Investigating Insurance Fraud in Property Damage Claims 

/

ACFE Research Specialist 

Emma Richardson

Picture a busy city street, littered with parked cars. One, a slate-grey 1998 Oldsmobile, is in real rough shape: sitting up on cinder blocks, the vehicle is surrounded by a sea of shattered glass. All four of its wheels are gone. Then, adding insult to vehicular injury, someone has carved the word “nasty” into the hood.  

To most people, a sight like this would prompt a swift call to 311. For an entirely different demographic, however, a vandalized vehicle could send visions of dollar signs swirling through their heads. This mindset forms the backbone of a common auto insurance fraud scheme known as suspect property fraud. It is important to understand that, while many vandalism insurance claims may appear innocuous at first glance, every claims adjuster must be prepared to identify, handle, and most importantly, defeat the elements of fraud that may be present within these types of losses. 

Suspect PD Fraud: The Basics 

When it comes to insurance fraud by the dollars, the Coalition Against Insurance Fraud asserts that fraud across all lines of the insurance business costs policyholders an estimated $308.6 billion annually. While it is difficult to ascertain the exact contribution of suspect property claims to this staggering number, one can be sure that this type of fraud won’t be drying up any time soon— unless suspect property claims are thoroughly and accurately investigated.  

So, how does one distinguish between a legitimate vandalism claim and a fraudulent one? For starters, it is necessary to put yourself in the shoes of someone with an urgent need. Let’s say your 2005 Volkswagen Jetta blew out its engine, and you’re in no position whatsoever to afford those repairs, let alone come up with the money for a down payment on a new vehicle or the monthly financing payments that will follow. One way to solve both your problems — financial and mechanical — would be to file a damage claim on your auto insurance policy, which would result in a settlement payment for the total loss of your Volkswagen. Since collisions can be hard to stage, that leaves a comprehensive loss, such as a fire, weather event, or in this case, vandalism, as a viable option to total out the unwanted vehicle. 

Motive, motive, motive 

Suspected property fraud — as with all types of fraud — is driven entirely by motive. The two likeliest motives for committing suspect property fraud are financial or mechanical.  

  • Financial motive: If the policyholder filing the claim owns their vehicle outright, then there may be a financial motive to manufacture a loss, as the registered owner can expect to be paid for the actual cash value of the vehicle’s worth. If the vehicle is still being financed by a lending institution, then by experiencing a total loss, the owner could be releasing themselves from a loan that has gone upside down or otherwise become undesirable to continue.  

  • Mechanical motive: Many car owners find themselves pouring thousands of dollars into repairs on vehicles that are no longer worth the cost or trouble, especially if those repairs will ultimately outlive the vehicle’s long-term value. 

When a claims adjuster is assigned to a new vehicle vandalism claim, there are multiple factors to consider at the beginning of the policy and coverage review. To begin with, an adjuster should always review any recent activity on the insured’s policy. For example, it is important to look for notable coverage changes that could be indicators of fraud: 

  • Has the vehicle being claimed recently been added to the policy?  

  • Has first party coverage (that is, comprehensive and collision) been applied to an older-model vehicle?  

  • Does this vehicle carry a lower comprehensive deductible than collision?  

The bottom line is that if the policy’s history reflects unusual changes to coverages that would benefit the insured in the event of a loss, an adjuster may want to dig deeper and ask more questions about this during the recorded interview with the insured.  

Just the Facts 

The reported facts of loss can carry an abundance of fraud indicators. Upon reviewing photos or a verbal description of the damages claimed, adjusters should ask themselves if a reasonable person would consider the damages to be “excessive.” A review of the reported loss location and timeline of events will likely prove beneficial to the claim’s investigation: in short, does it make sense for someone to have taken the time to vandalize a vehicle in a public setting?  

Let’s return to the 1998 Oldsmobile — remember, all four wheels are gone, at least one window is broken and the hood has been keyed. Think about how long it would take to accomplish all these tasks—probably at least 30 minutes, if not more. Now, consider the probability of being seen while in the act. Would you put the time in if you had nothing to gain and everything to lose? 

How Can Fraud Examiners Fight Back? 

If something doesn’t feel right, then a detailed, recorded interview with the insured, coupled with a comprehensive review of the claim, is an adjuster’s best fraud fighting tool. Going over the loss in detail will empower any fraud examiner with independent sources of event corroboration and ideally confirm coverage is in order on the claim.  

Additionally, having a stronger awareness of the indicators of suspect property fraud, as well as insight into the motives for doing so, can help bring a stronger level of awareness into an adjuster’s ability to verify the legitimacy of a reported loss. 

Much like city wrecker services and abandoned cars, the insurance industry may always be cleaning up from the after-effects of fraud. But as long as qualified fraud examiners are paying attention to all the details, the battle to detect, deter and defeat fraud need not be so “nasty.”