Webster’s Dictionary defines fraud as “deceit; trickery; trick; imposter; cheat.” Fraud can occur at any point in an insurance transaction – from the application for insurance to the conclusion of a claim. We recognize common acts of fraud to include “padding” (inflating actual claims), “staging” (submitting claims for injuries or damage that never occurred), and misrepresenting facts on an insurance application, just to name a few.

The 2020 Insurer SIU Benchmarking Study, published by the Coalition Against Insurance Fraud, found that insurers are increasing their use of in‑office investigators and using fewer field agents in their special investigation units.¹ They are also increasingly outsourcing field investigators and legal help and are focusing on larger and more complex cases.

Opportunistic Fraud

Many types of fraud take place in Property claims. Catastrophe-related and/or opportunistic fraud occurs when some individuals or groups see an opportunity to exaggerate damages and, in some instances, even create damages that were not caused by the catastrophic event. To combat this type of fraud, insurers are increasingly turning to forensic meteorologists. These experts can accurately verify weather conditions for an exact location and time, allowing claims adjusters to validate claims and determine whether more than one type of weather element is responsible for the claimed damage. Since they rely upon certifiable weather records, the meteorologists’ findings are admissible in court.

Opportunistic fraud can go beyond natural disasters. Some COVID-related losses will, no doubt, continue to play a part in fraud-related claimed damages. People seeking to make up for revenue lost during lockdown will continue to file claims.

Red Flag Indicators

Most Prevalent

Here are some of the most prevalent indicators of behavioral fraud:

• The claimant has a history of filing multiple insurance claims.
• The claim is made shortly after the policy inception or after an increase in coverage or limits.
• The claimant purchased a large amount of expensive property just before a fire or theft.
• The documents presented to support the claim are irregular, questionable or have been altered.
• The documentation for income and expenses is “too perfect” and the policyholder demonstrates more than the usual knowledge about insurance coverage and claims procedures.
• Books and records are incomplete for inventory or for business income loss claims, or do not follow accepted accounting principles.
• The claimant refuses to provide requested financial documentation that could contradict information that was voluntarily submitted.
• The claimed amount exceeds the inventory of what the premises could physically hold, or the manufacturing capacity of the business.
• The claimant discarded damaged property or business records before an adjuster could examine it.

Other Red Flags

Here are some other less common, but serious, Red Flags likely indicating fraud:

• The claimant retains or is represented by counsel on the day of the loss.
• The claimant is represented by a public adjuster on the day of the loss.
• The claimant is exceedingly demanding and threatens a bad faith suit from the date of first contact.
• The claimant demands a proof of loss form at the initial meeting.
• The claimant’s attorney and public adjuster frequently appear linked.
• The contractor has inadequate equipment to perform the job.
• The contractor arrives on site without being solicited.
• The contractor is not bonded or insured.

How to Avoid Fraud

An open and transparent investigation is key to successful claims handling. It’s important to remember that not every misstatement or misrepresentation is equal to fraud. Listen carefully, and don’t be afraid to ask questions or to follow up for information. An insured or their representative may be saying something different than what you think you are hearing, so clarifying is in everyone’s best interest.

It is also important to retain the correct expert(s) for the claim at hand.

Gen Re’s experienced claims professionals are here to help. Please reach out directly to your claims executive or account executive with questions or support in navigating these issues.

Endnote

1. https://insurancefraud.org/wp-content/uploads/Benchmarking-Study-Summary.pdf