Industry stakeholders hope that new NSW legislation banning claim farming will help stabilise claims costs and ease pressure on premiums. Hard data on the number of claims resulting from claim farming is not publicly available but insurance experts see it as a major and growing issue. The Insurance Council of Australia (ICA) regards the practice as “outrageous” and the cause of dramatic increases in the cost of insurance claims. CEO Andew Hall has said it is “ripping off the whole system.” Brokers left struggling to sell more costly insurance are among its indirect victims.
Claim farming – which is also known as claims harvesting – involves third parties contacting potential claimants without consent to encourage them to bring compensation claims. The practice, say industry sources, most seriously impacts personal injury, motor vehicle and historic child abuse claims.
Under the Claim Farming Practices Prohibition Bill it is now a criminal offence in NSW to solicit, purchase or sell personal injury claims arising under section 11 of the Civil Liability Act 2002 (NSW). Legal experts told Insurance Business this includes claims related to serious injury, medical negligence and public and product liability.
“For brokers, the new NSW ban on claim farming carries several important implications even though it does not directly alter their day-to-day work,” said Luke O’Kane (pictured), partner and general and public liability claims specialist with global law firm Clyde & Co.
He said for years claim farming has inflated the volume of personal injury claims, many of them lacking merit. This has driven up insurers’ costs, said O’Kane, and pushed premiums higher across liability, motor and workers’ compensation lines.
“By curbing these practices, the NSW reforms should help stabilise claims costs over time and may ease pressure on premiums, which is a useful point for brokers to highlight when discussing market conditions with clients,” said O’Kane.
He said brokers play a key educational role because clients who receive unsolicited calls promising quick compensation may turn to them for advice.
“Explaining that such approaches are now unlawful in NSW - and already banned in Queensland – and encouraging clients to report them, reinforces the broker’s position as a trusted advisor,” said O’Kane.
However, some insurance stakeholders are concerned that claim farmers may change their tactics in response to the ban, perhaps by shifting their focus to other lines of cover or moving to other states.
Clyde & Co has directly engaged with insurers and regulators to raise awareness around the harm caused by claim farming and hopes brokers will give their backing. “Brokers have an opportunity to support momentum towards a national ban, positioning themselves as advocates for ethical claims management and consumer protection,” said O’Kane.
He said insurers and other stakeholders stand to benefit from claim farming bans through lower claims leakage, potentially fairer premiums and stronger trust between insurers and clients.
How serious is the impact of claim farming on your work as an insurance broker? How often do you see claims resulting from this unethical practice? Please tell us below.
