For major insurers in virtually every sector, there’s one unfailing and unwelcome constant: Fraud never sleeps. Whether it’s personal or commercial insurance, fraudsters of every size and scale relentlessly chip away every day at profit margins by filing false reports, exaggerating legitimate claims, and devising elaborate schemes to garner unearned reimbursements – collectively costing US insurers as much as $80 billion annually.
Ordinary vigilance isn’t enough. At my company, our adjusters are trained to look for red flags, but industry research tells us that as many as 10 percent of the claims we process could contain elements of fraud, so we felt that we were missing some opportunities. Our executive vice president, George Fay, and other members of the management team recognized that this represented an unacceptable source of business risk that we could and should address. We opted to apply the power of business analytics to combat the problem more effectively. The metric we needed to track, of course, was one of the favorites of every business executive: return on investment (ROI). Would the ROI justify our efforts?
Finding the big fish
Using sophisticated algorithms, we receive weekly reports of our “top 2 percent,” the 100 claims that are most likely to merit further investigation for fraud. Of those, only about 20 percent are solid cases – one in five – a hit rate we find very acceptable. That helps us find the individuals who are defrauding our shareholders and clients.
In addition, we use a newer statistical method called social network analysis to pursue the “big fish” by finding broader patterns and connections among fraudulent healthcare providers that are conspiring against us. So if we notice more claims coming from a particular clinic or provider, or that a circle of associates continues to appear in health claims, this tool shows the relationships visually and gives us a clear picture.
What is meaningful ROI?
While we were excited by the promise of these new initiatives, the acid test remained: What’s the ROI? When we proposed this anti-fraud initiative, our very conservative business case was scrutinized at the highest levels of our organization, so we’ve been very vigilant about monitoring the financial profile of this project. In fact, we’re using the same analytics software to create a dashboard to monitor our key performance indicators, such as caseloads, performance of our investigators, and which claims are generating the most savings. Fortunately, we saw – in very short order – that by fighting back against the fraudsters and reducing our risk exposures, we were able to achieve significant, measurable savings from a variety of perspectives:
Cold hard cash
First and foremost, there’s the money we have directly saved in recovered or prevented claims from individual cases, such as workers’ compensation, general liability, and more. In just the first six months, we documented a savings of $600,000 alone that we attribute to this new system.
The second source of return – our investigations of provider networks – is still a bit challenging to tightly define and calculate because the program is still in its early stages and the investigations can take many months to bear fruit. However, all stakeholders agree that the value is definitely there. Our original ROI business case projected that we would identify 12 net-new cases per year. However, in just the first three months, we have initiated 15 separate investigations – five times our expected rate – suggesting that our future payoff there will be substantial.
Less tail chasing
The third area of ROI payoff is found in staff productivity. One of the downsides to fighting fraud is that sometimes you devote time and resources investigating claims that can look suspicious at first, but that end up being completely legitimate – so-called “false positives.” In our thin-margin industry, expert investigative resources are stretched thin and the last thing we want to do is waste time chasing false leads. Not only does that yield zero dollar savings, it can also be very damaging to customer satisfaction and goodwill. With our new analytics, we’re seeing far fewer instances of false positives. Instead, our agents and investigators are more productive, uncovering more fraud and wasting less time.
Just as important, beyond the tracking of KPIs, we’re also working closely with our claims adjusters and processing teams to enhance their ability to spot the red flags that may indicate fraudulent claims. We’re reaching out to the adjusters who might not ordinarily make a referral to us and educating them on what to look for. That can help us detect fraud sooner to reduce losses and accelerate recoveries.
Of course, one of the subtlest benefits of our fraud-fighting efforts is simply the message that it sends to would-be criminals: We’re not the company you want to target. A very public and vigorous defense lets them know that we monitor our claims carefully. While they can try to adapt, I’m confident that they will have tremendous difficulty eluding our analytics software’s ability to sift through the transactions and spot the schemes. For our clients who are paying the premiums, that’s a welcome message to hear. And for our senior executives and shareholders, our ability to document a meaningful ROI while reducing operational risk makes this a very important and strategic initiative from their perspective as well.
The purpose of this article is to provide general information about CNA and its current Claim strategies. Given the unique nature of CNA strategies, they may or may not be appropriate for use by other organizations and may be subject to change without notice. In addition, this article may contain views expressed by Mr. Wolfe that are his own and may not necessarily reflect those of CNA. CNA is a registered trademark of CNA Financial Corporation.