5 Most Common Red Flags in Water Damage Claims
By Carla Rodriguez | Mar. 28, 2025 | 5 min. read
What You Will Find Below:
- The Rise of Water Damage Fraud
- Assignment of Benefits Fraud
- Most Common Red Flags in Water Damage
Water damage claims have long been a challenge for adjusters like yourself, but recent trends show an alarming rise in fraudulent activities, particularly in states like Florida, Carolinas, and Louisiana. Fraudulent water loss claims are not just about exaggerated damages, they often involve elaborate schemes, staged incidents, and legal loopholes that make it difficult for insurers to fight back.
In this blog, we’ll cover the latest trends in fraudulent water damage claims, the role of Assignment of Benefits (AOB) fraud, investigative techniques for SIU teams, and best practices to combat these schemes. Additionally, we will discuss what claimants should do when faced with legitimate water damage to avoid falling victim to fraudulent contractors and scams.
The Rise of Water Damage Fraud
In the last 10 years, there has been a real increase in water-related losses among homeowners, but not all claims are legitimate. This has become just another prime opportunity for fraudsters to exploit the system. Fraudulent claims often involve:
Staged or exaggerated damage – Claimants report old or minor damage as catastrophic loss events.
Multiple claims for the same incident – Homeowners file duplicate claims under different names or across different insurers.
Unnecessary repairs and inflated invoices – Contractors submit exaggerated bills for work that wasn’t necessary or never performed.
Delayed reporting – Many fraudulent claims are filed weeks or months after the alleged incident, making it difficult for adjusters to verify the original damage.
According to the Florida Office of Insurance Regulation (OIR), the frequency of water-related claims increased by 46%, while claim severity increased by 28% between 2010 and 2015. Although this data does not explicitly prove fraud, the lack of corresponding natural disasters suggests that many of these claims are questionable.
Common Red Flags in Water Damage Claims
Identifying potential fraud begins with recognizing these common indicators:
1. Inconsistent or Vague Loss Descriptions:
Claimants providing unclear or contradictory accounts of the incident may signal fraudulent intent.
2. Delayed Reporting:
Submitting claims long after the alleged incident can be a tactic to manipulate or fabricate evidence.
3. Prior Claim History:
A pattern of frequent claims, especially for similar damages, may indicate opportunistic fraud.
4. Recent Policy Changes:
Significant increases in coverage shortly before a claim can suggest premeditated fraud.
5. Financial Hardship:
Claimants experiencing financial difficulties may have a motive to commit fraud.
6. Lack of Maintenance Records:
The Absence of documentation for routine upkeep can point to negligence or intentional damage.
7. Evidence of Prior Damage:
Signs that damage existed before the reported incident may indicate an attempt to capitalize on pre-existing issues.
Assignment of Benefits (AOB) Fraud
An Assignment of Benefits (AOB) is a legal agreement that allows a third party—typically a contractor or mitigation vendor—to receive direct payments from an insurance company for covered losses. While AOBs have been used in various insurance claims for years, their misuse in water-related claims has led to widespread fraud.
How AOB Fraud Works
- The shift from “direction to pay” agreements to full AOBs has opened the door for unscrupulous vendors to:
- Charge grossly inflated prices for repairs and mitigation services.
- Submit claims for unnecessary work or work that was never performed.
- Use legal threats to force insurers into settlements, knowing that Florida’s one-way attorney’s fee statute can make litigation costly.
- Delay inspections and documentation to prevent insurers from gathering evidence.
The Legal Loophole Enabling AOB Fraud
Under Florida Statute § 627.428, insurers must pay attorney’s fees if a claimant prevails in court. Fraudulent contractors and vendors exploit this law, filing lawsuits for even minor disputes and leveraging legal fees as a bargaining chip. Many insurers opt to settle rather than risk excessive litigation costs.
Investigative Techniques for Water Damage Claims
To combat fraudulent water damage claims, SIU teams and adjusters must adopt rigorous investigation strategies. Here are some essential tactics:
1. Scrutinizing Claim Timelines
- Be wary of claims reported long after the alleged incident.
- Look for inconsistencies between the reported date of loss and weather conditions or maintenance records.
2. Analyzing Vendor Involvement
- Check for red flags such as vendors operating far from the claimant’s location.
- Identify patterns of repeat vendors with a history of suspicious claims.
- Investigate vendors offering illegal deductible waivers or referral kickbacks.
3. Conducting Thorough Site Inspections
- Visit the property as soon as possible before repairs are completed.
- Document all evidence through photographs and video.
- Interview homeowners and witnesses for inconsistencies in their statements.
4. Leveraging Data Analytics for Fraud Detection
- Use AI-driven analytics to detect unusual claim patterns and clusters of similar cases.
- Cross-reference claimants, vendors, and attorneys frequently involved in questionable claims.
5. Coordinating with Law Enforcement and Regulatory Agencies
- Work closely with state fraud units and insurance departments.
- Share intelligence with other insurers to identify fraud rings.
- Support legislative efforts to reform AOB abuse and fraud loopholes.
Want to learn more about avoiding and dealing with water damage, disaster fraud, and other natural disaster scams? Register here to receive updates on our upcoming FREE CE courses!
Check out our sources:
Tenzer, B. S. (2016, April 20). Underwater: Cleaning up fraudulent water mitigation claims. PropertyCasualty360. Retrieved from https://www.propertycasualty360.com/2016/04/20/underwater-cleaning-up-fraudulent-water-mitigation-claims/
CLM. (n.d.). Battling back against the use of AOBs in water-related claims. The CLM. Retrieved from https://www.theclm.org/Magazine/articles/battling-back-against-the-use-of-aobs-in-water-related-claims/1218
Insurance Journal. (2016, March 2). Florida lawmakers push bill to curb assignment of benefits abuse. Insurance Journal. https://www.insurancejournal.com/news/southeast/2016/03/02/400663.html