Why “Fronting” is Fraud

My Mum was completely against gambling. But she did the football pools for years. My Uncle was someone who fervently believed in buying things when he had saved for them, he was completely against borrowing and looked down his nose at anyone who used credit. He had a mortgage.  Hypocrites? Perhaps they were in the truest sense of the term, but to meet them you would never consider them to be anything but salt-of-the-earth types who conducted their lives in an open and honest way.

Psychologists will probably tell you that such behaviour is rooted in a human need to justify one’s own actions. I don’t know about that as I am not a psychologist. But, as an insurance broker with 30 years experience, I do know I have spoken with an awful lot of salt-of-the-earth-types who conducted their lives in an open and honest way, apart from the fact they were fraudsters. To be more specific, insurance fraudsters who are practicing something called “Fronting”

Fronting is the practice whereby an older, experienced driver falsely insures a vehicle in their own name, but the actual main driver is younger and therefore, in the eyes of the insurer, a higher risk. The reasons for doing it are glaringly obvious with the costs of car insurance for younger drivers commonly being in four figures, any way of getting those costs down are going to be considered. The problem is that the older driver, more often than not doesn’t fully understand that they are committing a criminal offence for which they can find themselves in court and with a criminal record.

One of the most common situations is when a parent, after seeing the eye watering premiums required for their son or daughter to insure a vehicle in their own name, has a tinker on the price comparison site and finds a much more acceptable figure if they take out the insurance themselves and add the youngster as a named driver. The fact that the child is going to be the main driver, and may even live miles away is self justified by the fact that money has been saved and it is just a way of “playing the system”. I have been told on many occasions that “everybody does it” and “insurance companies expect you to do it and they factor it in on everybody’s premiums” They don’t, and I don’t think they do.

In most of the cases I have come across, the perpetrators of Fronting are well meaning and decent people. The idea that they are criminals and could end up with a criminal record would be totally humiliating to them. But, that is exactly the risk they are taking, and a defence of “I didn’t know it was wrong” won’t effect the outcome of the court case.

In reality,  the chances of being found out remain quite low until there is a claim involving the younger person. It is highly likely that any accident involving the younger named driver will be looked into more thoroughly than if it involved the older one. If the accident occurs in a different area than the one you live in, such as the university town where your son or daughter is living, or you have failed to disclose their address to the insurer, then alarm bells will be ringing in the claims department of the insurance company – and the consequences of being found out are dire.

If getting a criminal conviction, being fined and probably having it reported in the local press isn’t enough. The actual insurance consequences, both initially and long term, are pretty grim as well. Firstly, the insurer is within its rights to decline to pay out on the claim. If the accident involved a third party, and especially a third party injury, this could be very expensive as although the insurer would meet those costs, they could then attempt to recover them from you.

The insurer could choose to cancel the policy, leaving your child without insurance. This could lead to further legal problems as they would then be deemed to have been driving without insurance which is also an offense that can lead to fine, points on their licence and possibly a driving ban. It goes without saying that any thoughts of trying to save any money on future car insurance will go straight out of the window as you will both struggle even to find an insurer, let alone one that will give you the kind of competitive premiums you were used to.

Away from the car insurance problems that you will face for many years, the knock on effect of having a conviction for fraud will crop up in many aspects of your life; including your job, getting a mortgage or any type of credit and even your health as the whole stress of the situation will take its toll on you.

Fronting, however well intentioned, is obviously a bad idea, but how do you know if you are doing it? Like I said, most people who get tangled up in this mess do so without malevolent intent. To be fair, it is not always clear who is the main driver, especially if a number of people use the vehicle. As a rule of thumb, if you use the car for commuting, or just use it every or most days then you should be put down as the main driver. If you are in any doubt, be straight with the insurer, tell them everything you think they might what to know about you, the named drivers and the vehicle. It will save you money and a whole lot more in the long term, and possibly in the short term if you’re son or daughter is unlucky enough to have an accident.

 

 

 

 

 

 

 

 

 

 

What is a Second Charge?

Most of us are familiar with personal loans, credit cards and mortgages but a Second Charge loan may not be. As with most financial products, once you get beyond the jargon, it’s actually quite straightforward. A Second Charge is simply a loan that is secured on your property. This means that to be eligible you must be a property owner and that there must be enough equity in your property to secure the loan. The property does not have to be your main residence and can even be a commercial or Buy to Let property. The name “Second Charge” comes about from the fact that your mortgage is actually also known as a “First Charge”

Why Would I want A Second Charge?

There are a variety of reasons for considering a Second Charge. As it is secured on your property, the interest will be usually significantly lower than any unsecured debt you may have through personal loans or credit cards. Consolidating unsecured debt into a secured Second Charge will save you money, and sometimes quite a lot of money. However, never lose sight of the fact that once you have borrowed money using your property as security, then it is your property that is at risk in the event that you cannot make the repayments. Other common reasons for considering taking a Second Charge include meeting the costs of school fees, and tax bills, home improvements and deposits for other property as well as capital costs for you business. In this last instance, borrowing for business purposes is not something a normal mortgage will accept.

If you have a mortgage that has a favourable interest rate, or has penalties for early redemption, it may well make sense to take a Second Charge in order to secure further borrowing rather than remortgage your original loan.

Most unsecured loans are available up to certain limits, with the very top end being about the £35k mark. if you need to borrow more than this, then a Second Charge becomes attractive as the limit you can borrow is dictated by the equity in your property (as well as conditions relation to affordability) It is possible, though not always wise, to organise your borrowing so that the combined value of both your mortgage and Second Charge reaches 95% of the overall value of your property.

A Second Charge typically takes about three weeks from application to getting your money. Although I have been involved in mortgages that have been that quick, it is fair to say that on average a Second Charge will complete faster than a mortgage, and unlike a mortgage, there will not be any up front costs either.

As with all borrowing, you should carefully consider all aspects of what you are doing before you go ahead and ask as many questions as you can before signing. But, like most products, for the right person and the right circumstances, a Second Charge may well be a good idea.

 

 

 

 

 

 

Have you mislaid £500M?

“Commission chairman Nick O’Donohoe said: “Dormant assets should not exist, but they do. Individuals should never lose track of their assets, but they do. Companies should not have out-of-date contact details for their customers, but they do.”

This was the quote that jumped out and grabbed my attention in an article titled  “Up to £500m of ‘dormant’ assets in pensions and insurance sector” You can read the full article in Professional Adviser here, and I suggest you do!

Now £500M is rather a lot of money and it seems its all yours. You’ve just forgotten about it. It is a bit of a problem to the companies that are holding it on your behalf as they can’t do anything with it themselves and they can’t find you in order to give it back. In an attempt to try and solve this problem, the government have a whole department working with insurance companies, investment houses, banks etc.. with the aim of reuniting people with their lost money. You can find out more about the department, The Dormant Assets Commission by clicking here and again, I suggest you do.

If you have moved house, changed jobs, changed your name or somewhere in the back of your mind you have a vague idea that you put fifty grand into a pension and you just can’t remember where and when. then there is a chance that it is still sitting there waiting for you to collect it. just like lost luggage. A lot of effort is being made to try and trace the owners of dormant assets, but why not give them a hand and check any old paperwork you have, or may have even inherited from a relative who has passed away, and check to see if you still have a pot tucked away that you have long forgotten about!

Car Insurance Costs to Soar! Maybe. More Likely Maybe Not!

A fairly uninteresting formula used to calculate personal injury compensation has suddenly become a very interesting formula used to calculate personal injury compensation. This is because the government has noticed that the returns on investments are low. Fingers on the pulse as usual given that the last time this formula was altered was 2001, so why now? Returns on Index Linked Gilts have not been great for a long time, yet the 2.5% used in this formula has been a constant for over 15 years!

The formula is important as it fixes the amount of compensation from an insurance company to a personal injury claimant who is deemed to need the money in order to ease their wellbeing following life changing injuries. It is used to calculate the lump sum amount required to meet the claimants ongoing needs, while taking into account the expected investment return on that lump sum. Since 2001 this figure has been 2.5%, it is now minus (yes, minus!) 0.75%. It is in effect stating that to get what is needed from that lump sum, it has now got to be large enough to withstand an annual drop in value of 0.75%

In one of the few articles I have read that gives some actually thought out figures, the Solicitors Journal  states:

‘For someone in their twenties, lump sum damages would change from £4.8m to £11m. For someone in their sixties, where it impacts less, lump sum damages would change from £3.8m to £6.5m.’

And here I start to feel deflated and reach for yet another calming dose of Earl Grey. With the best will in the world, I think the good folks at the Solicitors Journal would accept that they do not enjoy the mass readership of the great general public. Neither does the many specialist publications who have covered this in a bit of informed detail. A very necessary bit of informed detail. Instead, the mainstream press goes straight to the eye catching “Car Insurance to rise by £300” headlines which are advertiser friendly and get people who are expert at reading these headlines much ego massaging time on the radio.

Yesterday, I was accosted by an acquaintance who’s knowledge of finance and insurance extends to the fact that he has a mortgage and three children, no life insurance but a great deal on his iphone cover, and was told that his nephew is now going to have to pay £1000 more for his car insurance because “The government have put car insurance up for the under 25’s”. Despite my best efforts, he is sticking to his dystopian view because “that guy on the radio said it”

Do the mass media really get off on scaring people?

I have read the “£1000 increase” for under 22’s in many places, along with “£400 increases” for older drivers and “£75 – £100” increases for the inbetweenies. Not once have I seen anything that tells me how the dickens these figures are derived. The ancient art of plucking figures from the air is in vogue yet again. Fact is that car insurance premiums are calculated in many ways. The figure you end up with on your renewal depends on where you live, your age, your job, the car, your own driving history and even the fact that the underwriter has been told that he must get in x amount of policies so “be friendly on the discounts this week.”

The art of acquiring financial figures to be used in newspaper headlines is ancient and has to be passed down from master to student…

 

The most recent things I have read about this change is that the government want to have meetings with the insurance industry to see if there is a “way forward”. I strongly suspect that such a “way forward” was considered long before this change was announced. If you want to dump an idea, first change it for the worse then wait for those effected to come up with their own “not quite as worse, but worserer than they would have originally demanded” plan.

The idea that someone in receipt of a large sum of money is going to use it in a way that reflects the government’s view regarding the investment of said money, and therefore the formula used to calculate it is so far from reality that it is laughable. The fact that it has been looked at now seems to me that it is more likely that they will ditch the whole idea on which this calculation is made and come up with a whole new way of dealing with this situation.

And as for car insurance premiums, I wouldn’t put my kidney on ebay just yet. Natural market forces, along with a whole lot of other things, will temper things down to just expensive rather than impossibly expensive.