Process and Plan Required for Fighting Fraud

Risk managers and insurance professionals were reminded that despite all the technological advancements in the industry—and among law enforcement agencies—the real power behind fraud detection is people.

“Technology doesn’t find fraud, people do,” explained Tim Barry, SIU Director for SRS, a U.S.-based third-party administrator and consultant and a wholly-owned subsidiary of The Hartford. For that reason, every successful fraud investigation starts with a person who is well educated, understands the appropriate use of technology and can create a game plan that takes time, cost and resources into consideration.

Benefits of External Specialists
According to Barry, the benefits for external, specialized, investigations include:

  •  Maximize SIU results by proper use of resources; 
  • Develop informational requests that require resources and expertise; 
  • Analysts perform desktop investigation and analysis; 
  • Reduced burden on adjuster (or other resources) to identify red flags; 
  • Investigators focus on investigation; 
  • Better understand the costs of investigation.

Despite Technological Advantages Costs Can Spiral Without a Fraud Quarterback
A typical background check takes roughly two hours per claim (seven out of 10 claims), and costs roughly $200 (US). If the investigation escalates to surveillance the costs can rise to $500 (US) per day, said Barry. Considering less than 20% of cases with surveillance are effectively settled in the U.S, these costs must be weighed against the perceived and financial benefit to the insurer/insured.

One example, said Barry, is a California vendor that requested a DMV background check on a vehicle registration plate. The adjuster drove two hours (both ways) to the DMV office; spent 15 minutes at the DMV acquiring the requested information and billed $1,450 (US) for the task.

Use Fraud Quarterback to Determine Pre-Investigation Resources
For this reason, Barry suggests that companies and carriers requiring investigations should determine what pre-investigation tools and information should be used to determining if a full investigation should be launched. Pre-investigation tools include:

  • Database Searches – manual, automated, on-line, or batch
  • Expert Systems, such as: medical bill review, business rules/algorithms, scoring/statistical/predictive modelling 
  • Visualization 
  • Link analysis 
  • Statistical models 
  • Timelines 
  •  Geo-mapping/GPS 
  •  Time series 
  • Clustering 
  • Principle somponents
  •  Neural networks 
  • Frequencies 
  • Means/ratios/crosstabs 
  • Regression analysis 
  •  Decision trees
  • Linear programming 
  • Social network analysis

Quarterback Process Includes 3 Steps
The first step, said Barry, is to determine the “known knowns.” This includes listing the facts: claimant’s name, address, phone number, social insurance number, cell phone number, hobbies, spouse’s info (including employment), dependents, a photograph of claimant. This list should also include potential witnesses, identifying red flag indicators and claim notes. All of this should be kept in the claim/investigation file—thereby providing quick and comprehensive basic information to any investigator and cutting costs for information data gathering.

The next step is to identify the “known unknowns,” says Barry. What information is needed and the (best) options to obtain.

The third step is to select the best option for searching and satisfying the information needs of the file.

By tasking one person, or a unit, to monitor and quarterback fraud investigations, the process and cost for investigations can be checked and kept to a reasonable and realistic limit. This ensures that investigations for potential fraud can help to mitigate costs, rather than escalate costs—that eventually translates into higher client costs.

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