It is a real thing, largely due to the presumption of being at fault if you hit another car from behind. How common it really is is debatable, but when you have the same person being involved multiple times in identical accidents on the one bit of road which has no CCTV, each time successfully claiming an insurance payout for their car (and whiplash injuries), it’s pretty clear there’s something going on.
For small claims, under around £5000, generally the insurance company won’t bother even contesting it, they just pay out, as it’s cheaper.
In my own incident, my insurance company actually paid out my claim before even contacting the other driver’s insurance. It only came out later that she hadn’t reported (despite telling me she was going to, which was the only reason I reported a minor bump in the first place :rolleyes: ) and I didn’t need to provide any evidence other than a description of what happened until they found out she was denying all involvement, at which point lawyers got involved, and it all got more complicated and wound up in court. Luckily I’d kept the handwritten card with her details on that she’d given me, and the case got decided in my favour, but it’s rare for that to happen.
From what they told me, it was only due to her denying involvement, not simply denying fault, that her insurance contested it.
It’s not something I worry about happening (for a start, my car’s a hunk 'o junk), but there is an obvious loophole for someone willing to be an arsehole for a few £1000, so it’d be more surprising if no-one ever did it.