Opportunistic fraud

On July 20, 2016, the UK Supreme Court decided Versloot Dredging v HDI Gerling: the shipowner had backed an otherwise valid claim with an invented story about a bilge alarm, and the Court held that this “collateral lie” did not forfeit the indemnity. The ruling traces, by contrast, the boundary of opportunistic fraud, known as soft fraud. An honest policyholder who suffers a genuine loss takes the chance to inflate the amount, add an item that was never in the burgled flat, declare as new a television bought second-hand, or attach an already worn carpet to the escape-of-water claim. Nobody planned anything. Opportunity makes the thief, at the moment the claim form is filled in. It is by far the most frequent form, and the hardest to size, because each case is worth a few hundred euros and disappears into the mass of attritional claims. Under French law, deliberate inflation falls under the fraud offense (escroquerie) of article 313-1 of the Criminal Code, but prosecutions are rare at these amounts; the practical sanction is contractual, through the forfeiture clause that strips the policyholder of cover for the claim concerned. Claims handlers deal with it mostly upstream, by asking for invoices, earlier photos and bank statements, and through phone questions that good loss adjusters know how to make uncomfortable without sounding accusatory. Fraud scoring models help little here: the loss is real, only the quantum lies, and the gap shows up better at the adjuster's visit than in the algorithm. One practitioner's caveat remains. Between fraudulent exaggeration and a good-faith estimation error, the burden of proving intent lies with the insurer, and a poorly reasoned denial often ends up before the ombudsman.