The new face of claims fraud

By Tom Mulvey

Over the last 25 years, most people committing insurance fraud have fallen into one of two broad categories:

• professional, recidivist fraudsters
• people who exaggerate the value of a claim following a legitimate loss

Perpetrators in the first group purchase coverage with future losses in mind. In the end, the price of the policy is a bargain compared with the ultimate settlement value of an orchestrated loss. Such schemes often rely on unscrupulous third-party service providers.

The second group consists of claimants who quickly discover an illegitimate opportunity after an unfortunate loss. A home break-in offers that type of chance.

Here’s an example:
A thief forces entry into a man’s home and steals an Xbox and a dozen video games. When the responding police officer asks what is missing, the claimant’s imagination becomes creative. As visions of laptops and jewelry dance in his head, he may wonder, Do I tell the truth, or do I cash in since I have been paying premiums forever? By listing additional items as stolen, the claimant is committing fraud.

Depressed economy leads to new type of claims fraud
Today’s depressed economy has led to the emergence of a third group of fraud perpetrators: people who have been financially devastated. They don’t fit into the first group, since they purchased their policy with no thought of committing insurance fraud in the future. Nor do they fit into the second group, because they haven’t been the victim of a covered peril.

One example is a woman who has insured a number of expensive jewelry pieces. After she loses her position in a corporate downsizing, she endures an extended period of unemployment. Eventually, she realizes she can no longer meet her financial commitments. At that point, she fakes a break-in, calls the police, and alleges that the jewelry was stolen, when, in fact, she has transferred it to another location.

The economic meltdown has affected these people severely, and they choose to manufacture claim scenarios to replace lost income. Insurers have dealt with desperate people before, but not in such large numbers.

Claimants in our third group may have gone from a six-figure salary directly to unemployment. They may have leveraged their salaries  before the crash and are paying hugely expensive mortgages they can no longer afford. Selling their homes is not an option because market values went into freefall and equity has vaporized. That group may even include business owners who lost customers but must still pay overhead as their inventories sit in warehouses.

I have some concerns about the new group of insurance fraudsters. First, I worry about the growth of the group. How many more people will turn to insurance fraud to fill their financial gaps in coming months? My long-range concern is how permanent that group will become over time. Will their numbers diminish when the economy strengthens? Or will those individuals continue to perpetrate claims fraud as an easy way to collect a check?

Are you seeing this development, and do you have the same concern? This e-mail address is being protected from spam bots, you need JavaScript enabled to view it .