, six months before John Darwin came "back from the dead". Whether the Darwins will be found guilty is still some way off, but it has suddenly put the idea of life insurance fraud onto the front pages of newspapers. Darwin even got a mention at Prime Minister’s Question Time in the House of Commons.

In reality, attempted frauds on insurance policies are not uncommon. This one just happens to have been a little more creative and apparently inept. He has since been charged with obtaining a life insurance policy by deception.

Life insurance companies are constantly investigating claims to try to limit fraudulent payouts. However, very predictably, there are few statistics published as to their success rate. The last thing that insurers want is to encourage false claims by releasing any sort of acknowledgment of the existence of this crime. Not only are such claims illegal, they are - if successful - highly profitable.

The common types of insurance claim relate to long-term sickness plans, usually referred to as permanent health insurance. There are various conditions that can be debilitating but are also near impossible to disprove - whiplash injuries to the neck after a car-crash being a prime example. A neck injury is far easier to fake than death.

An entire industry has been created in recent years to counter such claims. Private detectives are hired either by government departments or insurance companies to gather evidence of false claims. Footage of injured individuals playing sports or working physically demanding jobs whilst ‘off sick’ is now common-place on television.

An old schoolfriend of mine in the UK makes a living from conducting such investigations. While his descriptions of waiting hours in a car in winter to watch a suspect do not sound like much fun, he enjoys his work. His tales of people bedridden with back injuries that he follows to a building site where they work as a labourer seem to call into question basic intelligence. It is this lack of professionalism which seems to be the weak link in the amateur fraudster.

I have met a number of insurance underwriters over the years and they give the impression - whether deliberately or not - that the vast majority of claims which are refused for critical illness or sickness policies are because they simply did not believe the claimant. While more than 99% of claims are believed to be genuine, it seems that there has always been a part of the population willing to defraud.

The lengths to which a claimant will go depend on the incentive and the level of desperation of a policyholder.

I recall a conversation with a director of an international life insurer a few years ago. His company had changed policy rules on critical illness claims in South American countries. It turned out that under some South American laws, the ‘loss of limb’ covered by a policy included anything from half a finger to the whole arm. His company was receiving several dozen claims each year from men who had chopped off a finger and planned to use the proceeds to buy a house and retire.

It appears that the Darwins nurtured a similar dream. Only six weeks ago Mrs Darwin had relocated, having sold her UK home and bought an apartment in Panama City. Since a photograph of the couple with their estate agent in Panama has been published, it seems reasonable to presume that Mr Darwin planned to relocate with her. It appears that he had obtained a ‘genuine’ false passport to enable him to travel.

Their life insurance claim had been successful and paid in full. The Darwins at least had time to explore - which many people do not - whether their insurance cover was adequate.

• Stuart Langridge holds UK qualifications in personal finance. www.thestuartlangridgeletter.com

Recent events in Britain have highlighted just what people may be prepared to do for the sake of money. The country has been gripped by the story of John Darwin, who apparently successfully faked his own death, so enabling his wife to claim on his life insurance policy.