‘Huge’ growth in property fraud is ‘non-stop’ – DWF Law

The growth of insurance fraud concerning commercial or domestic properties is “non-stop” and “huge”, with anecdotal upticks in cannabis farms, questionable escape of water claims and claims farming by loss assessors, according to Paul Holmes, partner at global law firm DWF Law.

Speaking exclusively to Insurance Times, Holmes said: “Property fraud, its growth is huge.

“We’ve got quite a few people dealing with property fraud at the moment and I’ve employed one special investigator. He has been with me for [around seven] months and I’m going to employ another one just to keep up. It’s just non-stop.”

A particular “big issue” Holmes and his team are noting is the increase in cannabis farms, situated in domestic properties or untenanted pubs and restaurants. The main development in this area of fraud, Holmes explained, is that very often cannabis growers and policyholders are now working together, as opposed to the policyholder being in the dark about what their tenants were up to.

“[The policyholder] will supposedly bring in a tenant, leave that tenant to it and then be amazed in 12 months’ time when [the property is] busted for being a cannabis farm,” Holmes said.

“Whereas really, [the policyholder has] teamed up with the gang. They’ve been [profiting] the whole way through. And then at the end, when [the farm is] finally busted, [the policyholder will put] in a malicious damage claim to the insurer under that commercial or domestic household policy.”

There are plenty of claims opportunities after a cannabis farm has been discovered – as an example, Holmes explained that escape of water (EOW) claims can be common thanks to the irrigation systems that are installed as part of the cannabis farm operation.

If these claims are successful, the policyholder – if they own the building – can get the property renovated using their claim payout, ready to put back on the letting market and start the cycle again.

“This is a massive problem at the moment,” Holmes emphasised.

Claims farming

Another property fraud trend that Holmes is seeing hit his desk is loss assessors turning their hand to claims farming via social media.

“They tie customers into contracts where [the] customer [then] finds it very difficult to exit that contract,” he explained.

Holmes compared this model to the practices of unscrupulous accident management companies in the motor insurance world.

He continued: “What they do is inflate the reinstatement. The only way they get paid is by inflating the damage and skimming off the top. I’ve had intelligence from people who have worked in some of these companies that some of them have a baseline of 40% skim. So, the only people who are paying for that are the insurers and the policyholders unfortunately. So that [type of fraud is] going up.”

Caught in a lie

The last key area where fraud is infiltrating the property insurance sector is centred around policyholders telling lies – for example, to make a fake claim.

The most common type of staged claim is EOW, noted Holmes.

He explained: “The ones that we see a lot are escape of water because [policyholders] can do a substantial amount of damage, but [they] don’t have to put a match to the house and risk life imprisonment, which [is the case] for arson with intent to endanger life.

“[If policyholders are caught in their lie, they will] probably get a slap on the wrist. And that’s a worrying aspect because the value of escape of water claims has skyrocketed.”

Holmes is additionally seeing policy inception fraud. This includes potential policyholders lying about personal details, such as having a criminal conviction, or seeking to take out an insurance policy after property damage has occurred, simply so they can make a claim immediately.

In other cases, fraudulent policyholders are taking out policies with numerous insurers in order to make successive claims.

For example, a subsidence claim – which can be worth up to six figures according to Holmes – may have been rejected by one insurer, so the fraudster will incept another policy with a new insurer and then submit the claim again a year later, alleging that the subsidence has only just happened.

Holmes has additionally seen examples where policyholders have lied in an attempt to get around policy exclusions, typically those concerning unoccupied properties.

In these instances, a policyholder may have had a genuine EOW claim, but if the property was untenanted for between 30 to 40 days, then the majority of insurers will not pay the claim – depending on the policy terms and conditions. Some policyholders therefore lie to say the property was occupied at the time of the incident.

Holmes described these cases as being “constant”.

Technology such as artificial intelligence is also being used to alter the images used to make a claim, Holmes noted.

What’s the solution?

In part, Holmes attributed the uptick in property fraud to the introduction of the Official Injury Claim portal in May 2021.

With lower compensation amounts defined in the injury tariff table, personal injury motor fraud became less attractive and lucrative for many scammers, meaning that groups of fraudsters instead turned their focus to other potential areas of insurance fraud.

Equally, fraud detection methods have grown in sophistication and many insurers are now simply better at spotting fraud, Holmes added.

In terms of how to combat the increase in property-related fraud, Holmes explained that it all comes down to training and education – and that includes equipping both brokers and the insurance supply chain with the relevant fraud detection skills.

He said: “We’ve got to train people to realise that what they see isn’t necessarily true.”