In my early days as an insurance investigator in the 1990’s, fighting fraud was tactical, reactive and primarily concerned with bogus individual claims. I spent a lot of time investigating suspicious auto thefts, low-impact soft tissue claims and exaggerated workers’ compensation claims. These frauds still exist and are a major source of leakage; however, today’s insurers face a much more serious threat from organized crime. One recent example of the size and scope of organized fraud was brought to light when a clinic in New York allegedly filed more than $275 million in false claims over a four-year period.
Technological developments have changed the nature of insurance fraud across the globe. Fraudsters and organized criminals interact more with one another with the assistance of advances in information technology. Now more than ever, organized crime groups are able to perpetrate different types of insurance fraud all over the world. These groups have become increasingly networked through the Internet and social media sites, a natural result of globalization. This change in criminal behavior requires insurance companies to change their investigation strategies from a tactical, reactive process, to a more proactive and strategic approach to fighting fraud.
To be proactive versus reactive, carriers should create and define long term goals and strategies to include pattern and trend recognition, anomaly detection and the ability to employ link analysis or social network technology using all the data available to them. The technology being deployed today and in the future must be flexible enough to make changes quickly, keeping up with the speed of technology and vast amount of digital data available now and in the future.
A recent study conducted by the Coalition Against Insurance Fraud and SAS points out that a major challenge in detecting organized fraud is ensuring claims are not viewed in isolation. With multiple business units, often using different claim management systems, some insurer’s struggle to connect the dots to identify these organized rings. Additional challenges are highlighted in the graph below.
As you can see from the graphic, most carriers that responded to the survey have issues with data quality. It is critical to keep this in mind when implementing an anti-fraud strategy. In any fraud detection model implementation project, it is advisable to allow adequate time for addressing these challenges.
The below figure depicts areas that should be addressed when looking for a technology-based fraud detection solution. The important first step of data cleansing cannot be overlooked. This enhances the ability to develop robust management reporting capabilities to visualize and manage the quality of the solutions output.
There is no doubt the insurance industry is focused on the fight against organized fraud It’s a battle that must be conducted strategically with a forward thinking long term plan if we want to be successful.
Technology is only one piece of the arsenal that carriers need to fight organized fraud. Proper training, appropriate skill sets and specialized analytical units coupled with a zero tolerance aggressive stance against non-meritorious claims are best practices in the industry. Tell us your best practices in the comments below or learn more about how CNA was successful implementing an effective solution.