What method of settlement does an insurer typically use to deter fraudulent household goods claims?

Using the replacement method of settlement allows insurers to mitigate the risk of fraudulent household goods claims effectively. This approach requires that the insurer replace the damaged or lost items with new items of similar kind and quality rather than providing a cash settlement. When policyholders know that they will receive new items rather than cash, it discourages inflated claims, as they cannot easily capitalize on any perceived value of the items they are claiming.

The replacement method also enables the insurer to have better control over the costs associated with claims since they can negotiate directly with suppliers for the replacement items, potentially leading to lower overall expenses compared to cash reimbursement. This approach not only helps to combat fraud but also ensures that policyholders receive items that are adequate for their needs, maintaining the purpose of the insurance coverage.

In contrast, the other methods might not provide the same level of protection against fraudulent claims. Agreed value might not prevent overvaluation of claims, while cash reimbursement can incentivize claimants to inflate the value of their losses. First loss may not adequately cover claims for high-value items, leaving room for disputes that could lead to fraudulent behavior.