With ‘the value of these individual claims getting higher’, insurance fraud experts must be alive to cost of living linked inflated claims from end customers and tradespeople

‘A significant spike’ in the volume and value of commercial tool theft claims is causing industry-wide fraud concerns as builders, plumbers and electricians attempt to mitigate inflation-driven economic pressures by submitting false insurance claims.

Dissecting this trend in more detail, Laura Horrocks, director and head of fraud technology and intelligence at loss adjusting firm Sedgwick, explained that small businesses and sole traders have been severely hit by “the cost of materials going up every single day – sometimes by 10%”.

In turn, this means that “by the time they’ve priced a job, they already can’t afford to fulfil the job”.

Addressing senior insurance fraud experts at Insurance Times’ in-person May 2022 Fraud Charter roundtable, sponsored by Carpenters Group, Horrocks said that these escalating material costs can lead to “customers being left with half completed work”.

The fraud risk arising from this situation is twofold, she continued.

For customers left with uncompleted building works, “the obvious thing to do is to destroy it and start again, to try and get some cash out of what’s left”. For example, an escape of water claim could lead to a new bathroom being paid for by an insurance company, rather than the customer shelling out fresh funds.

Horrocks noted that rising inflation has impacted mortgage rates, meaning that it is difficult for customers to obtain the additional lending they may need to finish a half-started home project themselves.

In terms of tradespeople, such as builders, Horrocks said that work has dried up due to the cost of living crisis – a polar opposite experience compared to the raft of home improvements that took place during the Covid-19 pandemic, supported by furlough payments, mortgage holidays and financial government support.

“We’re moving on from building works as a want, to a need,” Horrocks explained.

“The obvious threat is that [builders, etc are] out of work. They’ve got no assistance and that means that one obvious route is to claim for the materials, which can be difficult in validation terms where you’ve got tools which are years old that they’ve been using for a long period of time.

“It’s a very sad fact because I know they will be in genuine need – doesn’t mean that they should then make a false claim.

“We’re now seeing a significant spike in these claims. It’s going to get increasingly worse. We’re seeing the value of these individual claims getting higher week-on-week.

“Plus, it means that their tools are more valuable, so they may also be at risk of genuine thefts and then under more scrutiny.”

Claims value uptick

James Burge, fraud manager at insurer Allianz, has also observed this trend. He cited a recent example where tools had been stolen from a locked unit. The initial value of the claim, based on 30 items stored in the unit, was £6,000.

However, the claim’s value was subsequently increased to £30,000 after details of a further 30 items were provided.

Burge noted that the number of items recorded in the claim exceeded the available space in the unit, raising a fraud red flag. Plus, the invoices for the stored tools were also unable to be found.

David Phillips, claims validation technical manager at NFU Mutual and chair of the General Insurance Fraud Committee, revealed a similar instance he had seen where the removal of a £900 bath damaged the specified room’s heated flooring. This led to a claim for a complete bathroom refit, totalling £35,000.

Phillips believes situations such as this calls for greater recycling, rather than fronting the costs for a brand new installation.

He said: “We can fix it for zero. We need to move more to recycling and getting our customers to accept a repair rather than a refit.”

Attendees also agreed that the same insurers are being targeted when it comes to fraudulent claims in this area because scammers are keeping track of the businesses that pay out easily.

Fake documents

A chief fraud concern for Paul Holmes, partner at law firm DWF, is the digital manipulation of documents, such as invoices and bank accounts.

He told Fraud Charter attendees that although he has seen genuine tool theft claims, value inflation in this area is rife, supported by false documents.

He explained: “You cannot now trust any document that you see, including bank accounts. Too much in the insurance industry, we’re still too trusting of documents sometimes.”

Horrocks added that straight through processing and automation is a further fraud risk for these types of claims.

“Straight through processing for a customer journey is fantastic, but it makes me feel really nervous from a fraud perspective because there’s this big push to get everything automated,” she said.

“As long as fraud checks are in place, it’s fine, but it would be very easy for someone to make a false claim [and] get a cash settlement if they know how to answer the questions.”