Escape of Water

 

£2.5million. Every day. That’s the value being paid out by insurers for escape of water claims according to the Association of British Insurers. And with a 50% increase in the cost of escape of water claims between 2015 and 2018, it’s never been more important to be able to spot a fraudulent claim. The majority of claims are genuine. However, Jensen Hughes have estimated that escape of water claims represent approximately a one in eight fraud opportunity.

Escape of water claims fraud can be both domestic and commercial, and the existence of national fraud rings, making claims under commercial policies to multiple insurers, demonstrates the potential scale of the problem to the industry. So, if you’re an insurer, what are the key fraud indicators that you need to watch out for, both when a claim is submitted and during an on-site investigation? At BLM, we are regularly involved in advising insurers on escape of water claims and helping them navigate the claims process where fraud indicators are present.

Building on the best practice we developed in conjunction with Zurich and based on our experience, we’ve created our Key fraud indicators for Escape of Water Interactive Tool to help insurers identify where insurance fraud might be present. We highlight key indicators of fraud and questions that insurers should consider when dealing with an escape of water claim. The tool also provides further guidance on what to look for and why it may indicate fraud.

If two or more of the indicators apply to a claim, or if you are in any way suspicious or concerned, we recommend fully profiling and assessing that risk through a rigorous due diligence process. This will help ensure that honest policyholders are paid quickly, whilst bespoke investigations are carried out where cases warrant further validation.

The number and cost of claims are rising, and are extremely expensive for insurers. We need to work together to tackle fraudulent claims and prevent the rising levels of falsified and exaggerated escape of water claims.

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Should you require any assistance or advice on escape of water claims, please do not hesitate to contact BLM

 

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Do two or more of these apply to your claim?

 
 
 
 

THE INSURED

 
 

THE INVESTIGATION

 
 
 
 

THE INSURED

THE INVESTIGATION

Financial

 
Are there financial problems?
Does the insured's trading history show any financial difficulty? Due diligence should be undertaken, e.g. check Companies House for commercial policyholders.
 
Is there clean-cut pipework within the area of origin?
 
Yes? Could the insured have caused or contributed to the loss?

Claims history

 
Have two or more claims been made recently?
Check whether there has been a sudden influx in claims from the insured recently. If so, investigate to ensure that all claims are genuine. Are there any similarities between claims? Any unusual features?
 
Have there been multiple bursts within the property?
 
A number of incidents in a short time frame could be an indicator of fraud. Each burst should be scrutinised for any similarities.

Cover history

 
Has cover been incepted recently?
If the insured has only held cover for a short time, the dates of the alleged damage should be scrutinised to ensure that the damage did not occur prior to inception.
 
Is there dry dust and debris below the areas of alleged water damage?
 
Consider the age of the damage to confirm that it is consistent with the dates and circumstances of the loss.

Behaviour

 
Is the insured being difficult?
If the insured is making it unduly difficult to validate or deal with a claim, scrutinise available evidence to see whether any other fraud indicators apply.
 
Have any overflow devices been blocked or disconnected? Is there any sign of mechanical damage or manipulation?
 
Identify whether there are any holes or tool imprints to the leaking fittings or pipework. This may be a sign that they’ve been tampered with.
 
Is the insured refusing an inspection?
Consider what the insured might be concealing. Scrutinise the evidence and consider whether any other fraud indicators apply.
 
Is there unusual water staining on the ceilings or walls?
 
Consider whether the water staining is appropriate for the circumstances of the loss, the volume of water said to have escaped, the duration and means of escape. Historically, coffee and/or tea have been used to recreate water stains.

Evidence

 
Has the insured provided photographs several months after the incident or are they refusing to provide digital images?
Request digital copies of any photographs to review the timestamp to ensure it is consistent with the insured’s account. If the insured is not willing to provide digital copies it may be an indication that photographs were taken after the event.
 
Are there any indicators of an uninhabited property when the insured claims occupancy?
 
Is there any evidence which contradicts the insured’s account that the property was occupied? For example, utility bills, alarm records, CCTV etc.
 
Has remedial work already been completed?
Insurer’s Investigators should be the first to examine the property to ensure that evidence is retained. The insured should be told at FNOL to only carry out essential remedial work, and only as agreed with insurers.
If remedial work has been carried out, ask for all documentation that relates to that work. If there is suspicion, inspect that work.
 
Have the ceilings or plasterboard been pulled down in unlikely or dry places? Any evidence of tearing or finger marks?
 
Check whether the location is consistent with the origin of the water leak. Evidence of tearing or finger marks may suggest that this was deliberately caused.
 
Is the documentation suspicious or of poor quality?
Carefully scrutinise the documentation provided by the insured. Is it consistent with the alleged damage? Is the invoice from a company which exists? Is there a VAT number on the invoice? If not, it may indicate a false company. If no documentation has been provided consider whether the reasons for this are justified.
 
Do weather reports support frozen pipe claims?
 
Weather reports should be obtained to validate frozen pipe claims. Was it freezing on or around the date of the loss?
 
Has the damaged property or parts already been disposed of?
At FNOL, inform the insured not to dispose of any evidence or parts. Investigators should attend promptly to ensure that evidence is retained. If the insured has already disposed of items relevant to the claim, consider whether any other fraud indicators apply.
 
Is the property in a poor state of repair and in need of renovation?
 
Consider the pre-existing condition of the property and whether the insured had a motive. This should be considered with the financial indicators above.
 
Does evidence suggest that the insured was not away from the property as claimed?
Consider whether there is any evidence which conflicts with the insured’s account. For example, utility bills, alarm records or fresh food within the property.
 
Is there any damage to furnishings which are outside of the location of the escape of water?
 
Consider the location of both the escape of water and the damaged items. For example, are they in the same room?
 
Has the insured or witnesses provided vague or conflicting accounts?
Consider whether a vague account is justified given the circumstances and dates involved. Identify and consider the number of inconsistencies in the insured’s evidence.
 
Has the water damage occurred in an improbable location?
 
Is the damage consistent with the circumstances of the loss and the alleged origin of the water leak? For example, is the damage some distance from the leaking pipework?
 
 
 
Is there a lack of water staining within the areas of high damage?
 
Consider if the evidence is consistent with the circumstances of the loss.

Should you require any assistance or advice on escape of water claims, please do not hesitate to contact BLM