Put two adjusters together in a room, and it won’t take long before they are swapping anecdotes about claims they have handled. Some stories are spectacular, some are poignant, some are funny, and all are noteworthy for some unusual aspect of the loss, damages, or persons involved. Give them a few more minutes, and they’ll be playing the “one-upmanship” game of insurance fraud—each adjuster trying to outdo the other with tales of deceit, misrepresentation, greed, and overstated values.
Overhearing the conversation, a casual passerby might think that most claims are exaggerated or outright fraudulent and that most claimants are out to get all they can get. I call it the “House-effect,” named after the irascible Hugh Laurie character, Gregory House, M.D., who states again and again with each new case history, “Everybody lies.”
But do they? You might be surprised! Fraudulent claims involve some form of lying at some point in time, yet it would appear that the House-effect can only be applied to a minority of the claimants alleging loss and damage. The Insurance Information Institute estimates that 10% of losses are fraudulent, or about $30 billion per year. The Coalition Against Insurance Fraud estimates the losses much higher, in the $80 billion range. The problem with these estimates is that no one really knows for certain how much insurance fraud is committed in the United States. With losses hovering at the $300 billion range, each estimate is significant, but neither reflects a majority of losses.
So why do adjusters focus on fraud as a commonplace occurrence about which they must be constantly vigilant? Every adjuster knows the list of “red flags” that would indicate the possibility of fraud. Every adjuster carefully reviews the facts of each case to ensure there has been no fraudulent behavior. But are these suspicions supported by evidence of widespread improper behavior, or do the fraudulent cases just stick out in our minds?
Take the “Fraud: Fact and Fiction” test to determine if your beliefs about fraud and society’s willingness to rein in fraudulent activity stack up against the statistical data we have available. You may be surprised!
There is no question that society’s opposition to fraud is deteriorating. A study by the Association of British Insurers found that more than 70% of individuals over 65 years old would never commit insurance fraud, compared with only 40% of individuals stating the same thing in the 15-to-24 age group. This does not bode well for the insurance industry. Making matters worse, in the same study, 5% of the people polled said that nothing would put them off from committing insurance fraud if they had a claim.
The Skeptic Turns Septic
So why does it matter if claims professionals become a little jaundiced over time?
The answer may be a question…of trust. When trust is betrayed, it can be a professional and personal affront to the claims representative. Once an adjuster has had an experience where trust in an insured or claimant has been undermined (or obliterated), restoring good will for the next claim can be difficult.
Claims representatives may ultimately become unable to feel empathy toward the injured or damaged parties, impairing their ability to establish a relationship that could result in quick resolution and fair outcomes. The mistreatment of policyholders by jaded claims professionals has, indeed, tainted the industry and led to bad faith lawsuits and fist-pounding sermons from legislators on a crusade to find unfairly denied claims. The insurance industry is already near rock-bottom in the public’s eye—witness the media hype and legal onslaught over unpaid claims after Hurricanes Katrina and Rita.
Adjusters largely must rely on the basic honesty of their claimants. It is virtually impossible to prove absolutely everything about a claim. The value of the items lost is often not known, receipts are lost, wear and tear occurs naturally, the property is damaged beyond recognition, and the claimant often forgets what is owned. These are all natural occurrences. Who among us could do a complete inventory of our household goods today without physically viewing the items? Often, there may be nothing left but the word of the insured or claimant.
So listen to the stories, and in time you’ll have plenty of your own. Playing the one-upmanship game is fun and entertaining. Just keep in mind that most claimants and insureds are truthful and willing to work with you in a professional manner to submit an authentic and valid claim.
Elise M. Farnham, CPCU, ARM, AIM, CPIW, is an international speaker, industry consultant and president of
Illumine Consulting. She can be reached at (770) 367-3148 or at
elise@elisefarnham.com.