July 27, 2011 by Canadian Underwriter
Insurance companies settling small claims without any investigation may in fact be emboldening fraudsters to commit more serious forms of fraud in the future, a claims investigator warned at a seminar on combating auto fraud.
Jordan Legg of Cunningham Lindsey spoke about claims investigation strategies in an ISB Canada education seminar held in London, Ontario on July 26.
Legg’s presentation referenced an ongoing debate all insurers face related to the enormous cost and time required to prove fraudulent claims.
He said most vehicle claims are anywhere between $10,000 and $15,000. “Countless times,” he said, insurers are opting to pay out claims worth $10,000 or less rather than rack up the time and money required to undertake a thorough investigation.
“One of the biggest debates we have is the ethics and economics (debate),” Legg said. “The question always is, ‘How much do we pay [to investigate a claim] before paying out?’ Is it more economical just to pay the $10,000 rather than incur investigation expenses?
“What we say is, what you pay now, you get later. Because criminals start at a low level, a couple of $10,000 thefts. They realize they can get away with it, they see how easy it is to pull an insurance fraud, and they start to do bigger things. Basically it’s just a snowball in the industry. People just continue to perpetrate these frauds, and then they get bigger and bigger, because insurance companies are paying out with no investigation.”
Legg recommended insurers proceed with a staged approach to claims investigations. He suggested insurers allow investigators to do some preliminary work on a file, say 4-5 hours, which is “not going to cost you a lot.” This initial investigation would at least determine whether or not there are any ‘red flag’ indicators of fraud.
“If there are any indicators, if there is any indication of discrepancies, you will be able to make that assessment at that time and proceed accordingly,” he recommended.