Claims fraud is a frequent topic of discussionin the industry, and there is no doubt that there are fraudulentclaims.

Some are false from the start and others become exaggeratedduring the life of the claim. There are videos of claimants whosaid they were disabled but were able to perform physical acts manywould aspire to undertake.

Frequently, proof or indications of fraud have been found onsocial networking sites, posted in some cases by the claimantsthemselves. It is surprising how many people put damaging evidenceon their social networks, which can make an investigation firm lookvery good.

Interestingly, there seem to be a lack of steps or processesthat adjusters take when they receive a claim which has beenidentified by the insured or client as a potentially fraudulentclaim, or when questionable circumstances exist that could indicatea fraudulent claim is being presented. Sometimes adjustersimmediately deny the claim, or delay performing the investigation.This benefits a truly fraudulent claimant and usually results ineither:

1. Reluctantly accepting the claim after alienating the claimant,which leads to higher costs, or

2. Denying the claim, which is later overturned because of a lackof sufficient proof, resulting in increased costs because of theadditional legal defense costs incurred.

Related: Lessons from auto industry can curb fraudulenthomeowners' claims

Consistency in claims handling can allow an adjuster toinvestigate a claim before a fraudulent claimant is aware theadjuster has questions about the claim.(Photo:iStock)

Why consistent investigation proceduresmatter

No one will ever be able to successfully deny every fraudulentclaim. Sufficient proof may not be found to deny the claim, or ajudge may decide to overlook what the adjuster thinks is solidevidence of fraud and make an award to the claimant anyway.However, adjusters may have more success or be able to limit thepayment amount if their company has developed strong investigativeguidelines for all claims that are followed on a consistentbasis.

Consistency is a critical requirement because an adjuster caninvestigate a claim before the (fraudulent) claimant is aware theadjuster has questions about the claim. The adjuster should get therequired information quickly before it is lost, forgotten orrearranged, and before the claimant obtains legal representation,if he has not already done so.

Related: How to tell if your insured is being honest withyou

Some of the key requirements of these investigation proceduresinclude taking several steps. They should be followed quickly, andanomalies should not be left uninvestigated. Getting preliminaryinformation, resetting the diary for 30 days, and doing nothing inthe meantime is a formula for failure.

1. For a motor vehicle accident, promptly requesta copy of the police report, but do not wait for it beforeinvestigating the claim. If it takes several days or weeks toobtain the police report, then a successful outcome isunlikely.

2. Always begin the investigation process at thefirst contact with the insured and the claimant, which shouldhappen within one workday of receiving the claim.

3. Be prepared to take recorded statements at thisinitial contact. Do not re-schedule the interview and recordedstatement for a few days or weeks later, but take the statementbefore the parties have more time to consider their answers andproof. Some will argue that recorded statements are worthless, andthis is true on some fronts. However, claimants are still lesslikely to change or embellish their stories later if they know ithas been recorded.

4. Include the names of all witnesses whenrecorded statements are taken and contact them immediately afterthe policyholder's or claimant's recorded statement. Recording anegative statement from an objective third party who was at thesite at the time of the alleged incident is rarely taken thesedays, but sometimes this individual can dispute that the accidentcould not have occurred as initially reported. This individualcould verify that the claimant specifically stated he was notinjured at the time of the incident, that only two people were inthe car and not three as later claimed, and other facts that arenot based solely on eyewitness accounts of the incident.

5. If the date and time of the claimant's next medical appointmentcan be confirmed, the adjuster should immediately refer thecase to a field surveillance expert. While it may not becost-effective to keep a claimant under surveillance for days at atime, it is often easier to locate the claimant and observe himwithout his knowledge if you know where he lives and that he hasnot been anywhere besides home immediately prior to theappointment. This may also be a good time to initiate a socialnetworking review, which includes a look at the claimant's socialmedia network, as well as friends and relatives who may postcomments or photographs of the claimant.

6. Promptly follow up on responses from the claims indexingsystem. While this includes reviewing any prior injuryclaims, adjusters frequently only check to see if the same bodypart was previously injured. They often do not follow up todetermine how the earlier claims were presented, whetherquestionable circumstances existed in those earlier claims, and howthey ended if other parts of the body were involved. Furthermore,the claimant may add other body parts to the current claim as timepasses, in which case knowledge about the prior claims iscritical.

7. Obtain the medical reports as quickly aspossible and review them closely to confirm that thealleged dates of injury and the parts of the body allegedly injuredare consistent with what was reported in the claim. Medical recordstypically reveal the patient's account of how he or she was injuredand the circumstances of the incident. If the information in themedical report does not match the information reported and providedduring the recorded statement(s), then it should be investigatedfurther.

8. Have a field investigator go to the scene of theincident to determine if the incident as described isconsistent with the scene and the surroundings. For example, ifsomeone states that their vision was blocked by shrubbery, is thatshrubbery actually there? If the claimant alleges that there was abroken section of the pavement or sidewalk, was that raised portionthere at the time of the alleged incident?

9. Review local codes, statutes and case law toevaluate the probability of successfully denying a claim with theright amount of proof. If you as an adjuster do not have readyaccess to that information, speak with your legal department ordefense counsel to get their input.

A full investigation should proceed immediately if theincident has been reported, there is substantial property or bodilydamage, and a property claim is likely to be filed. (Photo:Shutterstock)

Application to public entities

These recommendations pertain not only to claims submittedagainst corporations or individuals, but also those submittedagainst public entities. Adjusters for public entities sometimeswait for the claim to be presented formally as a specific coderequires, even if department representatives or others havenotified the public entity's risk management department of theincident and resulting injuries or damage.

Some claimants do not pursue claims arising out of theseincidents, and an adjuster does not want to create a claim bycontacting the claimant before the formal filing. However, if thefollowing conditions are met, it is recommended that the fullinvestigation proceed immediately:

1. If the incident has been reported, and

2. There is substantial property damage or bodily injury involved,and

3. It is probable that the claimant or his/her legal representativewill file a properly completed claim.

If the public entity does not want to contact the claimant, itcan still perform the balance of the investigation while theinformation is still fresh.

The point of the prompt and consistent investigation isimportant because:

1. The claimant is unlikely to be as guarded or defensive whenapproached if it appears the investigation is standard procedurefor similar claims (e.g., auto liability bodily injury claims,workers' compensation lost time claims).

2. The claimant does not know the validity of the claim is beingquestioned and the adjuster may be able to communicate with him andothers while there is still some sense of cooperation.

3. The adjuster may be able to place certain claims managementpersonnel and tools in place at the most opportune time. Forexample, a workers' compensation adjuster may be able to assign amedical case manager to the case early, which may help reduce theimpact of the alleged injury if it is ultimately accepted. Aliability adjuster may send an appraiser to inspect a claimant'svehicle, providing information on the extent of the injuriesarising from the impact.

If the adjuster believes the suspect claim must be acceptedafter these steps, then the adjuster and claimant remain on cordialterms, which should help to reduce the overall cost of the outcome.If the adjuster believes the information is sufficient to deny theclaim, then the adjuster will be better prepared for the legaldefense based on the work completed. This will also help reducedefense costs for defense counsel.

Gary Jennings, CPCU, ARM, ([email protected])is the principal consultant at Strategic Claims DirectionLLC.

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