Fortifying a Defense

SIU management continues to evolve as new challenges are being met with innovative approaches on how best to detect, investigate, and resist insurance fraud in the property/casualty world. The effort to reduce risk and eliminate vulnerability is essential. Why? Those who repeatedly engage in insurance fraud know exactly which carriers are lagging in that effort.

Successful management of the investigative function requires the disciplines of planning, quantification, resource deployment, and efficiency analysis—augmented by imagination and vision. The prevailing credo of the new economy is that everyone needs to get better at what they do. A company’s SIU is part of that “everybody.”

Fraud Identification

The process of identifying fraud in the insurance world is changing and will continue to change in the near future. The limitations of the old-school method of “train and wait” have been borne out over the past 10 years of SIU work. The train-and-wait process entails the formal education of claims adjusters on the subject of fraud indicators. Once adjusters know what to look for, it’s assumed they will refer claims for investigation after they identify indicators in their assigned files. The process makes sense, but reality intervenes in a number of ways that negatively affect overall results.

Time is a valuable commodity, and the train-and-wait process requires large amounts of it. First, adjusters must set aside their work to attend training. Second, training must be updated regularly to cover shifting and emerging trends in fraud. Finally, staff turnover requires additional time spent to bring new staffers up to speed.

Another issue is motivation—a quality that the train-and-wait method takes for granted. Many in the industry agree that only a segment of the claims staff is responsible for a majority of SIU referrals. Long-term SIU veterans estimate that 70 percent of referrals come from 30 percent of the claims staff. For the most part, that 30-percent segment also represents the top performers in a given claims office. How can you reach the other 70 percent of adjusters? That’s where leadership and imagination come into play.

In order to overcome the challenges of time and motivation, a movement is under way to introduce data analytics to identify the population of claims not being properly screened. Insights are revealed by capturing and examining claims data attributes—both individually and in combination—that make the claim scenario unique.

Subject-matter experts can outline the individual and combined claims attributes that indicate suspicion. An automated method can then be designed to accept legitimate scenarios and re-route those that are questionable to a path of additional investigation.

Investigative Techniques

Although new data sets and tools that assist in gathering evidence and testimony enhance the investigative function, they are still only part of the process of turning over the stones to see what lies beneath. The key is how to use the new data and tools to prioritize the time and expense spent on any given assignment. The best investigative organizations develop the art of sequencing their investigations—determining which claims to analyze first and, within those claims, which stones to turn over and in what order.

The optimum skill set of the investigator has changed. The company car, wire-ringed pad, and street map are no longer enough in today’s environment. There is now a greater emphasis on electronic fact gathering. The benefits of additional up-front desktop investigation are in developing an accurate picture of the claim early in the process. The investigative patterns we see on the CSI television shows are good examples.

Link analysis and the use of specialized analysts are now key ingredients in the SIU investigative process. Even with a known group of organized fraud ring claims, a sorting of entities must take place to untangle the web and develop an effective investigative strategy.

Today, new data sets are more readily available to support or discredit a loss scenario that has been presented in a claim. For instance, geocoded weather history is at an investigator’s fingertips. If a roof loss due to hail is presented, the dwelling address can be scanned instantly to determine if hail actually fell at that location on that date.

Investigators are also leveraging social media. Postings initiated by claimants documenting physical behavior contrary to sworn complaints of medical limitation are common. The newness and novelty of this information source raises concerns with regard to methods of acquisition and use, but solid due diligence and appropriate company controls can reduce risk.

Automated claims analysis can also help prioritize investigative referrals and enable smart assignments. Automated analysis leads to a more intelligent deployment of resources. An expert-monitored, rules-based application can quickly sort through incoming assignments and categorize those with the greatest potential for quick resolution. This helps reach the “honor or resist” decision point more quickly. Up-front analysis of solvability reduces both drag and cycle time.

Resistance Is Not Futile

Resisting fraudulent claim payment is critical to an efficient insurance operation. Intelligence gathered during the process is quickly becoming a mandatory ingredient in the development of a perimeter defense in the underwriting discipline.

As carriers more routinely integrate data analytics with their data marts, it becomes easier to predict the direction of a particular claim by highlighting the DNA of its components. Similarly, one way to resist misrepresentation and fraud is to use predictive models at the time of application. 

If attributes indicating potential misrepresentation are present, additional in-depth information from the applicant is required. SIU intelligence can identify those attributes, which can be built into a model for high-speed screening of all new business applications. Once applications with such attributes are identified, they can be taken from the rapid handling process and held for additional inquiry and review. If the model screening process indicates there are no such issues, the cycle can, in fact, gain speed to improve the customer experience and reduce underwriting processing and expense. Similar models should be built for the renewal process because rating factors can change over the lifespan of a policy.

Fraudulent claim payment resistance is also changing. Organized ring cases have been on the upswing in the property/casualty world. The industry, with the help of the National Insurance Crime Bureau and state fraud bureaus, has made strides in its ability to detect these types of operations. Aggregated loss data analysis and industry-wide alerts have come a long way and are penetrating these operations frequently and at an earlier point in the timeline.

An increasing number of judges are exhibiting a greater understanding of insurance fraud. Judges are hearing grouped cases and granting stay orders while an investigation continues. State fraud bureaus are often involved in cases like these, bringing a greater weight of detection to bear. In addition, fraud bureaus have taken their game to the next level and are bringing more well-developed, sharply focused cases to prosecution. This can be seen more in quality than in volume.

The nature of such cases is also changing to some degree. New investigative and litigation strategies are needed to concentrate on more immediate resolutions.

Long-term investigations of large-scale ring activity may take a blanket approach regarding interviews of all involved entities. These investigations can be extremely time-consuming and costly. Professional providers of services are becoming the focus rather than every party involved because the provider is the organizing and recruiting factor in the equation.

The NICB is doing great work in this area on the property side by coordinating cases involving illicit contractor activity, organized cargo fraud, and auto theft give-up rings. The industry is also improving its stance on the casualty side by focusing on unscrupulous medical providers. The NICB has a medical task force operating in seven major hot spots around the country, coordinating the efforts of its own highly developed data analysts, local carrier SIUs, and contributions from law enforcement.

Some concern about the law enforcement component has arisen with regard to budget pressure in the public sector. Cuts in this area can have a detrimental effect on current strategy and on the momentum that’s been building over the recent past.

Litigation Trends

There are also some trends of note in the area of defense counsel—a much greater degree of specialization in the insurance defense community has developed. The firms and individual attorneys who have dedicated their practice to SIU-related work continue to improve the depth of their understanding of the complexities of fraud defense. Their further integration into the process has taken them to data analysis, tax implication inquiry, provider corporation filings, and cross-carrier investigations.

A cadre of attorneys who excel in this area has developed. The contribution of these attorneys goes beyond individual case strategies. Their “big picture” understanding of litigation trends lead to their involvement in best-practice development, SOP development, program execution strategy, and overall risk avoidance. These firms are also working more closely with in-house counsel to make gains in litigation economic efficiencies —an issue on everyone’s radar. The selection and management of the appropriate defense firm is a key component in protecting the assets of the company.

The decision makers involved in the investigative function are also changing. Many of the SIU management teams of 10 years ago are different. With that change comes new ideas and imagination. More and more managers today have relied upon technology from the start of their careers. This is a good thing because it mimics the world of our adversaries in the fraud contest. They, too, are more resourceful from a technology standpoint than their predecessors. New and more imaginative schemes will continue to emerge. Some solutions will be hatched as preventive measures and some will be in response to mitigating failure.

The world of fraud has continued to expand with the rise of the Internet. Schemes from around the globe are focusing on the U.S. property/casualty industry. Entity resolution and authentication are becoming paramount as e-commerce increases. The banking and credit card industry has developed new methods to screen for fraud. Many of those innovations are morphing into insurance fraud resistance concepts and solutions.

We’ll continue to see more technology and more innovation in the near future. In an industry that pays out $250 billion in claims per year, we can expect that unscrupulous claimants will continue to be on the attack.  

Thomas Mulvey is national director of SIU and claim services at ISO, a member of the Verisk Analytics family of companies. He has been in the business of insurance investigations for more than 27 years. He may be reached at tmulvey@iso.com.