After the Flames: Preparing for the Growing Fraud Threat in Los Angeles

Fraudsters target both insurance carriers and vulnerable individuals, preying on survivors of natural disasters—and California’s wildfires will be no exception. These criminals use false promises and fraudulent schemes to exploit emotionally drained victims.

In 20 years of leading special investigation units (SIUs) for a large national property/casualty insurance carrier, I have seen how quickly fraud evolves to exploit hurricanes, floods, earthquakes, tornadoes and now wildfires. It is imperative that insurance professionals—from agents to claims staff—recognize the warning signs. Equally important is the opportunity to educate customers on how to protect themselves from becoming targets.

California regulators and local prosecutors have already deployed teams to prevent and prosecute fraud targeting fire victims. The Department of Insurance’s Disaster Assistance Response Teams have been sent to the hardest-hit areas, and Insurance Commissioner Ricardo Lara, along with L.A. County District Attorney Nathan Hochman, scheduled workshops to help survivors spot fraud by contractors and vendors.

Unfortunately, various types of fraudsters will descend on Los Angeles and other fire-ravaged areas, preying on victims and exploiting insurance payouts.

The consequences of this fraud are far-reaching, driving up insurance premiums for everyone and straining insurers’ already busy staff.

Types of Fraud

Contractor Fraud

Policyholders may file claims to recover funds paid to fraudulent contractors. The National Insurance Crime Bureau has already cautioned wildfire victims about contractor fraud. Scammers are expected to exploit recovery efforts, including debris and tree removal, home reconstruction, smoke and ash cleanup, and even medical services. Unlicensed haulers may illegally dispose of waste in the desert or public lands instead of state-approved landfills.

Red flags for insurance professionals include insureds who report that workers insisted on cash-only payments, usually upfront. Fraudsters often use high-pressure tactics to deceive homeowners, soliciting business door-to-door and pressuring victims into signing contracts with vague terms.

Agents and staff can use the opportunity to educate customers to verify contractors’ credentials, avoid large upfront payments and carefully review contracts before signing.

Insurance Fraud Committed by Policyholders

While it may seem insensitive to discuss fraud committed by policyholders during a crisis, unfortunately, there are individuals looking to profit from disaster. In the aftermath of any catastrophe, some people report fictitious insurance claims for financial gain, leveraging the chaotic nature of the claims process to exploit insurers. And we all ultimately pay for this deceit through increased premiums.

One common tactic is padding claims by reporting property that never existed or inflating the value of destroyed items. Complicating matters for claims staff, the unique nature of large fires allows victims to credibly assert that everything was consumed, leaving no evidence behind. Insurers will need to be lenient in these cases, relying on historical receipts, invoices or photographs of the destroyed property.

With high deductibles in some policies, fraudsters may seek to cover their out-of-pocket expenses through exaggerated claims. For example, a 5% deductible on a $600,000 home would mean they would have to pay $30,000 out-of-pocket before their policy starts covering the loss.

Insurance carriers will need to carefully investigate suspicious claims, despite the pressure to process them quickly. Claims staff should require thorough statements taken as soon as possible, along with documented requests for supporting materials, such as photographs and invoices. With any significant indicators, the carrier’s SIU teams should get involved for further investigation

Fraud Committed by Grifters

As survivors of wildfires receive insurance payouts and federal assistance, they’ll be in a position to hire contractors for repairs. Unfortunately, unscrupulous individuals often prey on these vulnerable homeowners, particularly elderly residents and non-English speakers.

Grifter rings, such as the Irish Travellers, a nomadic group known for scams in the Southern U.S., often target disaster survivors. These fraudsters offer door-to-door services, such as roofing repairs, and demand upfront payments before performing subpar work or inflating costs. The fraudsters frequently return to extort more money from easy targets.

Insurance claims may be filed to complete or correct partial repairs that were either never done or improperly performed. In such cases, we protected the policyholder but classified the damage as vandalism rather than another cause of loss, with potential subrogation if the culprits are ever caught.

Carriers can warn their customers to be cautious of unsolicited laborers and encourage them to verify the credentials of anyone offering services. Reputable professionals will display their licensing and insurance on business cards and trucks. If someone offers a service for a price that seems too good to be true, it’s worth scrutinizing. Fraudsters hate questions.

Arson

To add insult to injury, some people may set additional fires to collect insurance payouts, especially if their property was already damaged –or never caught on fire– and is in need of repair. This is an example of arson-for-profit, in which perpetrators intentionally start fires to trigger claims.

Arson can also be used to devalue land or properties, especially in real estate schemes where developers or property owners deliberately set fires to clear land for future sale. In such cases, emergency services are diverted from real disaster response efforts to investigate the man-made fires, creating further costs for both responders and taxpayers.

Claims personnel and authorities will need to closely examine burn patterns and ignition sources. Forensic experts will need to test for accelerants to determine whether a fire was intentionally set. The insurance carriers’ SIU teams should take thorough recorded statements covering the timeline, property details, signs of financial distress and potential motives. They may also canvass the neighborhood for witnesses to identify any additional indicators of fraudulent intent.

Public Adjuster Fraud

While public adjusters are expected to be licensed professionals who honestly assist homeowners with settling insurance claims, not all of them act ethically. Fraudulent public adjusters have targeted disaster victims, offering “free” home inspections and promising to handle the insurance claim process for a fee. However, unscrupulous adjusters may inflate claims, submit fake repair estimates or collude with contractors for kickbacks. The higher the cost of the claim, the more they get paid.

Insurance personnel and policyholders should be alert when dealing with public adjusters and verify their credentials with the California Department of Insurance. Determine if the insureds signed any documents, such as Assignments of Benefits, without fully understanding the terms. Be wary of any adjuster who pressures the policyholder for immediate action or offers to handle everything for them, especially if they request upfront fees.

Depending on the policy and municipality, public adjusters must also cooperate by providing statements and attending examinations under oath. In my experience, unscrupulous public adjusters may attempt to avoid these policy requirements.

Vehicle Title Fraud

After a disaster, countless vehicles are damaged or destroyed, leading insurers to quickly declare them total losses. These vehicles are often sold at salvage auctions, and fraudsters can take advantage of the situation by purchasing salvaged vehicles to place those Vehicle Identification Numbers onto pristine stolen cars to “clone” them. Cloned vehicles are sold to unsuspecting buyers who may try to insure them without realizing they’ve purchased stolen vehicles until it’s too late. The primary red flags are a price tag that seems too good to be true and cash-only deals.

Insurers and agency staff should thoroughly check the vehicle’s VIN history and purchase documents before binding coverage on a new policy, especially with newly-acquired vehicles.

Attorney and Legal Services Fraud

Fraudsters often take advantage of victims’ distress by posing as attorneys or legal representatives. In the aftermath of the fires, residents should exercise caution when seeking legal services. Insurance professionals should also verify that they are communicating with accredited attorneys.

The State Bar of California urges the public to report fraud, including scams that target victims. Both non-attorneys, such as “notarios,” and even licensed lawyers may engage in fraudulent practices. Unlike U.S. notaries, notarios públicos in Latin America hold extensive legal authority, which can mislead victims into trusting unqualified individuals. People should verify an attorney’s credentials before hiring them and avoid signing legal agreements hastily. Insurers should be especially cautious of attorneys who pressure personnel to process claims quickly or make unprofessional threats against insurance staff.

Life Insurance Fraud

Though it may seem far-fetched with these events, individuals have tried to fake their own demise to collect life insurance payouts. Wildfires, with their extensive destruction, provide a perfect cover for such schemes.

As a prior example, Haiti’s ongoing political crises in the early 2000s, coupled with devastating earthquakes and hurricanes from 2010 to 2021, created prime conditions for fraud. With more than 220,000 deaths from the 2010 earthquake alone, false death claims surged as fraudulent death certificates were easy to obtain.

Closer to home, a New York man, Steven Chin Leung, falsely claimed to have died in the Sept. 11, 2001, terrorist attacks. Posing as his own brother, he reported himself missing, but authorities caught him collecting mail from a location they had been monitoring.

In San Diego, a man was indicted after fraudulently collecting $136,000, claiming his wife—a supposed mother of 10—had died in the 9/11 attacks. In reality, she was alive and had only one child.

Insurance companies and claims professionals need to be vigilant when investigating death claims, particularly those involving individuals who were reportedly “last seen” in the vicinity of a fire. Death certificates and medical records should be requested and carefully scrutinized in all cases. Signs of motive should also be considered, such as a recent bankruptcy, divorce, or other financial or legal predicaments.

In the aftermath of the devastating wildfires, unscrupulous individuals will inevitably try to exploit vulnerable victims, often leading to fraudulent claims against insurance carriers. Fraud can take many forms, from contractor scams to insurance fraud, making it essential for insurance agents and claims personnel to stay vigilant and informed. By recognizing potential fraud risks, you can help protect your company and community from these crimes.

Wickliffe led special investigation units for 20-plus years at a largest insurance carrier. He regularly writes and speaks about creative crimes, fraud and cybercrimes, and is a published book author. His latest book is “YOU PAID FOR THIS – My 25 Years Investigating Insurance Crimes.” Email: RLWickliffe@yahoo.com.

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