Merlin Claims:: making value disappear

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!

Insurance vicious cycleOver 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!

23 Responses to Merlin Claims:: making value disappear

  1. Joe blogs says:

    As an ex Merlin employee made redundant by this I feel there will be a lot of skeletons coming to haunt middle management upwards

    • Many thanks for taking the time to comment on, what for you, must be a painful. I hope that there are plenty of skeletons that get well and truly rattled because the industry is riddled with individuals, organisations and relationships with so much to lose that standard practice is to close ranks rather that tackling “bad practice” (of a variety of types) and a dubious culture.

      As a result, we have layers of people who, for the sake of self-preservation, feel that they can only act as deniers of wrongdoing because of past actions (or knowledge of such) instead of being whistle-blowers intent upon improvement that would benefit customers, contractors and the industry.

      I hope for you that the redundancy-experience is a short one and that you can bring the experience of how NOT to do things, to a new role!
      Good luck.


  2. Anon says:

    As someone affected by the loss of this company, I feel your argument a little one sided. There will, no doubt, be “skeletons” coming to haunt the top bods at Merlin but would say the majority of ‘blame’ and ‘fraud’ would stop with them. For a company to exist such as Merlin did, they needed contractors and should word have spread of their financial difficulties Merlin would have lost said contractors and the business would have ceased a lot sooner. Where would employees have been left then.

    I would suggest more research is conducted into this matter rather than hearsay or bitter employees/rival companies. Let’s not kick a dog whilst it is down, as they say, and should you be so concerned as to this happening proceed at looking at existing companies.

    • Anon,
      Thank you for taking the time to comment but PLEASE don’t misunderstand, I feel deeply sorry for innocent “victims” such as you and your former colleagues who have had to endure these recent traumas.

      But, just to be clear, the “dog” that I am/will (happily) “kick” is the culture that led to this point. I know, as you appear to, that this was not exclusively a Merlin problem but one that pervades and has tainted the entire industry.

      Merlin staff are the latest to suffer but I can assure you that there have been MANY, quality, reinstatement contractors that have been completely lost to the industry or are out of business due to some of the accepted (but dubious) practices that passed as a business model!

      I am not suggesting for one minute that the fault for this lies squarely with Loss Adjusting. Because it is clear to any, informed, observer that this trend is a legacy of insurers’ ill-conceived attempts at outsourcing (and off-shoring) in a drive to cut claims costs. The Professional Adjusting model HAD to change in an effort to survive but, like the scope of the cover offered by insurers’ both were compromised – along with the integrity and reputation of the industry – as insurers drove down costs to compete on price in a battle for market-share… THE TRUE COST TO THE INDUSTRY IS, ONLY NOW, BECOMING APPARENT. Whilst this is, undoubtedly, more painful for some than it is for others, I’m afraid that it is the only way that WE stand a chance of bringing about much needed, long-overdue, change.

      In truth, I believe, that the sheer scale of the problems require TRANSFORMATION. A paradigm shift and a return to the values that the insurance industry once espoused. It appears that FSA tend to agree! We should be in the business of providing peace of mind to our customers…instead of depriving them of the value they believe they are purchasing only to realise the truth when they need us most!

      I sincerely hope that there will be some good come of this sad episode BUT, whether it does may depend upon the people (like you), who have directly suffered, speaking out about it…because the “leaders”, who have profited, will reinvent themselves, carry on and the insurance companies won’t see the full extent of the problems they have created.

      Best wishes for the future.


  3. Going Hungry says:

    Plain and simple, the uninformed leaders of this business bit the hand that feeds them. They alienated the people who distribute the work and effectively sold a completely outsourced insurer principle, cradle to grave to the money men that run these organisations.

    Naturally, the people who dont understand the business thought this would lead to lower operating costs for Insurers and massive vollume and balooning value for Merlin. Sadly not one of them has likely ever set foot in the Lloyds building, worked hard at developing trust from key stakeholders or seen past anything other than growth linked bonusses.

    As one now job hunting, I know who of the senior management stood up and faced us at the end, who cried with us, who appologised and who wished us well. The aforementioned ‘leaders’ however were not in sight, but were in fact already sitting in the next ventures board rooms.

  4. “Going Hungry”,
    I feel for you and I hope that my comments to “Anon” resonate with you.

    “Leaders” and the dubious practices they cultivated need “outed”, if only so that we can ALL learn valuable lessons. If you have visited my blog before (if not why not!?) you may already be aware that insurance ranks alongside banking as “least trusted”. Not a good place to be for an industry that was built and thrived upon TRUST. Rebuilding that trust can only come about through TRANSPARENCY but, with so many dubious practices that are (necessarily) hidden from view, for as long as victims remain silent I fear that change may not happen. If it does it will be painfully slow.

    In the meantime we will continue to incur reputational damage and/because customer satisfaction will continue to suffer as a result of the appointment of networks, franchises and individual contractors, sometimes irrespective of ability, capabilities, locale or past performance but based upon:

    pressure to support own supply chain

    personal “allegiances/friendships” – at national or local, Adjuster, level

    contractor willingness to work at rock bottom schedule rates/prices – to be “adjusted” for insurer

    I’m sure there are many other “tricks” or variations of the themes but what they are or how they work can only be a source of speculation UNTIL the truth is made known.

    All the very best with your job-hunting.


  5. Lancelot says:


    Is this some kind of joke?

  6. Joe blogs says:

    Ok so most ex Merlin staff have new jobs, it’s true about the margins and the way the company was run. The most worrying thing is if you look in the public domain of director check and see the history of the top man, it’s really no surprise in the long run he gave short term riches to the few whilst drawing up an exit plans for the near future with no thought for the impact to employees, contractors and the entire economic knock on damage

    • Welcome back Joe!

      I will take you at your word re the “top man” but let’s think about that for a moment. The insurance industry are perceived as “experts” when it comes to assessing risk? So, what happened in this case?

      The risks associated with trading with an organisation headed by someone with a “dubious” past: weren’t assessed; were wrongly assessed; were known but “glossed-over” – in which case, by whom/why; the industry isn’t as good as it thinks at identifying excessive exposure; key people (for whatever reason) used the “wrong metrics” for assessment?

      Dare I suggest that, if not looking the other way, there was an element of collusion as decision-makers looked beyond the bleedin’ obvious, to gamble that the short term “pay-offs” outweighed the long term risk…knowing/willing accomplices could ill-afford to confess to any oversight or wrongdoing and, in any event, costs would be borne by customers and contractors???

      No matter how it came about or operated, as you and your former colleagues now know, these are never the “victimless crimes” that they are painted. The tone is set from the top and the, initially, unwitting participation of employees who don’t (or don’t care to) know any better, are “groomed”, initiated and embroiled in practices that they may never think to question. Of course I am not stating this is how it was at Merlin but, as you may recognise from the language, it is a not unfamiliar pattern. Nor is the impact upon individuals, families, communities and economies.

      Sadly, this is further evidence of the effect of skewed incentives upon firms in Financial Services.

      You may be interested to read some recent “related” articles:
      this and the other links may cut through the symptoms, that vary from one model/industry to the next and get closer to the root cause. If it helps you or others spot early signs in the future then “hurrah!”

      Personally, I WANT people affected by this to dish the dirt because I get the impression that CILA aren’t going to “dig” as deeply as they should/could! So, if you or anyone else wants to be in touch, privately (, I will see IF there is anything that I and similarly concerned individuals can do to try to prevent a repeat.


  7. A quick update for anyone that has been following this conversation: I have friends in all kinds of places and, hot off the press is word that Loss Adjusters will be next to come within the Regulators remit!

    I did mention in the article that Roger Williams was going to be back on the case when Parliament resumed but, even I did not expect that things would/could move as quickly as I am led to believe.

    Come on then, what are your thoughts on that? What impact will it have?

    Someone else also mentioned the possibility of an “investigation” into the failure of Merlin…but that might just be wild speculation.


  8. Mark wilkins says:

    Hi David, I hope you are well? I have followed this with interest. I would be interested to see who breaks cover and also interested in the parliament situation. Some of what is happenning on claims is frankly shocking.

    Please keep us advised as to developments

    Kind regards

    Mark Wilkins

    • Thanks for your comment and for taking the time to follow the comments, Mark.

      I have been pleasantly surprised that others have also felt the need to contribute but, what is clear and consistent with experiences in other forums, is how relatively few feel ABLE to comment. There is a really sinister undercurrent that, so far, has led to a virtual silence on the accepted bad practices: whistleblowers are desperately required if change from within is to happen.

      Otherwise I fear it may well take Regulatory intervention (only a matter of time from what I’m told), in which case many of the key players in, such as, CILA and major adjusting firms may well lose much more than their “high office”.

      In the meantime I am spending as much time as I can afford, contrbuting to making an ethical, transparent, self-regulated network of capable restoration, reinstatement and specialist contractors a reality. It’s about time that a viable alternative to the current self-serving system – that deprives decent contractors of a fair living, customers and insurers of satisfaction and both of real value.

      I sincerely hope that time is running out for the “licensed fraudsters” currently leeching money and driving the need for premium increases for communities and businesses that are already hard-pressed.


      • Joe blogs says:

        If there’s going to be a clear and ethical system in place count me in, I’ve spent too long working for these cloak and dagger companies.
        As for whistleblowers I’d love to do that bit what with a mortgage, wife and kids I just can’t take the risk at the moment

      • “Joe”,
        You have made my day already! Thanks.

        Firstly, on the basis that you have confirmed what is clear to anyone who cares to look, that the system is bent if not broken . Secondly, that honest people are too afraid to speak out because of what is at stake.

        How wrong can things be when this is the case?

        We are, currently, working to extend the spread of contractors fit and able to work under a common code, providing detailed estimates according to the National schedule of rates. Managed, monitored and trained by some of the most experienced people in the industry. Essentially we intend to be self-regulating, collaborative not amongst membership. Those that flout the system will not be tolerated..

        In addition to contractor training we plan to provide practical training for insurer, adjuster and broker claims staff…if all you know is bad practise you need to learn good practise. Right?

        The “subject matter expertise i.e. H&S, surveying, restoration (incl. Mould & Asbestos) reinstatement are already in place and we can cope with work at the moment…more NEWS TO FOLLOW.

        The capability exists although we are still fine tuning systems but if you or anyone you know wants contact information please drop me a line because we would rather demonstrate what we can do (and how) than try to “sell” to those who don’t perceive or can’t admit the extent of the problem.

        There is no point waiting for change!


      • Joe blogs says:

        Furtjer information would be greatly appreciated

      • No problem, I have sent you an email.


  9. This came to me today from a ‘source’ who understandably, wishes to remain anonymous:

    “apparently the black hole in Merlins finances was well known to Pete Smith, Russ, Kevin and John Watson for several yaers ! They had been using the contartctor cash to fund the adjusting opeartions !! Could be jail time if this is proven”

    • Joe bloggs says:

      Four or five guys knew for a while and were still telling us its all ok, keep your chin up and keep pumping the work through. The main bods that knew were all ex AMG staff who were comftable and had a hold over any new executive members, almost a mafia!! Use linked in and other free open media to see who’s employed and who’s not’ the industry knows who they are but the old boys club is keeping it under their hats. I wish I could ‘blow the bloody doors off’ to show the world what happened

      • Good to hear from you again Joe.

        There may be some further developments this week that are of interest to you and your former colleagues. Much as ‘they’ would like this to go away it simply cannot be dismissed. Too many people have suffered and, unless the truth is in the public domain and change happens, the pattern will be repeated.

        I hear a whisper about a seven figure sum due to contractors that somehow found its way to ‘financiers’.

        Watch this space…and feel free to add to it!

        Hope things are working out for you.


      • Joe bloggs says:

        Well I guess it would be David Mairs, Peter Smith, Chris Howell, Mike Equem and Kevin Wood setting up a new network???
        What’s going to be the new business model?

      • David G Wilson says:

        Nearly a full house Joe. No mention of Kevin Wood.

        It remains to be seen how many are left once they have been under any spotlight.


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