Insurance fraud is not a popular topic for television dramas. During the rare occasions when insurers appear in such shows, they are most often portrayed as the “bad guys” for denying legitimate claims. Indeed, the last time I can recall a high-profile insurance fraud investigator on TV who was a “good guy” catching criminals cheating the system was back in the early 1970s. The hook for the program was that the lead character was blind!
Fraud investigators are anything but blind these days, with new technologies and data sources—certainly not envisioned back in the 1970s—providing keen insights into fraud patterns and trends. Predictive analytics, social media monitoring, and telematics are just a few of the latest options that insurers can deploy to help them more effectively uncover fraud and spot such schemes earlier in the claims management process.
Carriers are making tremendous strides in fraud prevention by arming their adjusters, claims managers, and special investigation units with these valuable tools. Unfortunately, however, better tools and techniques alone will not keep fraud at bay. Insurers may need to take additional steps to stay ahead of the curve in stemming the rising tide of fraudulent behavior.
Why is it that fraud remains such a persistent problem for insurance companies? Claims management, after all, is a core competency within any insurance operation—or at least it should be. Shouldn’t fraud detection and prevention skills be considered table stakes?
Ideally, carriers would like to be tough enough in their claims investigations and public enough about nabbing cheaters that would-be fraudsters are discouraged from trying to scam them in the first place. But insurers are constantly walking a tightrope, trying to treat policyholders who report losses with respect while being on the lookout for those who may be cheating on their claims. Reconciling these two equally important missions—customer service and fraud control—can be a tough balancing act.
Another challenge is that, despite the many new tools available, fraud still can be very difficult to detect. Some “hard” frauds are quite sophisticated, skilled as the perpetrators are in faking accidents or injuries while working in cahoots with unscrupulous professionals in the legal, medical, diagnostic facility, and physical rehabilitation centers that back up their false claims.
So-called “soft” frauds can be even harder to spot if people pad a legitimate claim to get a bigger payout, cover their deductible, or recover premiums paid for years in which they had no claims. Some may defraud their insurer on the front end by misrepresenting their exposure to lower the cost for coverage. Such soft frauds are prime targets for new predictive analytic programs to detect.
Another major hurdle is the public’s attitude about fraud, which studies have shown to often be apathetic and even sympathetic toward those who try to scam insurers. Many think fraud is inevitable and that, in some cases, it might even be justified because they believe insurers routinely overcharge on coverage or don’t deal with most claimants fairly. (This is somewhat ironic since fraudulent claims do, indeed, hike loss costs and, thus, raise everyone’s rates, while a cavalier public attitude makes matters worse by encouraging fraud and, thus, contributing to premium increases.)
There are many other factors hindering insurers in their battle against fraud. One is a lack of collaboration. While there are industry groups committed to the fight, in general, insurers as a whole do not always work well together in terms of sharing information, publicizing the impact of the problem, or promoting what they are doing to prevent fraud and why. Failure to coordinate their efforts, perhaps out of competitive concerns, can make it easier for organized fraudsters to target multiple carriers.
Regulators and legislators need to make it easier for carriers to share information and collaborate more effectively on fraud, perhaps by promoting standards and data exchange while lessening the risk and fear of bad faith litigation.
Another problem is inadequate data infrastructure, which means insurers might have the information at their disposal to better spot and stop fraud but can’t integrate and leverage what they have across various silos within their organizations.
Talent is another challenge. The sputtering economy has prompted some carriers to cut their claims management staff or allow it to shrink through attrition. Such personnel cutbacks can reverberate throughout a claims organization—especially if experienced investigators are lost to retirement and either are not replaced or filled by lower-paid, less experienced substitutes. And if staffs do shrink, those who remain are burdened with increased workloads, making it more likely that fraud will slip between the cracks.
What might insurers do differently to improve their effectiveness and efficiency in combating fraud without alienating their mostly honest customer base? Ultimately, it’s not any one thing, but a series of proactive initiatives that could turn the tide against fraud.
Thus, adopting a more integrated fraud management framework to better leverage the potential synergies within their existing claims organization might be a good idea. That involves going back to the drawing board to develop a new fraud management strategy, better align the company’s operating model to focus on fraud more effectively, improve the quality of the data gathered, and, last but not least, make better use of advanced technology tools and analytics.
This integration concept is fully addressed in a recent Deloitte report, “A Call to Action: Identifying Strategies to Win the War Against Insurance Claims Fraud,” authored by Celia Ramos and Jim Kinzie. In this limited space, we’ll address a few important steps insurers can take to get a better handle on fraud.
While tech tools are playing an increasingly important role in fraud prevention, people remain the bedrock of any claims management operation. Cutting back on claims personnel or replacing retired fraud specialists with less experienced individuals ultimately may be shortsighted.
They say that, in business, you have to spend money to make money. But when it comes to claims management, insurers have to spend money to save money. Investments in tools, training, and especially more capable personnel might add costs at first, but in the long run more money will likely be saved and bottom lines improved by increasing the company’s commitment to fraud detection and prevention.
Insurers also need to get the public on the industry’s side when it comes to fraud. Working individually and together as an industry, insurers would benefit from making consumers more aware of how fraud impacts their premiums and perhaps offering more incentives for whistleblowers to join the cause. Social media could be a powerful tool not only to provide fraud investigators with a rich new source of data to expose potential fraudsters, but also to recruit a wider army of “civilian” fraud fighters—especially if such an effort is publicized in a wide-ranging multimedia campaign.
Here’s one idea: Insurers spend a ton of money on TV advertising. Maybe it’s time to leverage some of those dollars to sponsor a reality show or, better yet, an entertaining drama featuring the trials, tribulations, and triumphs of a firm but fair insurance fraud investigator helped by average, honest policyholders who turn in cheaters. There is certainly plenty of material for writers to work with from the claims files of any carrier.
Having a positive insurance role model on TV could raise awareness about fraud, as well as generate support for the industry’s effort to keep policyholders from cheating not just on their carriers, but on their families, friends, neighbors, colleagues, and everyone else paying higher premiums to cover falsified loss costs.
I could even go for a sitcom about the crazy cases (and brazenly dishonest individuals) that a fraud investigator often encounters. Who says insurance can’t be entertaining?
Sam Friedman is insurance research leader with Deloitte’s Center for Financial Services in New York. He has been a CLM Fellow since 2011 and can be reached at samfriedman@deloitte.com.