Brian Goodman, the General Counsel of the National Association of Public Insurance Adjusters, has a knack for taking complicated insurance industry problems and boiling them down to memorable terms. In our Claim Game podcast, he dropped a new one on me: “water arson.” He credited the term to an insurance industry executive concerned about this new form of insurance fraud, but I had never heard of the term.
The idea is simple and sinister. Think of arson, but instead of setting the house ablaze, someone intentionally causes a water loss to collect insurance proceeds. It’s the same fraud playbook, just a wetter crime scene.
Following the podcast, I conducted some research to explore this term. Some industry commentators have been muttering about water damage as the “new arson” for years. A 2016 Litigation Management article noted that fraudulent water claims were “steadily rising to the arson equivalent.” 1 A Best’s Insurance Law Podcast transcript bluntly declared that “water is becoming the new arson.” 2 Across the Atlantic, some UK fraud specialists have even used the term “wet arson” when describing intentionally staged water losses. 3 All of these point to the same growing suspicion that water fraud is easier to pull off than fire fraud, and can be just as profitable for those willing to break the law.
The trouble is that “water arson” is often harder to detect than arson. Fire investigators have decades of experience, tools, and legal precedents for proving arson cases. Water losses, by contrast, can be staged with a few bursts of a pipe and a convincing story. The telltale signs are subtler, the evidence can be literally washed away, and the fraud can hide behind legitimate-looking repair invoices.
I imagine that term will be the newest type of fraud that will be publicized. Fraudulent fires, wind, and hail claims have been getting all the attention. Let’s watch the insurance industry bring the plumbers along for the ride as well. Maybe there will be standards made to determine whether a water loss is intentional, the same way we look at arson fire standards using NFPA 921. Maybe good ‘ole Steve Badger or one of his competitors will coin some pithy title and start holding a national conference on this burgeoning insurance claim crisis.
On the other hand, any type of insurance fraud is wrong. Maybe this new publicity and new term about fraudulent water losses will recognize that fighting staged water losses requires the same seriousness as fighting traditional arson for profit. Maybe the true percentage of staged water losses is so small as to make the topic all wet.
Thought For The Day
“Human tendency is to make mountains out of molehills; when we examine our problems we see it’s our perspective that makes the difference.”
—Timothy Pina
1 Jennie Philip, Michael Chesterman. When It Comes to Fraud, Water Is on Fire. Litigation Management (Summer 2016).
2 Water Is the New Arson. Best’s Insurance Law Podcast. Episode 151 (Mar. 28, 2019). Podcast available online at: https://legaltalknetwork.com/podcasts/insurance-law-podcast-am-best/2019/03/water-claims-could-become-the-new-arson/
3 Fraudulent fire and water insurance claims – on an upward trajectory? Fraud blog: Fundamentally Honest. Kennedy Law LLP. Apr. 1, 2022. Available online at https://kennedyslaw.com/en/thought-leadership/blogs/fraud-blog-fundamentally-honest/fraudulent-fire-and-water-insurance-claims-on-an-upward-trajectory/
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