Fraud Red Flags

Part of investigating a claim is verifying the information the adjuster has received is true.

Insurers are only obligated to pay covered claims. The payment made will be “reasonable and customary” for the type of loss.

Fraud is wrongful or criminal deception intended to result in financial or personal gain. Insurance fraud occurs most often when an individual or entity makes a false or exaggerated insurance claim. Fraudulent claims can be as simple as “padding” a contents list with items the insured doesn’t own, known as “soft fraud”; or it can be as complex as arson, known as “hard fraud.” Soft fraud is more opportunistic and more common; hard fraud is a purposeful act by the claimant or the insured. Regardless, insurance fraud is illegal.

Adjusters need to know the potential indicators of fraud, which are called “red flags.” Of course, claims with red flag indicators can be legitimate. Although it is typical for a fraudulent claim to have more than one red flag, it is possible for there to be only one. If insurance fraud is suspected, the adjuster should report the claim to the insurer’s Special Investigation Unit (SIU), which will further investigate the claim. Most states’ departments of insurance mandate the insurer to report insurance fraud to the department's fraud division.

Red flags can be:

  • A claimed injury which does not match the facts of the case

  • An injury which occurs on Monday morning

  • An injury or loss which occurs immediately after the policy start date

  • Damage to an item which is past its useful life

  • Financial problems/difficulties on the part of the first- or third-party claimant

  • Lack of receipts for stolen items

  • Lack of photographs for stolen/damaged items prior to the loss

  • Lack of witnesses to loss

  • Lack of pre-printed information on receipts such as vendors' name, address, telephone number

  • Forms which have been redacted

  • Theft when security system was inactive

  • Theft of goods which do not match the perceived livelihood of the first- or third-party claimant

  • Refusal to email or mail documents into the claim office; insisting on hand-delivering supporting documents

  • Treatment for injury (by a general practitioner or chiropractor) on the weekend on a holiday 

  • Fire which occurred on the weekend, a holiday, or while the family was gone

  • Fire in which the family's pet is absent and sentimental items such as wedding or birthday photos are absent from the debris

  • Fire during a renovation

  • Insisting the claim be settled quickly

  • The first- or third-party claimant is willing to accept settlement much lower than the actual value of the items lost

  • The first- or third-party claimant is extremely uncooperative, demanding, and threatening legal action (bad faith lawsuit)

  • The first- or third-party claimant is familiar with insurance terminology

  • The first- or third-party claimant has several past claims which are similar to the current loss

These are just a few red flags to be aware of. This is not a list of all the red flags. 

If there is a concern about suspicious claim activity, the adjuster should consult with his or her supervisor and the insurer's Special Investigation Unit (SIU).