Magazine article Insurance fraud leading out loud

LEADING OUT LOUD: PROPERTY

We ask three experts about trends in property, including technology trends and plaintiffs’ strategies.

Magazine articles leading out loud property claims

How is technology impacting the property claims resolution process? What new tactics are plaintiffs’ attorneys adapting and adopting? And finally, has the pandemic resulted in an increase of fraudulent claims?

How is technology impacting the resolution process? 

Aaron D. Alfano, Rolfes Henry Co., LPA: I think the biggest impact of technology on first-party property claims is targeted marketing by roofing contractors. A homeowner searching for a roofer who can locate and repair a small leak is very likely to receive search results and advertisements from roofers who will encourage or assist the homeowner in submitting a roof claim regardless of whether there was any damage caused by a covered cause of loss. This is fueling the increase in roof claims. Specific to the resolution process, however, I would say the biggest impact is the movement by insurance companies to online litigation claims managements systems. These systems have streamlined communications between insurers and defense counsel and given insurers data metrics that they can use to strategically analyze and improve their claims-handling processes.

Dan Ducommun, MC Consultants, Inc.: Through the use of cloud-based data storage systems, live video conferencing (virtual meetings/screen sharing), aerial drone investigations, 3D cameras, reality capture, building information modeling, and artificial intelligence, interested parties are now able to share and view construction claims from a much broader perspective and in an increasingly more time-efficient manner. For example, in the case of 3D reality capture; where in the past parties would provide a snapshot 2D photograph of small sections of a building, we are now able to capture an interactive view of the whole space and provide material measurements.

Matthew Snow, Custard Insurance Adjusters: Technology has allowed us to build a better mouse trap.  The availability of 3D photography, drone videos (overall and with moisture and/or thermal capabilities) and investigative software have added a more effective and efficient degree of complexity to an investigator’s toolbox (I consider an adjuster and investigator one and the same). By enabling a party to determine damages, causation and evaluate the connection (or irrelevancy) of the two, the resolution process can be completed with more accuracy, fairness, and expedience.

There is also a matter of acceptance involved. With the implementation of the virtual office environment, utilization of online meeting software and the various file sharing mediums, negotiations between parties now offers a middle-ground between the in-person negotiation and the voice-only phone option. Negotiating parties can benefit (or suffer) from visual cues that phone discussions may lack and those who tend to be less comfortable in face-to-face negotiations may be more accepting of this type of discussion.

Have plaintiffs’ attorneys’ tactics changed in recent years?

Dan Ducommun, MC Consultants, Inc.: Yes and no. In some jurisdictions, plaintiffs’ attorneys have shifted their focus from defective construction to breach of contract and unlawful trade practices act claims. It also appears that plaintiffs’ attorneys are quickly adopting the supply chain shortage concerns and construction-cost increases to claims prior to obtaining valid repair scopes and repair estimates.  Another trend involves plaintiffs’ attorneys attempting to do more with less spending. In other words, their investigations are using more and more extrapolations, fewer inspections, but their costs of repair are greater than in the past.

Aaron D. Alfano, Rolfes Henry Co., LPA: Yes. In addition to focusing more on roof claims and less on water-damage claims in recent years, plaintiffs’ attorneys are continuing to aggressively litigate cases and increase costs to strong-arm insurance companies into larger settlements. The plaintiffs’ bar seems to believe that insurance companies typically settle questionable or even dubious claims for the costs of defense, so they are litigating cases more aggressively to drive up the amount of those defense-cost settlements.

With the increasing prevalence of new construction materials and techniques, smart homes and commercial buildings, and even HVAC systems designed to meet new energy efficiency goals, has there been any noticeable impact on claims—either the types of claims you’re seeing or the litigated value of claims to replace more expensive equipment?

Matthew Snow, Custard Insurance Adjusters: Increased costs are commonplace when dealing with developments in construction materials, processes, and technology; these are understandably reflected in the indemnification cost of claims, litigated or otherwise. Understanding these developments is integral to obtaining more accurate evaluations of repairs, need for replacement, and even potential loss causation. New technologies, updated construction materials, and methods carry a potential degree of risk that can contribute to causation as well as increased costs. Claims professionals must be able to evolve as best we can with the implementation of new technologies, methodologies, and the accompanying costs to better service our clients and policyholders.

Aaron D. Alfano, Rolfes Henry Co., LPA: The biggest impact I have seen in this area is in roofing tiles. Manufactures routinely discontinue tiles, and the new versions are physically incompatible with the old versions. So it is often impossible to source new replacement tiles even for fairly recently constructed buildings and recently installed roofs. This allows policyholders to argue that minor repairs are impossible, and the entire roof needs to be replaced.

Dan Ducommun, MC Consultants, Inc.: We have observed an increase in the design and installation of new systems in commercial and residential construction. While we’ve seen a steady stream of the typical construction defect-related claims, we have also assisted with claims involving manufacturer defects for new HVAC systems, building envelope components, product incompatibility, and installation errors. The litigated values for replacement of some of these systems can be significantly more expensive than seen in the past, depending on whether the entire system needs to be replaced or a targeted retrofit can be implemented. Additional factors that are impacting replacement costs include supply-chain shortages, product lines being discontinued, skilled labor shortages, seasonal weather patterns, and claimant performance expectations.

Industry observers had speculated that the pandemic would lead to an increase in insurance fraud as more people experience financial hardship. Did this prediction pan out?

Aaron D. Alfano, Rolfes Henry Co., LPA: I have not found this to be the case. Rather, I believe that the cottage industry of contractors, public adjusters, and plaintiffs’ attorneys who make their livings on first-party property claims has grown, and they aggressively push claims that, while not actually fraudulent, are very questionable and tremendously inflated. These contractors, public adjusters, and attorneys prey on uninformed policyholders, who very often wind up recovering less than they need to repair their homes after fees are deducted from the settlements. The policyholders are often as much the victim in these “not-quite-fraudulent” claims as are the insurance companies.

Dan Ducommun, MC Consultants, Inc.: There appears to be more claimants attempting to file unsubstantiated property loss claims. We all recall the 21-year-old who fraudulently applied for a PPP loan and was caught driving around in a Maserati. However, first-party property loss claims have resultant damage from real events such as hail or excessive storm-related water damage. These are much harder to make fraudulent claims on, and the fraudulent property loss claims we experience are typically claims for a betterment repair.

Matthew Snow, Custard Insurance Adjusters: We can only speculate on the motives or reasoning of those who participate in insurance fraud beyond the monetary. Granted, the pandemic has created financial situations that many would have thought unlikely three-to-five years ago, and these setbacks may cause some to rationalize justification for fraudulent activity. Various studies have shown increases in suspicious claims activity industry-wide since the pandemic. As always, claims professionals and the quality of their investigations are an integral factor in identifying questionable claims and other fraudulent activity in order to bring them to an appropriate conclusion.

While conditions created by the pandemic have limited some investigative basics or caused some companies to allow more flexibility on documentation submission, there will be parties who will utilize this as an opportunity. The potential fraud that accompanies those changes requires increased awareness and follow-up when questionable circumstances are suspected. SIU investigations are more important than ever to root out fraud, and companies should devote resources to ensuring that claims settlements are fair and accurate.

Matthew Snow is executive general adjuster at Custard Insurance Adjusters. [email protected]

Dan Ducommun is president & CEO of MC Consultants, Inc. [email protected]  

Aaron D. Alfano is partner at Rolfes Henry Co., LPA. [email protected]