For the first time ever, two Category 4 hurricanes made landfall in the United States in the same season—and did so just days apart. While the country is recovering from this 1-2 punch, hearts are justifiably softened toward those individuals whose homes have been damaged or even destroyed by Harvey and Irma.
Along with the winds, rain, storm surge and flooding of a hurricane, there is another predictable outcome: a raft of fraudulent insurance claims. This is a sensitive issue, to be sure: insurers are literally in the business of helping their insureds recover after a natural disaster. How can insurance companies question claims at a time like this?
The answer is that they must—not because they don't care about their clients, but because they do. When insurers fail to adequately investigate a claim that turns out to be fraudulent, it's not only the insurer who suffers, but clients with legitimate claims whose payments may be unnecessarily delayed or whose premiums may rise due to fraud. Lawsuits over fraudulent claims divert even more resources away from where they are needed most.
According to the Coalition Against Insurance Fraud, insurance fraud (of all stripes) is an $80 billion a year business, meaning that's the value of fraudulent claims filed annually. It is estimated that approximately ten percent of property-casualty insurance losses are connected to insurance fraud. This subset of insurance fraud alone results in annual losses of $32 billion. The FBI estimates that after Hurricane Katrina, insurance fraud may have accounted for about $6 billion of the $80 billion in government funds earmarked for reconstruction.
Part of the reason that insurance fraud is so prevalent and costly is that many claimants feel that it is a "victimless crime," or that really, it's not a crime at all, but a legitimate way to recoup some of the years of payments for premiums they perceive as outrageously high. Nearly a quarter of people in one survey indicated that "padding" an insurance claim in order to cover the deductible is acceptable behavior. In reality, insurance fraud is a crime in 48 states.
Some states are responding to insurance fraud with legislation designed to make it more difficult for policyholders to file abusive lawsuits. One such piece of legislation is Texas House Bill 1774, which took effect on September 1, 2017, just days after Hurricane Harvey devastated parts of the state.
One of the most common types of property insurance fraud is overstating the value of a claim. Roof damage that is worth four thousand dollars and claimed for six thousand may not seem like a big deal to the property owner, but it is fraud. Related, and more obviously fraudulent, is reporting the loss of property that is actually undamaged or concealed.
In the case of a hurricane, some insureds may falsely report the cause or extent of damage to a home or business. This can happen, when, say, the hurricane legitimately damaged a roof, but the property owner claims damage to siding and windows that either predated the storm or is not real. Business owners may claim that valuable inventory was damaged or lost, when in fact it is intact. Homeowners, whose insurance typically does not cover flooding, may mischaracterize damage as being wind-related when it was in fact due to flooding.
There are a number of ways insurers can defeat fraudulent claims following a hurricane. One is to retain a qualified expert, preferably an engineer, to inspect damages to property as close in time as possible to the storm. Failure to do so can make it harder to effectively defend denial of claims for pre-existing or unrelated property damage.
Another wise practice is for field adjusters to be thorough in their documentation, specifically to photograph all areas of the property, even those that appear to be unaffected by the loss. Thorough documentation is an effective protection against a later claim for unrelated, pre-existing, or non-existent damages. Adjusters should also, if possible, obtain recorded statements from as many witnesses as possible. These recorded statements should be backed up and/or transcribed in order to make sure they are available as needed.
Claims adjusters are going to be awash in claims in the wake of Harvey and Irma. But steps taken during the claims adjustment process may be very valuable when it later comes time to defend a lawsuit based on illegitimate or fraudulent claims.
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