Financial advisers, surveillance and their place in insurance claims

Col Fullagar looks at the issue of surveillance during claims management and the financial adviser's role in making sure the client is treated fairly. Is surveillance an invasion of a client’s privacy, or perhaps the insurer’s right to better understand a claim?

No one would reasonably deny the importance of the claims assessor’s role, nor could it be reasonably denied that assessors need to have access to a wide range of information in order to effectively undertake their role.

Information can be derived from sources such as doctors’ reports and medical examinations, tax returns and other financial statements and, on occasions, claimant interviews.

There is one source of information, however, that has a tendency to give rise to emotion and controversy, typified by the statement from the claimant that it is ‘an invasion of privacy’, or the concern and consternation typified by the insurer that it’s ‘expensive and not always reliable’.

That information source is of course surveillance and it, no doubt, would benefit from itself being placed under scrutiny.

Basis of surveillance

Surveillance involves the obtaining of film or photographs by an investigator either from a vehicle or a covert position. The focus of surveillance can be almost any location, with the most common being:

• the claimant’s home;
• the claimant’s place of work;
• the claimant’s neighbours – for example to observe a social function;
• a public venue such as a sports oval or shopping centre; or
• the surgery from which an independent medical examination is to be undertaken.

Surveillance might even be undertaken by way of:

• someone making contact with the claimant on the basis of a pretext – for example, pretending to purchase a car or boat from the claimant, although some insurers are reluctant to use this facility;
• following the claimant’s car in order to identify the destination; 
• checking the claimant’s actual activities against a recently completed insurer’s activity log; or
• undertaking overseas surveillance on the basis that the further the claimant is from home, the more they will let down their guard.

On occasions surveillance may be detected by the claimant, so the surveillance will be stopped but then recommenced several days later when it would be least expected.

There are, however, rules that must be followed under the law generally, and privacy in particular. Examples of restrictions to surveillance include:

• The person undertaking the surveillance cannot represent themselves as a government employee, for example a member of the police force or fire brigade, nor can they represent themselves incorrectly as a member of a legitimate company other than their own;
• Entrapment techniques cannot be used – for example, leaving a pile of soil in the claimant’s drive to see if the claimant is able to shovel it clear;
• Surveillance cannot be undertaken from private land without permission; and
• Whilst film can be obtained without permission, audio cannot.

To be effective, surveillance should be undertaken in an environment where the claimant will not be directly aware it is occurring. Logistically, it is more difficult to achieve this in remote and rural areas compared to the city.

Reasons for surveillance

The use of surveillance may be considered by the assessor if the claim appears in some way unusual, for example:

• where the nature of the disability and the physical condition of the claimant appear to differ – for example, the claim is in respect of a frozen shoulder but the arm shows no signs of wasting; 
• the duration of an income protection claim is materially longer than the average for similar causes, occupations, etc;
• the cause of the claim is subjective, and there is some other concerning factor such as the policy having recently started or the benefit amount being relatively large.

On rare occasions surveillance has even been undertaken overseas where a suspicious ‘death’ has occurred.

Surveillance may also be considered if the assessor, based on their experience, is in some way unsure of the validity or otherwise of the claim – ie, there may be no one major factor, but a series of small issues adding up to a general disquiet.

Whilst the reasons for arranging surveillance may be reasonable, whether or not an appropriate outcome is reached is, in part, dictated by the attitude of the assessor.

If the assessor has made up their mind that a claim is not valid and is simply using surveillance as a tool to prove it, the results of the surveillance and actions subsequently taken can be tainted by bias.

Also, logically, if the assessor has reached a decision in regards to the claim, sufficient proof should already be available such that surveillance is unnecessary.

Surveillance should be approached from a neutral position and in line with the previously described role of the assessor – ie, if reasonable uncertainty exists, additional information should be obtained in order to remove the uncertainty.

Case study

Minnie is a real estate agent who owns a suburban real estate firm that also employs two other agents. Minnie is on claim for depression.

Surveillance is undertaken and this shows Minnie attending the office for an hour, once or twice a week.

The response from the assessor to this might be:

• Immediately assume Minnie is working and take action in line with this – for example, close the claim, or
• Appreciate that Minnie’s attendance at the office does not necessarily mean she is working, and thus seek clarification from Minnie.

The financial adviser and surveillance

Financial advisers who are experienced in claims procedures will recognise that the use of surveillance by an insurer can be a valid tool that will assist to manage claims, serve to confirm the validity of genuine claims and reduce the rate of fraud, and thus reduce overheads that can drive up premiums.

Experienced financial advisers viewing surveillance in this way may see that a natural extension of this would be to inform clients who are on claim as to the facts surrounding surveillance, and also that it may be used in certain circumstances.

Taking an open and natural approach gives the financial advisers and the claimant the opportunity to discuss other aspects of the claim, in addition to surveillance, in an informative and non-threatening way.

This in turn should mitigate any subsequent concerns the claimant may have if they become aware of surveillance when it is occurring, or if they subsequently learn that it has been undertaken.

To the extent that surveillance is a valid claims management tool, the insurer and the financial advisers should not avoid the fact that it exists and may be used. Discussions concerning it should be open and honest.

The claimant and surveillance

A number of insurers were recently asked the following questions in regards to surveillance:

If surveillance was being undertaken and the claimant asked the assessor if it was – would you tell the claimant?

The majority of insurers responded with 'yes', noting that this applied in regards to a direct question from the claimant rather than proactively advising the claimant that surveillance is being undertaken.

This would appear to be the appropriate response. To avoid the question or worse still, to misrepresent the position, would endanger the insurer’s credibility in future dealings with the claimant and the financial advisersr.

If, however, confirmation would compromise a situation where there is strong evidence to suggest the presence of fraud, there may be merit in the insurer seeking to tactfully avoid a direct answer.

If surveillance had been completed and the claimant asked the assessor if it had been undertaken, would you tell the claimant?

Again, the majority of insurers answered with 'yes'.

In a situation where surveillance has been completed, confirmation would appear not only reasonable but, in some situations, reasonably necessary.

For example, in the case study above, by confirming to Minnie that surveillance was undertaken and that it showed her attending the office, she is given the opportunity to explain the position such that the insurer can make an appropriate decision.

If the claimant requested a copy of the surveillance tape, would you provide a copy?

Once more the responses varied in line with those above.

However, insurers who refuse to provide a copy of the surveillance tape may be falling foul of their duty to act fairly – ie, in good faith, and also of privacy laws.

It seems only fair that if evidence has been obtained that may influence the insurer’s assessment of a claim, the claimant should be given the right of reply.

The court appeared to agree when it handed down its judgement of a case several years ago.

The insured submitted a claim which was denied, based on medical examinations the insurer arranged. A question that arose during the trial was whether the insurer had acted unreasonably and unfairly in failing to disclose to the claimant details of the medical reports.

The court ruled the insurer had a duty of good faith and that “the failure by an insurer to disclose medical reports adverse to the claimant, with the result the claimant was not given an opportunity to answer them, could be sufficient to justify the court in saying that the (insurer) did not act fairly and reasonably in coming to a decision on the (claimant’s) claim.

“Fairness required the appellant to be given the opportunity of answering the new material before the respondent made its decision”, the court said.” (61-453 Beverley v Tyndall Life Insurance Company Ltd. ANZ Insurance Cases Vol.10. 1998-1999)

Under privacy laws a person is able to have access to personal information concerning them unless an exception applies. Potentially relevant exceptions might be:

• Providing access would be likely to prejudice an investigation of possible unlawful activity;
• Providing access would be likely to prejudice…the prevention, detection, investigation, prosecution or punishment of criminal offences, breaches of a law imposing a penalty or breaches of prescribed law (Information sheet – Private Sector, 1A National Privacy Principles 6.1 (i) and (j)).

The insurer and surveillance

Surveillance would generally be considered as one of a number of claims management tools at the disposal of the insurer. It would be the exception to the rule for surveillance alone to be used as a basis of denying or closing a claim.

Claim payments might, however, be suspended on the basis of doubts arising from surveillance so that the claimant is given the opportunity to clarify the position.

The frequency with which surveillance is used appears to belie the controversy it causes. Estimates have it used in fewer than 5 per cent of claims.

For every 100 times surveillance was undertaken, estimates show:

• On 50 occasions the result was neutral; 
• On 10 occasions doubt was cast on the validity of the claim;
• On 35 occasions the claim appeared genuine; and
• On 5 occasions surveillance was compromised. 

The numbers should be taken as indicative only, as the results will no doubt vary between insurers.

Surveillance can be expensive, costing around $3,000 a day. A standard approach is to commission one or two days surveillance, and then extend the duration based on the results obtained.

Prudent claims management procedures would likely dictate that the insurer will have written guidelines as to when surveillance might be considered.

Further, it should have similar guidelines as to the qualities and standards it would require of an organisation to be used to undertake surveillance.

Summary

Fraudulent and exaggerated claims are expensive both in the cost of payment of unwarranted benefits, and also in the cost of detection.

These costs are simply added to the overall outlays that insurers recoup by way of premium payments: ie, the honest clients fund the less than honest.

Responsibility for cost control does not only rest with the insurer; financial advisers and honest claimants have a part to play as well: ie, to be understanding and supportive of the reasonable processes insurers need to put in place in order to reduce the burden of unwarranted claim payments.

For its part, the insurer should appreciate that not all claims that appear unusual will be fraudulent or exaggerated; thus they should, wherever possible, give the claimant the benefit of the doubt and the right of response to surveillance that is undertaken.

If all parties take an open and respectful approach, the use of surveillance will be not only be an invaluable source of information for the assessor seeking to gain an improved view of a claim, but also a basis for the important building of trust and understanding between the insurer, claimant and financial adviser.

The matter of surveillance certainly deserves scrutiny.

Col Fullagar is the national manager for risk insurance at RI Advice Group.