Are all claims equal?

by Gary Kerney

Property owners in many areas of the United States need to recognize the risks they live with and take appropriate action to protect their properties from exposure. Insureds should evaluate their needs and purchase the best protection they can. However, when that practice fails — especially in the aftermath of a catastrophe — some turn to fraudulent activity to offset financial losses stemming from inadequate protection.

Many industry experts anticipate a rise in fraudulent claim activity. The large numbers of home foreclosures, increasing unemployment and underemployment rates, and pressure to maintain the status quo create financial hardships that can lead to fraud.

Hurricane damage — specifically the damage that wind or water creates — has become a big issue in recent years. In many cases only flood insurance will cover the damage from surface flooding or storm surge. That’s a rude awakening for insureds who believe their homewoner policies cover such damage. Some policyholders commit fraud to get the funds they need to make repairs.

The time it takes to repair or replace damaged property is growing. In recent years, catastrophes have severely depleted material and labor resources. It’s not uncommon for a property owner to wait two or three years for home repairs. A homeowner also faces disappointment when he or she learns that the cost a firm quoted to make the repairs initially becomes inadequate as time passes. Frustrations can lead people to make bad decisions and look for ways to get cash.

Policyholder expectations can also lead to fraudulent activity. An adjuster’s competence gives a policyholder confidence, but a lack of skill can cause a policyholder to doubt fair treatment. Some insureds expect that carriers and their representatives will try to shortchange them. Such belief systems often lead to fraud and falsification or misrepresentation of claims.

Many catastrophe antifraud plans call for initial deployment of the special investigation unit (SIU). It’s not surprising that criminals consistently behave like criminals — so investigative professionals can anticipate that behavior. But the confusion and devastation following major catastrophes can cause otherwise upright citizens to break the law. Frustration, fear, and an inability to think clearly are at the root of that sort of behavior. Dealing with fraud is an innate part of the disaster-recovery process.

Insurers need to prepare themselves for catastrophes and make sure their SIU staff are well coordinated, responsive, and available to provide good customer service. Cooperation between claims and SIU staff and a strong SIU catastrophe plan can help you be less susceptible to fraudulent claims in the aftermath of catastrophes.