Property insurance fraud may be outpacing enforcement

If you want to know why insurance companies often take adversarial positions toward homeowner claims, look no further than the number of fraud cases investigated each year.

From double dipping — filing claims for the same damage to two different companies — to buying homeowner insurance for properties operating as assisted living facilities, there’s no end to schemes some policyholders, public adjusters, contractors and agents will employ for financial advantage.

Fraud is one of several reasons that insurance rates in Florida have skyrocketed over the past five years. But even as the state increases its fraud-fighting resources and investigates more complaints each year, the number of arrests and convictions that result from those investigations is surprisingly low.

In fact, less than 2% of investigations opened by the state Department of Financial Services results in a conviction.

Insurers, it seems, can easily deny coverage of claims and cancel policies when they suspect fraud, but prosecutors require more evidence to bring criminal charges against alleged perpetrators.

Recent examples of fraud reported this month by state-owned Citizens Property Insurance Corp. include a May arrest of a public adjuster, Yoel Sainz Fraga, in Miami, accused of offering an elderly homeowner a free inspection by telling her he was a “government inspector,” then filing a $13,000 insurance claim for water damage to the homeowner’s kitchen sink without the homeowner’s knowledge. The problem, the report cited, was that the kitchen sink wasn’t damaged.

Yet no immediate arrests were reported in a number of other cases cited in the same report:

In Palm Beach County, Citizens investigated two separate non-weather water losses that were reported four days apart at the same property and determined there was no evidence to show that $20,000 in plumbing work was performed as claimed by the homeowner’s attorney and loss consultant.

In Broward County, an investigation into two unrelated non-weather water claims found that the policyholder had filed claims with a previous insurer for the same damage.

In Hillsborough County, Citizens denied a $75,000 claim for theft and vandalism after determining that the policyholder sold the personal property on Facebook Marketplace.  

In Volusia County, Citizens denied a $20,000 claim for roof damage attributed to Hurricane Ian after determining that the damage occurred prior to the storm.

And in six counties, Citizens identified 12 properties that had obtained homeowner insurance despite operating as assisted living facilities. Coverage for the properties was voided.

How fraud is investigated in Florida

While dealing with tens of thousands of normal insurance claims per year, insurance companies rely on a state-funded fraud-fighting unit operated by the Department of Financial Services.

In 2021, the Florida Legislature approved creation of two new units to supplement the department’s efforts to combat property insurance fraud. The resulting Bureau of Insurance Fraud units, totaling 12 people, are among 90 sworn state fraud investigators working on homeowners and auto fraud cases. They look into 6,700 property insurance fraud complaints per year, according to DFS spokesman Devin Galetta.

Citizens, currently Florida’s largest insurer with 1.3 million policyholders, operates its own fraud investigation unit with 33 employees and contracts with nine private companies to investigate allegations of fraud, including during increases in claims activity following hurricanes and other catastrophic events.

But those contracts are expiring this year. According to a document filed for a June 8 meeting of Citizens’ claims committee, the company is seeking $1.5 million over five years to contract with eight new companies. Citizens’ Board of Governors will consider the proposal at its July 12 meeting.

Citizens’ Special Investigation Unit anticipates investigating 68% more fraud tips over the next five years, primarily because the number of Citizens’ policyholders continues to increase.

Yet, despite an increase in Citizens policies from 419,000 in 2019 to 1.3 million in May, the number of cases investigated by Citizens’ SIU and its outside partners each quarter has remained flat, according to data presented by the team since late 2019.

That’s because fraud generally follows claims, Citizens spokesman Michael Peltier said, and claims from Citizens’ recent policyholder surge are only now beginning to climb. “Also, in prior years we had a number of active major cases that accounted for a spike in referrals and those investigations have ended,” Peltier said.

In the fourth quarter of 2019, Citizens’ SIU unit reported accepting 333 investigations, completing 339, and referring 84 cases to the Department of Financial Services for further investigation and potential arrests.

In the first quarter of 2023, the unit reported accepting 347 investigations, completing 327 and referring 60 cases to DFS.

The quarter with the largest number of investigations accepted — 409 — was the second quarter of 2021. The largest number of referrals to DFS was 88 in the third quarter of 2021.

Investigations and arrests by the Department of Financial Services’ investigators, however, have increased from 1,914 complaints and 104 open cases in the 2020 budget year that ended June 30 to 2,585 complaints and 341 cases in the 2022 budget year, according to data provided by Galetta. The number of arrests by prosecutors increased from 21 to 56 during those two years, while successful prosecutions increased from 26 to 39.

So far in the 2023 budget year, the unit has investigated 3,114 complaints, opened 265 cases, and presented 113 cases to prosecutors who made 63 arrests and oversaw 40 successful prosecutions.

Information on how many of those arrests and prosecutions stemmed from Citizens’ referrals was not immediately available.

When asked why the number of fraud arrests are so small compared to the number of investigations, Galetta pointed to a fact sheet with information about the department’s fraud-fighting activities.

It states that if department investigators believe a crime was committed, can identify a perpetrator and establish criminal intent, they present the information to local, statewide or federal prosecutors. “If the prosecutor believes there is enough evidence to pursue charges, then charges are filed and an arrest is conducted,” the fact sheet states.

How fraud charges have led to higher rates, less coverage

Losses from fraudulent activity and increases in fraud on organized levels have led to greater losses for insurers, increases in premiums for policyholders, and new laws allowing insurers to downgrade coverage of elements subject to the most abuse.

In July 2021, the state’s Division of Investigative and Forensic Services announced the arrest of a Fort Myers roofing contractor employee on charges of intentionally damaging roofs of insurance customers. A Citizens filed investigator obtained video footage of the employee in the act using a tool to pry and manipulate roofing shingles before Citizens’ adjuster arrived.

That and similar reports of door-to-door canvassing by roofing contractors convinced the state Legislature in 2022 to approve allowing insurers to downgrade roof coverage in standard homeowner policies, and require full coverage to be provided only upon request and for an additional charge.

Prior to that, allegations that contractors and attorneys worked together to submit fraudulent non-weather water damage claims led the Legislature and state insurance regulators to approve a long list of coverage erosions. They included approvals in 2018 by the Florida Office of Insurance Regulation letting insurers cap non-weather water damage payouts at $10,000 unless policyholders opt for full coverage or agree to let their insurer dispatch their repair contractor.

Fraudulent claims submitted by contractors for roof repairs and non-weather water damage led the Legislature last year to bar contractors from obtaining “assignments of benefits” from property insurance policyholders.

While a wide range of laws enacted last year and this spring are expected to eventually slow down rates of exploitation by contractors and attorneys, they won’t necessarily prevent policyholders from filing false claims or submitting false information to get cheaper insurance.

Those activities will hopefully be reduced by increases in investigative resources and public education efforts, Galetta said.

The state’s new homeowner fraud fighting squads “proactively responded” to Southwest Florida areas impacted by Hurricane Ian last fall “to provide contact information and raise awareness against fraud,” he said.

“Although these activities did not always result in opened cases,” Galetta added, “they play a pivotal role in discouraging fraud and educating the public.”

Ron Hurtibise covers business and consumer issues for the South Florida Sun Sentinel. He can be reached by phone at 954-356-4071, on Twitter @ronhurtibise or by email at rhurtibise@sunsentinel.com.