An Essex-based insurance company is pioneering the use of telephone-based lie detectors in a bid to cut down on the fraudulent insurance claims that are blighting the industry. Highway Insurance, Britain's eighth-largest insurer, is currently testing the systems and plans to start using them in a live environment in March.

The new system involves the use of voice stress analysers, similar to those used by intelligence agencies around the world. The system monitors the voice of a potential fraudster and looks for signs that he or she is lying, given away by unusual and almost unnoticeable variations in the pitch and tone of the voice. Call centre staff are being traind to lead customers through a predetermined set of questions, which will then be used as a basis for highlighting responses that do not meet the normal voice profile of the individual. If this occurs, then the case is flagged and the fraud investigators will look at the case in more detail, examining written statements, checking the claimant's background against a blacklist and conducting further interviews if required.

The insurers hope that the new technology will help eliminate what has become a very serious and costly problem for the industry. The ABI believe that up to 10 percent of all claims could include false information, at a total cost of tens or possibly even hundreds of millions of pounds each year. Eventually this comes out of the pockets of honest policyholders, as premiums will rise to balance the spiralling cost of claims.

The decision by Highway Insurance to implement the new fraudbuster technology came from former Serious Fraud Office detective, Kerry Furber, now an employee of the company. He said: "Fraudsters view insurers as an easy target because traditional detection methods have failed to identify the true extent of insurance fraud. The combination of new methods and technologies should have a huge impact in reducing fraudulent claims."

A spokesman for the Association of British Insurers said: "Fraud is now an enormous problem. The more we detect, the more we realise this is just the tip of the iceberg. We regard it extremely seriously in the industry - but we are getting much better at detecting fraud."

Other insurers will be watching developments closely, and if the pilot is successful, the systems could make their way into all the major insurance call centres.