Search
Close this search box.

Water, water everywhere… but is it fraud?

ruck (5)

Water, water everywhere… but is it fraud?

In many ways, water is the new fire when it comes to insurance fraud.

Insurance fraud, like other crimes, continues to evolve as fraudsters become more creative. Arson, the crime of intentionally and illegally setting fire to a building or other structure, has long worsened claims activity for property insurers. Today, in many ways, water is the new fire.

Previously, property owners might have ignited a fire for a remodel, to get out of their mortgage, or to collect a financial windfall from their insurance claim. Fires, especially arson for profit, created a higher risk because controlling fire is very difficult. When someone sets a building on fire, there’s a strong possibility that a firefighter or an innocent bystander could be injured. Water damage is easier to control, plus the risk of injury is much lower.

When commercial properties, such as hotels, office buildings and retail locations, experience water damage, including from malfunctions of sprinkler systems, it’s incumbent on independent insurance adjusters and claims professionals to look for suspicious indications. Unfortunately, it’s easy to cause water damage and it can be hard to prove that it has been intentionally caused.

Questions to ask

Water loss claims should be handled like any other claims, with the same attention to detail. The insurance industry has experts with years of experience and training to evaluate fire losses and establish the origins and causes of those losses. When it comes to water, it’s more difficult to make that determination, so insurance companies are sure to select the right experts — whether they’re plumbers or engineers.

Carriers also have to look at the history of the insured’s claims. Property owners who cause intentional water losses tend to have a past record of similar claims. Generally, when insureds cause the loss, the damage tends to be rapid and significant perhaps with the thought that it may help them get paid fairly quickly.

When evaluating a water loss — for a burst pipe or broken sprinkler system, for example — claims professionals should ask:

  • When did this happen?
  • How did it happen?
  • Are there before and after pictures?
  • What did that pipe look like before it burst?
  • Was the pipe manipulated to cause the damage?
  • Has the sprinkler system been properly maintained?
  • Are there signs of tampering?

Exaggerating losses

Claims professionals also should look for certain red flags that may indicate what the insurance industry refers to as “soft fraud.” That often occurs when insureds look for ways to increase the value of the claim, such as when the loss is less than the amount of the deductible.

Some questions to ask, which suggest further investigation may be warranted:

  • Is insured changing the details of the loss to cover their deductible.
  • Are they adding supplemental items to the list of damaged goods or inventory?
  • How long has the policy been in force?
  • Is it a newer policy, or is it about to expire or be canceled?
  • Is there a financial motive? For example, is the insured in financial distress?

Vendor fraud

It may be the vendor, not the insured, that commits the fraud. Before hiring restoration contractors or any other third party, insureds should contact their carrier. The insurance company may have a list of contractors that have been screened and vetted and may be able to submit documentation and invoices electronically.

Even when insureds work with restoration contractors that have been screened and vetted, they should ensure the costs are invoiced properly by confirming that the vendor is using the equipment that they’re billing for, which is another reason to take pictures early and often.

The key point for claims professionals to remember is not to hesitate to ask questions. When there are indicators that could suggest damage may have been intentional, they should get consider getting experts involved early in the process. They also should communicate with the insureds, so the reasons for investigating the claim are appropriately clear.

When the fraud team of the special investigation unit investigates a loss, it’s not always because they suspect fraud. Their goal is to protect the insured as well as the insurance company. Insurance fraud makes everyone’s rates go up. If it’s a legitimate loss, it’ll be validated and settled accordingly. Fraud hurts everybody.

Steve Jarrett, a former member of the Tampa, Florida, Police Department, is the National Director — Special Investigations, Westfield Insurance.

Leave a Reply

Your email address will not be published. Required fields are marked *

Related posts

Risk Management

Mitigating Financial Losses During Hurricane Season: A Skyscraper Insurance Guide

As hurricane season approaches, businesses must take proactive steps to safeguard against financial losses. At Skyscraper Insurance, we understand the unique challenges companies face in times of disaster, and we’re committed to helping our clients navigate them successfully. Here’s how your business can mitigate financial risks with the right strategies and support. 1. Diversifying Income Streams for Resilience A diversified revenue model is crucial to withstanding the disruptions caused by hurricanes. Skyscraper Insurance works with businesses to evaluate new opportunities—whether it’s launching an online platform, expanding services, or entering new markets. This ensures that if one revenue stream is impacted, others can sustain the business. 2. Comprehensive Insurance Coverage The first line of defense is making sure your insurance policies are up to date and cover potential hurricane-related damages. Skyscraper Insurance specializes in providing tailored insurance solutions, including business interruption coverage, property damage, and flood insurance, to protect our clients against catastrophic financial losses. 3. Creating a Contingency Plan with Experts In partnership with Skyscraper Insurance, businesses can develop disaster contingency plans that ensure operations continue smoothly, even in the face of supply chain delays or power outages. We help you establish backup solutions, such as alternate suppliers or inventory management systems, minimizing financial fallout. 4. Maintaining a Recovery Fund Skyscraper Insurance advises its clients to maintain a recovery fund, ensuring fast access to resources for repairs, inventory restocking, and other unforeseen costs. This proactive approach enables businesses to get back on their feet quickly without waiting for loans or insurance claims to process. 5. Leveraging Government Aid and Local Resources In the aftermath of a hurricane, government aid can be crucial for businesses. We assist our clients in navigating grants, low-interest loans, and tax breaks available through local and federal disaster relief programs, ensuring that financial recovery is swift. 6. Risk Management Strategies At Skyscraper Insurance, we provide businesses with customized risk management strategies designed to reduce vulnerabilities and protect financial stability. From evaluating potential hazards to implementing risk-transfer solutions, we help you mitigate loss before a disaster strikes. 7. Ensuring Proper Documentation for Claims Keeping detailed financial records is essential for filing accurate and timely insurance claims. We help clients organize and maintain critical documents that streamline the claims process, ensuring a quicker recovery period. Skyscraper Insurance: Your Partner in Resilience While hurricanes can be unpredictable, your business doesn’t have to face them alone. At Skyscraper Insurance, our commitment goes beyond coverage; we provide expert guidance and comprehensive risk management services that empower businesses to stay strong and resilient during hurricane season.

Read More
Safety Tips

How Natural Disasters Impact Supply Chains: Lessons from Hurricanes

Natural disasters like hurricanes wreak havoc on supply chains, causing major disruptions that can affect business operations for weeks or even months. For businesses, it’s critical to understand how these disruptions occur and to take steps to mitigate them. At Skyscraper Insurance, we help our clients navigate these challenges with smart risk management strategies that protect their bottom line. Here’s how hurricanes impact supply chains and what businesses can do to prepare. The Impact of Hurricanes on Supply Chains Hurricanes affect supply chains in several key ways: Minimizing the Impact: Strategies for Business Resilience While hurricanes are unpredictable, businesses can minimize their impact on supply chains through proactive planning: Inventory and Distribution Strategies Hurricanes often lead to localized supply shortages in the regions directly affected, but businesses that rely on global supply chains must also be wary of broader impacts. Global markets can feel the ripple effects as businesses look for alternative suppliers or routes, which might drive up costs and delay deliveries. Supporting Employees and Customers Beyond the logistical impact, hurricanes also bring safety risks to employees and customers. Ensure that safety plans are in place, including clear evacuation procedures and communication strategies. For employees working in distribution or warehouses, it’s essential to prioritize their well-being by closing operations in unsafe conditions and providing post-storm recovery support. Final Thoughts Supply chains are the backbone of many businesses, but they are also vulnerable to the unpredictable forces of nature. By diversifying suppliers, investing in technology, and planning ahead, businesses can minimize the disruption caused by hurricanes and other natural disasters. At Skyscraper Insurance, we’re here to help our clients protect their supply chains and navigate the challenges posed by these extreme events.

Read More
Try your instant quote