Advances in artificial intelligence (AI) and machine learning are getting closer to providing insurance companies with a new underwriting tool to combat fraud: the ability to review meeting minutes and other public documents from homeowners and condominium associations, whose communities are home to nearly half of Florida’s 22.3 million residents.

Several Florida associations have been accused of recent wrongdoing, including one where four former board members were arrested, accused of engaging in a multi-million dollar embezzlement of monthly dues from residents. Former Florida Deputy Insurance Commissioner Lisa Miller sat down with an insurance lawyer and an insurance services company executive who uses AI, to find out how often this fraud happens, how it increases property insurance rates, and exactly how the new technology to fight it will work.

Show Notes

The South Florida Sun Sentinel did a recent exposé of a West Miami development called The Hammocks, a 6,500-unit community of houses, townhouses, and condominiums. Four former association board members were arrested for allegedly engaging in an intricate scheme to embezzle millions of dollars in monthly dues from residents. Authorities say $2.4 million in checks were written to five companies that did little or no work for the homeowners association (HOA) – two of them owned by the husband of the former board president.

Andy McGuire, Chief Strategy Officer and Co-Founder of PEAK6 InsurTech, said such fraudulent practices contribute to inflationary pricing and higher insurance rates. He said advances in technology, especially artificial intelligence (AI) and the machine learning process, are providing better insights into risk. His company’s subsidiary, Focus Technologies, is doing this today to serve its customers better.

“With enough observations, you can run a model, for example, on the language used in the meeting minutes to potentially pick up on schemes,” said McGuire. “Now that we have this example, for this particular issue, we can build an AI and teach it with these talk paths or words and knowing that it resulted in fraud, you have your first learning. You can get enough positive observations that you now have a model that an underwriter can load the minutes into and get a prediction. Combine that with financial data and a propensity to commit fraud of each individual member of the board, and you have a fully automated decision tree. I don't think we're totally there yet, but we're really close. This is the future,” said McGuire, whose 25 years in the industry include risk management and reinsurance.

Tiffany Rothenberg is a Partner at the Kelley Kronenberg law firm’s West Palm Beach office in the heart of Florida’s condominium country. She represents commercial property insurance companies in complex coverage disputes and is an expert in the HOA and condominium association insurance claims arena.

“I can't tell you how frequently we end up seeing this kind of a scenario,” Rothenberg told host Lisa Miller. “I just had a case here in Palm Beach County, where the association submitted a $4.5 million dollar Hurricane Irma claim for roof damage. When we started to review their condo records, we discovered that the association actually had five roof replacement proposals that were all under $1 million. And then during depositions, it came out they actually signed a contract with one of those roofing contractors for around... (For full Show Notes, visit https://lisamillerassociates.com/episode-46-insurers-know-the-building-and-the-board/)