Fraud costs the global insurance industry billions of dollars annually and it is a problem that experts agree is worsening. Mandy Aitchison looks at current, global fraud detection efforts
Studies have shown that over the last 10 years, consumers have become more dishonest with regards to insurance, with an alarming proportion of the global population considering insurers to be ‘fair game’, and fraud against the industry seen as a victimless crime. It doesn’t seem to have any effect on consumers’ actions when they are told that such fraudulent practices hikes the cost of insurance for everyone – frankly, it is easier to blame the ‘evil, faceless insurance companies’ for their premium rises, rather than consider the root causes of the increases.
Insurers agree that you can’t stop rogue consumers trying to defraud the industry and have taken action to prevent such practices. This action has been taken on an individual, company level, on a nationwide level, and on a worldwide level – and it would appear that the global route is starting to have a real effect.
Off the starter blocks
Action against fraudulent customers can include any combination of methods, but those on the front line of the claims process – those taking the calls when the claims first come in – are in a good place to start the fight against fraudsters. Claims handlers should consider certain flags – is the claimant offering unclear explanations about an incident or the cause of their claim?; if it is a medical claim, is it coming from a country that insurers know commonly over-charge or over-treat international patients? Consider the date the policy was taken out – how soon before the injury was it; is it worth considering what new technologies have been released in the weeks leading up the claim? Lars Skaar, director of international strategies at GlobalOptions is one of many investigators who has noticed that when a new iPhone is released, it is astonishing how many people break their old handset just in time to upgrade to the new one.
Operating in different regions in the world means that insurers must also identify different flags to be aware of for each region. For example, many in Asia consider insurance to be an investment, and if they don’t reclaim the cost of their premium over the course of the year, they feel like they are owed the difference, and could lodge a claim to try and ‘break even’ as far as they are concerned.
In the Middle East, there is an ongoing issue with medical provider fraud – this commonly comes in the form of patient collusion, as well as ‘phantom patients’ and over-treatment. In less developed countries, it is entirely possible that the ‘hospital’ in which your client was treated was in fact no more than a local doctor’s clinic that could not have even carried out the surgery the claimant is seeking payment for. At this point, the insurer must consider what to do to properly address their concerns – all the while keeping in mind that customers must be treated fairly, and that the insurer could need that hospital to treat another client in the future, and can’t necessarily afford to break the relationship for good.
If there are any concerns about the claim, then the insurer has a choice – either get their in-house fraud investigation team to look more closely at the claim, or if the insurer doesn’t have one, then hire a third party to investigate it on their behalf. Speak to any fraud investigator, and nearly all of them will say the same thing – get someone on the ground as soon as possible – within 24 hours, if feasible – whether it is the insurer or a representative of the insurer. According to Lars Skaar, it is vital that whoever is sent to the scene is not just able to converse in the local language and the language of the client, and have a limited understanding of the local laws, but that they should offer comprehensive understanding of the local culture, which can play a significant part in obtaining necessary information. One example given at the recent International Travel Insurance Conference (ITIC) in Barcelona was when an Australian man claimed for medical expenses in Bali having been knocked down by a bike while taking a walk. By sending an investigator to the scene, it was established that the accident could not have happened in the way the claimant described, and by communicating with a local scooter rental firm, the investigator was able to establish the claimant had in fact been on a scooter, with no helmet, when the accident occurred.
Insurers should also consider looking more closely at claims that are over a certain amount – for instance, Dr Sneh Khemka of Bupa said at ITIC that the company routinely investigates any claim worth over £5,000 – each insurer must choose its own limit, but all insurers should have one. For travel insurers, the amount could potentially be lower – although it is the medical claims that are really costing the industry. By curtailing and controlling smaller claims costs, though, the bottom line is protected further. Staff training at the point of claim is vital, but can be supported by more complex analytical software that allows certain parameters to be measured and potentially fraudulent claims flagged up for human investigation. Such programs include, but are not limited to, EDIWatch – SPOT; GDS Link – Dataview360; Hexaware Technologies – Insurance Analytics; IBM – Loss Analysis and Warning Solution; Jupiter Analytics – ClaimsMiner; and SAS Institute – SAS Fraud Framework for Insurance.
According to James Quiggle, director of communications for the US-based Coalition Against Insurance Fraud, writing on the Coalition’s website in September 2012: “The encouraging part is that nearly half of insurers use advanced fraud catching software technology such as predictive analysis, text mining and data mining. The discouraging part is that nearly half of insurers don’t use these tools.” He added: “Insurers as a whole may still be playing catch up with their brethren in the credit card industry. They need, with growing urgency, to step up the pace.”
What other weapons form part of an insurer’s arsenal against fraud? One of the newest is the use of social media websites to provide evidence that the claimant is not being entirely honest with their insurer. One example of this, given at the recent ITIC Barcelona event in a presentation made by Phil Peart of GlobalOptions, involved an Australian boy who had been injured in an accident in Vietnam and who had claimed for his medical expenses – which were significant – after he fell and hurt himself. By using social media updates through the boy’s Facebook status, the insurer was able to prove that the claimant had not taken reasonable care of himself throughout his holiday in Asia, and thus the claim was refused and the claimant had to pay back the money his insurer had originally paid for his medical treatment. So far, the use of social media networks in fraud investigations does not seem to be throwing up any difficult legal issues regarding invasion of privacy – if the claimant accepts someone they don’t know (i.e. the fraud investigator) into his or her social network, then no invasion has taken place.
A wider view
Having considered the various ways that insurers, as individual companies, can combat fraud in the travel insurance industry, what about a more global view? There are now a number of national and trans-national anti-fraud organisations that insurers can join, which include The Coalition Against Insurance Fraud (US), National Fraud Prevention Partnership (US), the Insurance Fraud Bureau (UK), National Health Care Anti-Fraud Association (US), The Insurance Fraud Register (UK) and more. The Global Health Care Anti Fraud Network was founded by the Canadian Health Care Anti-Fraud Association, the European Healthcare Fraud and Corruption Network, the Healthcare Forensic Management Unit, the Health Insurance Country Fraud Group and the National Health Care Anti-Fraud Association, with the mission of ‘raising awareness internationally about the issue of healthcare fraud; gathering and sharing information on the trends, issues, facts and figures relating to the problem; working co-operatively to improve international standards of practice around fraud prevention, detection, investigation and prosecution; and developing joint educational training programmes in order to bolster and prepare the world’s healthcare anti-fraud professionals’.
Similarly, speaking at the launch of the UK’s Insurance Fraud Register (IFR) in September 2012, Richard Davies of the Association of British Insurers’ Financial Crime Committee said: “The IFR underlines the industry’s continuing commitment to reducing fraud and protecting honest customers. It complements the work of the Insurance Fraud Bureau in detecting fraud, and the Insurance Fraud Enforcement Department in prosecuting fraudsters.” He added: “The Register will make it easier for insurers to prevent fraud by making details of known fraudsters available to insurers through secure protocol. It gives the clearest signal yet that we are more determined than ever to clamp down on insurance fraud.”
When joining one of the above organisations, its information sharing element is something that must be carefully considered. There is a danger, however remote, that information shared by one insurer could be erroneous, and if that information were to be taken seriously by other partners in the fraud organisation and certain providers cut off from the industry as a result, the provider could have a case against the organisation that shared the information. Is such a situation avoidable? Of course, if insurers only shared information that they can prove is true. There are occasions, inevitably, that will see an insurer accuse a provider of fraud, which is simply and flatly denied by that provider. In this case, if the insurer were to share that information with other insurers, then they would be liable to prove what they claim is true, otherwise a damages claim could be significant.
The UK’s IFR says about data sharing: “There will be a clearly documented set of rules applicable to loading any data to the IFR, which will set out what can and cannot be loaded by insurers. Compliance with these rules will be mandatory for all users. The Information Commissioner’s Office has been made aware of the criteria and has not raised objections.” The information given to the organisation will be held on the register for five years from the date the fraud condition is met.
At the ready
To conclude, it is clear from the above that insurers are building what could be a very effective arsenal against the scourge of insurance fraudsters that are aiming to take home something that is not owed to them. However, with only half the industry onboard when it comes to investment in fraud detection technology, this isn’t enough. What insurance needs, as a whole, is to gather together every company that wants to protect its bottom line – and please tell me about any insurer that doesn’t want this – to share information. While some of the larger insurers and brokers have invested in the necessary technology, they perhaps don’t see why they should share the information they find as a result of it – it usually takes a pretty hefty investment in the first place to buy the software, and therefore what was the point if they then give that information to companies that decide not to invest? Where’s the competitive edge? The answer is simple – insurance fraud costs every company, and every consumer in the industry, and if there were to be a concerted effort to eradicate fraud, it is possible that for the first time, a real reduction in the level of insurance and healthcare fraud could happen. ‘For the greater good’ is not always a phrase with positive connotations, but in this context, insurers need to remember that while competition is healthy, fraud is injurious to everyone and if its rampant progress can be halted, then surely it should be … shouldn’t it?
Dennis Jay, executive director of the Coalition Against Insurance Fraud, is hopeful for the future: “A dawning era of co-operation unleashes a national effort to eradicate fraud. Information sharing is critical to stripping back the veil of secrecy, allowing many fraud rings to operate. A joint effort will apply huge and hopefully fatal pressure on crime rings and their costly schemes.”