Merlin Claims:: making value disappear
Wednesday, 8 August, 2012 23 Comments
I have never endorsed fraud so am not about to start now BUT I have always winced when I read about the cost to the industry of fraudulent (or inflated) claims. Thankfully, the industry has, belatedly, made great strides in this respect and a great deal of credit should go to IFB who had another major success this week. However unbelievable it may sound, my concern has not been so much the, reportedly, £2.1bn of undetected general insurance fraud!
What I and others (who are not so free to speak out) find particularly disturbing, is the unquantified scale of, what amounts to, “licensed fraud” that is perpetrated by the industry, against the industry, inflicting yet more reputational damage on ourselves and for which, as customers, we all pay a financial premium. This may go some way to explaining why Roger Williams MP will, again, be raising the issue of Regulation for Loss Adjusters in Parliament after the summer recess!?
I really wanted to go to town on this news story but, you know what, after the news of Merlin entering administration broke, a couple of brief conversations and a few texts, I reckoned I couldn’t have put it any better than these words from a former, Senior (Fraud) Loss Adjuster:
Another Network has gone into administration. Merlin’s short-lived involvement with the insurance market may have cost millions of pounds to building contractors. For how long are CILA members (link to code of conduct – for reference) going to be “authorised to conduct business” with no real business model?
Merlin’s model was to take money from contractors and pretend to insurers that they were getting “value for money Loss Adjusting“.
One would have to question the ethics of giving low value fees to insurers but then taking huge commissions from builders: insurers were paying too much, for no additional benefits, and builders were squeezed to the limit both financially and in terms of timescales.
Ridiculous bureaucracy existed whereby Merlin had the final say as to whether the building work was acceptable.
Even if the policyholder thought the work was good, Merlin opted to make deductions from the contractors account often without passing that discount to the insurer. It remains to be seen what investigations will be undertaken and what will be uncovered in view of the many people who have both benefited from Merlins existence and have been bankrupted by Merlins methods.
The “model” appears as imbalanced and unsustainable as does one where a Sheep, Cattle or Dairy farmer earns less from production (carrying higher risk) than the supermarkets do from distribution!
Over the course of several meetings (last year) with hugely experienced and respected Reinstatement Contractors, it was explained to me how and why Merlin, other Repair Networks and Franchises “operate”. These guys confidently predicted that Merlin would not be around by late 2012! At the same time I was explaining things from the “other side” and equally confidently predicting the demise of brokers whose reliance upon unsustainable rating and commission levels would be their undoing. There haven’t been any major casualties…YET but the strain is showing. When people talk about the “Corporate culture” and a lack of responsibility in financial services [Irresponsible Capitalism], I reckon this is what it stems from.
“We can categorically say that Merlin is definitely not going into administration. We are aware of the malicious rumours that have been spread, but Merlin is re-engineered and financially stable so it is not going into administration.”
Kevin Wood, CTO Merlin [May 2012]
Fraud is an ugly word but, if the industry is intent upon stamping it out and has nothing to hide, greater transparency is a prerequisite.
I feel sorry for customers who will suffer “inconvenience” and those within the industry who will lose their jobs as a result of this development but I fear for the survival of the Contractors whom Merlin have “abused” and who now may struggle to survive if payments aren’t made or are delayed. More families and local communities will suffer unnecessarily because of this.
Shame on us for creating an environment where fraud can flourish. Ignoring the obvious flaws in the model(s) and allowing this to happen just adds to the uncertainty that already stalks our economy – courtesy of the creators and main exponents of such models!