The Fight Against Organized Crime

“It’s not just the Mafia anymore,” reads a quote from the Federal Bureau of Investigation’s (FBI) Organized Crime webpage. Today, racketeers target insurance carriers from every corner of the globe. The most common of these crime rings are primarily comprised of terrorists, transnationals, street gangs, or family operations. That raises the question: Why insurance?

The answer is simple. Organized crime has found a moneyed supply of readily available cash. A famous biker gang posted in a recent blog that it funds its operation through prostitution, gambling, drug sales, and, yes, insurance fraud. Unlike banks, there are no vaults or armed guards to deter the flow of funds being funneled into the organization’s account. Often, an overworked claims professional is the only obstacle to the heist.

Additionally, many state legislatures, insurance crime bureaus, and insurance carriers have fallen behind in putting effective measures in place to deter the rapidly evolving methods of deception. To further complicate matters, well-organized rings are difficult to detect. Unlike a bank robbery, there are no video cameras to capture the identity of the perpetrator. Most often, the the wrongdoer is masked behind a false identity or complex corporate structure. Especially in the cases of a staged accident ring or questionable medical provider, it can be difficult for prosecutors to prove to jurors beyond a reasonable doubt that a crime has taken place.

By far the most lucrative of these schemes involve some variation of medical fraud. Fraud rings will perpetrate medical fraud through a vast array of schemes ranging from staged accidents involving property and casualty carriers to fraudulent billing on a legitimate account. Some variations use a false identity to loot private health care providers or Medicare and Medicaid. As an example of how lucrative medical fraud can be to organized fraud, the FBI announced on July 22, 2016, that a $1 billion Medicare/Medicaid fraud ring had been uncovered in the Miami area involving nursing and assisted living facilities.

Although medical fraud has proven to be the most lucrative form of fraud for ring leaders, property insurers remain susceptible to racketeers. In May 2015, the Florida Fire Marshall’s Office and Miami-Dade Police Department arrested 31 individuals who allegedly were involved in a $7 million insurance fraud scheme involving structure policies. Traditionally, fire, water, and wind losses are investigated individually and are not suspected of being part of an elaborate scheme to defraud property carriers. Nonetheless, there has been an increase in the number of arrests alleging a violation of the Racketeer Influenced and Corrupt Organizations (RICO) Act involving property claims.

This leads us to the question that insurers are struggling to answer: How do insurers limit their exposure to organized fraud rings? In my opinion, there are two fundamental components that are essential to combating organized fraud: data analytics and major case investigators.

In the 21st century, most insurers have promoted the use of online and telephone applications for ease of doing business and to remain competitive in the marketplace. Unfortunately, this has made racketeers less susceptible to detection. Even if a carrier can trace the internet protocol (IP) address where the fraud is being perpetrated, there is really no way to know the true identity of the person sitting behind the computer.

For this reason, it is essential that every insurer begins auditing key data fields that are necessary for detecting potential fraud. Some of the items that insurers may consider monitoring are Social Security numbers, names and dates of birth, phone numbers, vehicle identification numbers, the International Classification of Diseases (ICD-10) diagnostic tool, the Current Procedural Terminology medical code set, provider names, tax identification numbers, IP addresses, and financial account information.

Once an insurer decides which fields to audit, it will need analysts to monitor these fields using intelligent data mining and link analysis software in an effort to highlight questionable activity at the point of sale or during the submission of a claim. By using available technologies, an insurer can be better equipped to proactively identify potential threats before the fraudsters can capitalize.

Along with technology, insurers should consider putting into place a major case investigation unit. Just like public entities, which for years have invested in major case investigators to address large-scale drug, gang, and racketeering activity, insurers should consider employing major case investigators whose sole purpose is to target potential ring activity. One-off investigations may be effective in deterring an individual intent on committing fraud, but these haphazard approaches are not effective in tracking and deterring criminal ring activity. The investigator’s goal is to break away from the traditional siloed model of investigating claims by instead working with analysts and frontline investigators to visualize ring activity. Once large-scale threat potential is discovered, a plan can be developed to continue monitoring and deter deceitful activity.

No insurer is insulated from potential fraud ring activity. Racketeering is and will continue to be a global issue. As many are aware in this game of cat and mouse, every action is met with an equal and opposite reaction. That is why it is important that insurers remain diligent in their efforts and continue to invest in technology and resources to help detect potential fraud.

It is equally important for insurers to continue to voice their concerns to legislative bodies. Insurers in states that have seen decreases in fraudulent claims have been successful in convincing governing bodies to enact more favorable antifraud legislation and invest in additional resources. The result has been more favorable laws for pursuing prosecution and an increase in RICO indictments.