Peeling back layers of insurance fraud

Very recently, I had cause to be reading an article on insurance fraud and the cost to German insurers that was estimated at over four billion euros per year. The resemblance was striking and the article could well have been referring to Trinidad and Tobago — maybe not in quantum but certainly by its relevance. The article went on to say that insurance fraud goes on every day with claimants trying to get the most out of genuine claims by overstating the amount of the loss or by purposely misrepresenting the facts and so seek out a payment well in excess of what they would have been entitled to recover.

Claimants do not believe that they are doing anything wrong and in fact feel that they are well within their rights to extract the highest payout, because they have been paying premiums for many years and have not had a claim, so it’s pay back time! Does that not sound familiar? In particular with motor claims, the initial estimate is usually significantly overstated and the loss adjuster will then negotiate a settlement which on average could range between 40 percent - 60 percent. The true cost was never the original estimate in the first place but a basis to negotiate in an attempt to get the best settlement. While this place might be perfectly acceptable in motor accident claims being cute in the presentation of a fire/property claim can have dire consequences for the claimant.

When presenting a property claim, the claimant is required to detail the items lost and provide supporting documents. The loss adjuster may even contact the seller or supplier to verify the purchase. There have been cases where the claimants have sought payment for items that were never lost but they saw this opportunity to get more monies from a perfectly legitimate accident. This is a clear example of insurance fraud. If the claimant is found out not only is this item rejected but the insurance company now has grounds to deny the entire claim. This is insurance law! It might seem harsh but there are legal precedents and decided cases of such fraud and the entire claim could be thrown out. The claimant might feel aggrieved but insurance fraud is simply not tolerated and this is a warning for would-be claimants to be careful in the preparation of their claim since there are severe consequences if a fictitious or non-existent item is included.

It might be argued that the practice of overstating claims especially in motor is accepted but in the case of property it is not tolerated. There is a big difference. On the one hand, in the case of property the claimant is seeking compensation for actual loss or damage of specific items and if a claim is made for an item that did not exist then insurance law determines that it is a case of fraud. With regard to motor accidents, a repairer is submitting his estimate of the repair costs and while it is generally known that such estimates are overstated it is left to the insurance company and the loss adjuster to arrive at an agreed position through negotiation and discussion. Such practice is not viewed as fraud although for the inexperienced person the question will arise why the final settlement is significantly lower than the original estimate. While a developed country like Germany is concerned over insurance fraud where settlements continue to be made, the detection rates are low and claimants are prepared to take their chances, it is sign of the times since this situation is prevalent all over the world.

Human nature is the same the world over and people are prepared to submit fraudulent claims if they stand a good chance of getting away with it. Mind you, all insurance companies are becoming more stringent in their claims settlement practices. Whereas in the past insurance companies were prepared to pay ex gratia settlements to appease clients in cases where the policy might not have provided coverage, this practice is becoming less common since reinsurers are no longer allowing insurers to settle unless they are first consulted. What is in effect happening is that insurance companies can no longer bind reinsurers to pay a claim if there is no liability to pay. What it now means is that insurance companies will have to pay out of their own funds without contribution from reinsurers if there is no liability under the policy, and this effectively will translate into a higher degree of probity and scrutiny of claims than in the past.

There is a general tightening up all around — and not only in Trinidad and Tobago. Reinsurers are demanding a higher degree of competence and insurance knowledge from the insurance companies and, in turn, clients must adhere to the terms and conditions of their insurance contract. The days are fast disappearing when clients could beg for an “ease up” when they violate the terms of their contract and a claim occurs and they turn for payment from their insurer. There must be greater accountability and responsibility because in the final analysis losses determine insurance premiums and the higher the payout the greater the likelihood that premiums will be increased. Insurance fraud pushes up the claims payout, so too claims that could be avoided and they all have a direct relationship on cost to consumers. There is no such thing as a free ride since someone has to bear the eventual cost. While the insurance industry might have been less than aggressive in the past in dealing with insurance fraud in a structured way, all of this is changing as they seek to reduce such incidences in the future.
E-mail: daquing@cablenett.net