Weather-related events and insurance fraud

Insurance fraud is not the first factor we consider when a weather-related event occurs. We worry about the lives lost, damaged homes, ruined businesses, uprooted families and destroyed towns. It is only after weather-related events pass that insurance fraud becomes an unwelcome intruder.

According to the National Insurance Crime Bureau, a North American non-profit membership organization created by the insurance industry to address insurance-related crime, approximately 10% of insurance claims are fraudulent. This leads us to predict as weather-related events increase both in frequency and size, fraudulent insurance claims will also rise.

Storm fraud

Following a weather-related event, home and business owners typically call their insurance agency as soon as possible. While insurance claims professionals are not classified as first responders, they are often among the first individuals to respond following an event.

It is worthwhile to examine what insurance fraud is and is not. It is not a victimless crime. Insurance payouts help business owners, educational institutions, charitable organizations, homeowners and others return to normal following a weather-related event. Without insurance disbursements, these entities could languish indefinitely or fail. By diligently fighting against insurance fraud, we are fighting for both the industry and the insureds who rely on carriers to remain financially viable. Rather than being a victimless crime, insurance fraud results in increased policy costs for everyone.

Individuals filing false or inflated claims place themselves at risk of prosecution. A research study regarding insurance fraud fielded by the Pennsylvania Insurance Fraud Prevention Authority (PIFPA) found that:

• Knowledge about insurance fraud is limited. Only one in six respondents was knowledgeable about how insurance fraud is classified and defined. Even fewer understand insurance fraud is a felony.
• Many Pennsylvania residents do not consider insurance fraud to be a serious crime. In fact, it can land the perpetrator in jail.
• Almost all Pennsylvania residents believe those who perpetrate insurance fraud are rarely caught.

The PIFPA describes the seriousness of this crime. “In Pennsylvania‚ insurance fraud is a felony‚ punishable by up to seven years in prison and up to $15‚000 in fines. There are also restitution‚ court costs‚ and lawyer’s fees to pay. Plus‚ those who are convicted get a felony charge on their record which follows them for life‚ and can stand in the way of securing employment or housing.”

Workers’ comp fraud

Insurance fraud also occurs at the workplace, and employers or employees can compromise workers’ comp insurance by submitting false or misleading information to insurance providers.

An employee can commit insurance fraud by:

• Faking an injury at work to get paid time off.
• Exaggerating the severity of an injury to get additional time off with benefits.
• Falsely claiming an injury occurred on the job.
• Misleading the insurer about being unable to return to work at the previous place of employment after taking a new job.
• Conceal income from another job, while continuing to collect workers’ comp benefits.

An employer can also commit insurance fraud. Following are the most common instances:

• Failure to carry workers’ compensation insurance.
• Understate company payroll to reduce premium payments.
• Classify employees as independent contractors.
• Wrongly characterize the type of work employees do in order to qualify for and pay lower premiums.

While insurance fraud is already a drain on communities and the industry, it is important for the industry to proactively manage this risk to prevent further damage in the future.

Gerry Sorge (gsorge@kmrdpartners.com) is a claims advocate at KMRD Partners, Inc., a risk and human capital management consulting and insurance brokerage firm located in Philadelphia and serving clients worldwide.