Your neighbor had his toolbox stolen from his garage. It was a typical home toolbox filled with tools accumulated over the years as a need arose. The tools described in his insurance claim, however, would have done credit to Mr. Goodwrench and a master carpenter.

You chuckled together at a cocktail party as he described the size of the insurance check. No big deal. The insurance company has lots of money. They do, but they also have a disturbing tendency to offset losses by increasing premiums.

There is a word for what your neighbor did: fraud. According to a widely accepted 1996 study by Conning & Company, property and casualty insurance fraud costs the insurance industry a staggering $20 billion per year, and that figure is rising. So don't smile indulgently at your neighbor's little fraud. People like him are picking our pockets for billions each year.

Documented homeowner fraudulent claims run from the imaginative to the downright foolish. Some examples:

• Beware The Bilingual : An insured submitted two claims for the theft of the same painting. One claim gave the name of the painting in English. The other named it in Spanish. Apparently it was assumed that a San Antonio-based insurance company's claims staff would have no Spanish-speaking members.
• It Just Got Blown Away : A hurricane did severe damage to the home and furnishings of an insured, completely blowing away the grand piano, according to the claim. Oddly, visitors to the home before the hurricane could not recall seeing a grand piano. They must have overlooked it.
• Beware The Ex: A woman claimed the theft of jewelry valued at $25,000. Her ex-husband advised that if an investigator attended a certain social function he would see her wearing it. Sure enough, she was.

If you are tempted to smile at stories like these, keep smiling until you write the check for your homeowner's insurance. According to the Institute For Insurance Information, average rates for homeowner's insurance have increased by 21.2 percent since 1989.

Many mortgage loans require that a reserve or escrow account be maintained to cover taxes and insurance in an amount sufficient to cover the loan. This account is funded by a portion of your house payment. There are too many variables to arrive at an amount applicable to all lenders in all parts of the country, but a ballpark figure on a mortgage of $100,000 would be between $500 and $750 per year. In other words, your house payments are increased $500 to $750 a year on account of insurance.

"Insurance fraud is not a victimless crime," says Linda Bayless, associate commissioner in charge of the Texas Department of Insurance Fraud Unit. The victims are the millions of policyholders whose rates are inflated by fraudulent claims. That is what the insurance industry commentators say, but perhaps there is an unnoticed victim here. What about the honest claimant who, having suffered a real loss, faces a beady-eyed adjustor who seems to assume the claim is phony or exaggerated? Your neighbor and the likes of him have made us all look like thieves.

Published: December 3, 2008

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