First what is fraud, and what does it cost? True fraud costs billions each year:
“Insurance fraud is among the most costly white-collar crimes in America. According to a 2000 study by Hartford, Conn.-based Conning & Co., insurance fraud costs the American public $96 billion dollars annually in increased premiums. That includes only direct costs, not the consequential higher prices for consumer goods and services. A 1996 report by the Association of Certified Fraud Examiners estimated such consequential costs could range as high as $530 billion (author’s emphasis). “ 7
“Definite assessment of the cost of insurance fraud is impossible because of the sheer size of the problem, the number of victims involved and the hidden nature of the crime. After all, ‘the successful fraud scheme is never discovered to be fraud.’ The only points of universal agreement are that the numbers are staggering – and consumers are footing the bill.” 8
“Nearly one in four U. S. adults says overstating the value of claims to insurance companies is acceptable.” 9
Because of fraud, we all pay higher financial and emotional premiums. Because
day-to-day business presents all of us with the chance to play the shell game and hope
to win, we must be on guard. Make no mistake: cleaning and restoration experts are
given open chances all the time to cheat the client and the insurance firm, as are
adjusters.
Next, the original question needs restating: is it right to make a profit in the
restoration business? Should a contractor lose money or just break even in repairing
someone’s home or business? And if so, what is fair? What is gouging, and what is
To properly understand and answer this dilemma, understand these definitions: How m
What is insurance? “Coverage by a contract binding a party to indemnify another against specified loss in return for premiums paid.” 10 Thus, insurance is the field in which adjusters and contractors earn incomes.
What is fraud? “Deception deliberately practiced with a view to gaining an unlawful or unfair advantage; artifice by which the right or interest of another is injured; injurious stratagem; deceit; trick.” 11 Thus, fraud embraces an entire host of practices tainting the industry.
What are ethics? “Rules or standards governing the conduct of a person or the members of a profession, such as medical ethics.” 12 So ethics are the convention by which we should individually and collectively practice our profession.
In order to gain a clearer understanding of how people could be in the industry,
perhaps it is helpful to view stereotypes as many currently view them.
How should adjusters act? Should the adjuster adjust the claim to the lowest possible price? Is that the yardstick we should measure a claim by? Yet do not all insurance companies cheat? And do not all adjusters graduate from the University of Scam-ism with an advanced degree in Cheat-ism?
What about the insured? Is it appropriate to profit from an insurance claim? If an insured has paid premiums for decades, is not he or she “entitled” to a benefit check? Does not the insurance company “owe” the insured the money? But are not all clients looking for ways to rip off the insurance company and the adjuster? Are not all insurance clients leering in the hallway for a chance to jump the adjuster and pit him or her against the restoration contractor?
And what about the contractor? Don’t all estimators “fudge” on estimates? Don’t all spread hidden costs inside proposals? Or don’t they all alarm clients regarding mold? All contractors seek ways to not perform services and pocket savings, right? All contractors bill for un-needed services in order to pit clients against adjusters! And all contractors graduated from Bubba High School, right?
arlier, we saw stereotypes surround clients, adjusters and contractors. Were
they accurate? Of course not! Rather, they were sweeping judgments
against groups of people, all due to the lapses of a few. Some were ugly.
Yet some of these could be deserved. Have not we all encountered people like this?
Yes. Have not we all acted like our respective stereotype occasionally? This author
knows he has on occasion. Perhaps the trick is to balance the temporary relationship
which exists between all three. Can this be done? In response to my survey, the voice
of industry professionals combine in a chorus with a resounding “Yes!” 16 What
follows are some ideal visions for balancing this triad:
“Simply put, (name of firm omitted) has a motto of helping . . . the company expects people to live by this phrase . . . If all parties listen and understand, in essence communicate with each other, this takes care of ethics. Pay what is owed, nothing more, nothing less. “ 17
“When using the services of a professional . . . make certain the person hired will be unbiased in their evaluation . . . do not misrepresent results . . . to favor the insurance company . . . In a grey area, always give the insured the benefit of a doubt.” 18
“I think the best way to sum it up is a phrase that has been used here since I was hired 15 long years ago . . . pay what we owe, not a penny less, not a penny more.” 19
“As the Restoration Contractor . . . give when practical. If mistakes are made, admit them immediately . . . don’t be greedy, there will always be other jobs available . . . be totally honest in your dealings.” 20
Thank you to those who responded to my survey. Your views remain invaluable!
ay-to-day business presents all of us with the chance to play the shell
game and hope to win. The real dilemma is, who wins and who loses?
All eventually lose in time. This manual has shown how adjusters can
make life easy or difficult for restoration contractors. Also shown is how restoration
contractors can try to cheat adjusters. And of course, the wild card in this game is the
client.
None can control that facet of the claims process. But what can be done is controlling
one’s response, as this author was clearly reminded of by a former ethics professor:
“Indeed! While those around us seek to exploit, take advantage, and otherwise cheat, steal and rob us blind, it would be wrong to respond in kind. The short term gains won through theft and deception are not worth the long term losses. There is money in integrity and character, but it is a long-term commitment” (emphasis mine). 21
Our modern business world desperately needs men and women of vision and
character, who will lead for ethical change. As one leader said,
In order to encourage high ethical standards within our organizations, we must first provide an environment that is conducive to ethical behavior. Management and leadership have a huge responsibility in setting examples for their organizations and living the values they preach if they want to sustain a culture of ethics (my emphases). 22
he Texas politician Sam Rayburn said, “You cannot be a leader and ask
other people to follow you unless you know how to follow, too.” 23 True
leadership involves leading one’s self long before leading others. It involves
taking the high road regardless of cost. It is the way of serving others. As Ghandi said,
We must be the change we wish to see. 24 Simply put, we are here to serve each other,
and that presumes being ethical.
Ethics then presume character. Ethics involve choice: and ethics mean action. Here
is how Ted Koppel once closed remarks on being ethical:
Aspire to decency. Practice civility toward one another. Admire and emulate ethical behavior wherever you find it. Apply a rigid standard of morality to your lives; and if periodically, you fail as you surely will adjust your lives, not the standards. There’s no mystery here. You know what to do. Now go out and do it!25
If you have embraced the insurance restoration mission, you must understand the
risks and operate ethically. In doing so, you serve others and in the process enrich your
life. Each of us has the unique privilege to exercise character, to make good choices and
act to make a tangible difference in others’ lives. What a noble profession.
1. How many Americans work in small business settings?
a. Greater than 50% b. More than 75% c. Fewer than 25% d. 50%
2. The insurance restoration workplace needs reform and ethical practices:
a. No, it’s not that big of a problem b. Maybe, perhaps we should talk about it c. Yes, the problem is huge and is growing larger d. Really doesn’t apply to me
3. Insurance fraud costs:
a. $500 million b. $1 Billion c. $ 50 Billion d. Nearly $100 Billion
4. What size firm shows the greatest prevalence of fraud?
a. 1 – 25 employees b. 25 – 75 employees c. 100 employees or less d. 100 employees or more
5. Which one of the three has is more likely to defraud in a claim?
a. Claimant b. Contractor c. Adjuster d. None e. All †
industry, where he helped reduce the error rate of
a national healthcare firm to less than 1%. Afterwards,
he spent nine years in the cleaning and restoration
business where he helped grow one firm’s revenues by
300%. John was also recognized by the State of Utah
as an author and ethics instructor. The ethics and
marketing columnist for the Restoration Industry Association, John gave the keynote address at
the national convention in 2007. He also contributed to other magazines. Additionally, John is
featured in four one-hour videos which he authored on ethical human resources issues in 2008.
From 2003-2009, John was an PR Marketing educator and writer in the financial services
industry, accruing over 10,000 coaching hours with an award-winning client retention rate of
85%. Under-employed as a direct result of the meltdown since November 2009, John continues
to communicate the need for ethical business practices through his globally-followed blog
Honesty Today, Hope for Tomorrow.
A graduate of University of Phoenix with a double degree in Marketing and Management, John
is seeking new opportunities. ‡
****
‡ For additional guidance in personal and professional ethics, personality awareness, team management and marketing, contact the author, [email protected].
MERWIN U. STEWART MICHAEL O. LEAVITT C. TOM BRASHER Utah Insurance Department Governor Director Insurance Commissioner Producer Licensing Services Division
From: Michael T. Covington Date: October 2, 2003 Subj: Recommendation for John Fox To whom it may concern, greetings: My current position is Continuing Education Specialist with the Utah Department of Insurance. I am in charge of approving and auditing courses that are filed with our Department. In order for our insurance agents to renew their licenses, they must meet our continuing education requirement. In the winter of 2002, Mr. Fox contacted me to become a certified instructor, to teach courses to our insurance agents in the areas of property casualty and adjusting, while he was employed for Steamatic, here in Salt Lake City, Utah I have had the opportunity of attending and auditing these classes, and the topics discussed were water, fire and mold. John is very knowledgeable in these areas because of his 9 years of experience in the field. The characteristics of a competent instructor are:
someone who is knowledgeable in the subject matter
has the ability to deliver the message to their audience
and makes a serious effort to engage the audience in discussion If these qualities are not there, then the attention of the audience is long gone. And in those cases, I find agents playing with their palm pilots, or reading a newspaper. Thus, the purpose for continuing education has not been achieved and the agent has learned nothing.
Utah! Where ideas connect
State Office Building, Rm. 3110•Salt Lake City, UT 84114•Telephone (801) 538-3800•Facsimile (801) 606-2888•www.insurance.utah.gov
MERWIN U. STEWART MICHAEL O. LEAVITT C. TOM BRASHER Utah Insurance Department Governor Director Insurance Commissioner Producer Licensing Services Division
John is a very competent instructor. His best characteristic is his gift for involving his audience. He stimulates discussion by asking thought provoking questions. This is a proven fact: when a class audience is actively engaged in discussion with instructor, learning will take place. The agents come away from class with new knowledge and an idea of how to be better agents to their clients. John received positive and highly-rated evaluations from me. In addition, I have received phone calls from attendees who have expressed their appreciation to John for a very interesting and well presented class that is power-packed with information. These callers felt their time was well spent. Finally, John is also a talented writer. Before leaving Steamatic, he authored a course on ethics. It was designed to cover the industry from an ethical point of view in the eyes of the property casualty insurance adjuster, the agent and the restoration contractor. Rather than approving this as a course, it was better suited for publishing. Now, more insurance personnel will have access to this important message. If I can be of further service, please contact me at (801) 538-3809. Or you may e-mail me at [email protected]. Sincerely, Michael T. Covington State of Utah Department of Insurance Continuing Education
Utah! Where ideas connect
State Office Building, Rm. 3110•Salt Lake City, UT 84114•Telephone (801) 538-3800•Facsimile (801) 606-2888•www.insurance.utah.gov
In his book Empires of the Mind, Dr. Dennis Waitley outlines ten questions he uses to
test a person's honesty and sincerity level. The questions address both work and personal situations. Since the test is in a self-testing format, be as honest as you can. Remember, no one but you has to see the results if you don't want them to. Fill each blank with using the following scale: 5 = strongly agree 4 = agree 3 = uncertain 2 = disagree 1 = strongly disagree
A. I don't give in to the temptation to pad my expense account. B. I do a full day's work for a full day's pay. C. I never take office items, even small ones, for personal or family use. D. If fellow workers were as honest as I, our company would never worry
about white-collar crime. E. Those who know me consider my word my bond. F. “Loyal and faithful friend” is one way my friends would describe me. G. Recognizing how readily we influence the behavior of others, I strive to
set a good example in all my endeavors. H. Each day I work at remaining honest in all interactions, both in and out of
the office. I. If my spouse's emotional and physical fidelity were equal to mine, I
would be satisfied. J. In general, my approach toward others, both at home and away from
home, is to treat them the way I would like to be treated.
Once you have completed the test yourself, pass it around to your employees. Often
times, people get caught up in "what everyone else is doing." By raising people's awareness of their behavior, you will get them thinking about what is right and wrong. This is an excellent way to introduce your new ethics policy; not only will people realize the reasons for it, but they will also be more willing to accept the value of it. 26
2 Telushkin, Joseph (2003) The Ten Commandments of Character (2003), Bell Tower Publishing, New York, NY, Introduction 3 MacKay, Harvey (2008) Live and work like your mother is watching,
[email protected] 4 Business Ethics – The Foundation of Effective Leadership (2007) see http://www.sba.gov/smallbusinessplanner/manage/lead/SERV_BETHICS.html 5 Faulhaber, Thomas, Employee Fraud, http://www.businessforum.com/fraud01.html 6 The Small Business Economy – A Report to the President (2005) published by the SBA Office of Advocacy, http://www.sba.gov/ADVO/research/sb_econ2005.pdf 7 Study published on www.csaa.com 8 Ibid. 9 Nelson, Taylor, Sofres Intersearch – November 2002 – accessed from NAMIC 10 Definition of Insurance, www.dictionary.com 11 Definition of Fraud, Ibid 12 Definition of Ethics, Ibid 13
http://en.wikipedia.org/wiki/Ethic_of_reciprocity
14 Telushkin, Page 18 15
Business Ethics – The Foundation of Effective Leadership, 2007, see
http://www.sba.gov/smallbusinessplanner/manage/lead/SERV_BETHICS.html 16 Survey conducted May 2003 – in which the author asked agents and adjusters to send views on ethics as pertaining to the claims business
References 17 Email from Regional Property Manager, dated 05.25.03 18 Email from Independent Insurance Claims Adjuster, dated 05.15.03 19 Email from local senior field large loss adjuster, dated 05.20.03
20
Email from former franchisee and market manager, dated 05.27.03
21 Email from Matthew Fellows, PhD. Candidate, University of Phoenix faculty member 22 USA Ethics & Workplace Study (2007), Deloitte & Touche, published February 2007, see http://www.deloitte.com/dtt/cda/doc/content/us_ethics_workplace2007.pdf, cited from U. S. Chamber Brief, June 27, 2007, United States Chamber of Commerce, [email protected]
23 Quote attributed to Sam Rayburn, Texas legislator, [email protected] 24 Quote from Mohandas Gandhi, accessed from http://www.institute-for-nonviolence.com.au/ 25 Quote from Ted Koppel’s 1998 speech at Stanford University, accessed from http://www.stanford.edu/dept/news/report/news/june17/koppel98.html 26 http://www.sba.gov/smallbusinessplanner/manage/lead/SERV_BETHICS.html
Endnotes Internet Article on Fraud; www.csaa.com – accessed 02.03.03 Article on Fraud; www.namic.com – accessed 02.17.03 Definitions; www.dictionary.com – accessed 08.28.03 Supporting Documentation 1. Email received from Matthew Fellows, University of Phoenix Instructor,
advanced degrees in Ethics – 08.11.034.
2. Email received from Regional Property Manager – 05.25.03 3. Email received from Independent Insurance Claims Adjuster – dated 05.15.03 4. Email from local senior field large loss adjuster – 05.20.03 5. Email from former restoration franchisee and current market manager – 05.27.03 6. Email from Ken Larsen, Mold Remediation Specialist, 08.18.03, in concert with phone consultations for primary evidence supporting mold CE training 7. Survey conducted summer 2003 to support original manual
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