Insurance companies pay rather than probe

Press, 26 June 1978, Page 1

Insurance companies pay rather than probe

Insurance companies would rather pay out thousands of dollars on a fire claim than investigate the strong possibilities that the fire was arson and lit by the client, a fire-loss adjustor (Mr D. I. Bird) told a seminar on arson in Christchurch yesterday. It was more important to insurance companies to protect their public image as "quick, clean, and glad” payers than to arrive at the truth, Mr Bird said.

“I get no thanks for upsetting the relationship between an insurer and the client, even when the client might be the guy who lit the fire,” he said. “They just do not want to know, even when there are grounds for reasonable suspicion.”

In the last month, he had investigated a case involving a $350,000 fire

loss. One lead was that an executive had lit the fire to cover stock deficiencies caused by his using company stocks to support another business. However, the insurer wanted a recommendation to pay out the $350,000, not to follow the lead, Mr Bird said.

Mr Bird was addressing about 80 representatives of the Police, the New Zealand Army, the Fire Service, and the psychiatric and insurance professions. The seminar was organised by the Canterbury group of the Institution of Fire Engineers. Insurers could encourage fraud by unwise underwriting in the form of over-insurance, and by the provision of replacem e n t-value insurance when that might be used by “skilled and enterprising” policy-holders.

The insurer should try to eliminate any profit the claimant might seek, but allow a payment that was a fair measure of the loss, Mr Bird said.

The insurer was able to reinstate the property. This stopped the claimant walking off with cash in hand. He should also regularly review policies, and hold “pre-fire” inspections of premises. Insurers could also play a game of obstruction by denying liability and letting the claimant prove his loss.

They should also be less hasty in effecting settlements. “The public interest is best served by frustrating any attempt to profit from fraudulent fires. As much as we need to get convictions we need to discourage bad claims,” Mr Bird said. A representative of the insurance profession, who did not wish to be named, said that insurance companies had a duty to the public to keep premiums down by discouraging fraudulent claims. Premium levels were based on “claims experience,” he said.

Companies were caught in a cleft stick. They had a duty to the public, but

they did not want to tarnish their hard-won good public image by taking a strong line in cases in which arson might not be proved. Mr Bird said that reasons for fraudulent fires included a firm’s insufficient liquidity —

caused by over-in-vestment, or excessive drawings on company finance by the proprietor — and unprofitability, caused by reduced sales from intense competition, excessive purchasing costs from freight increases, or insufficient margins from price fixing. Mr Bird said that fire loss adjustors’ reports were not privileged. This made it difficult for them to get the information they needed to make their case water-tight.

Adjustors were not permitted access to the laboratories of the Government Analyst, used by the Police Department. They were able to use University laboratories, but their exhibits were not given priority.