Fraud tactics in travel and health insurance
Travel insurance fraud is ever more prevalent, while fraudsters’ methods are increasingly sophisticated. But travel insurers are putting up a fight, using rapidly evolving methods of fraud detection and prevention.
Fraudsters and travel insurers are engaged in a seemingly never-ending battle, but it’s not just holidaymakers submitting fraudulent claims in the hope of being compensated; fraud can also take the form of medical institutions overbilling, or even claims management companies targeting holidaymakers directly, encouraging them to make claims. Amid concerns that fraud is on the rise in the travel insurance sector, methods of fraud detection and prevention are improving – but so too are the methods used by fraudsters.
So, what does the current global situation look like? Mark Colonnese, Director of UK-based specialist industries software developer Aquarium Software, which provides tech solutions to travel insurers, told ITIJ that he is seeing less of the ‘traditional’ types of fraudulent claims, while more unusual and sophisticated methods are on the rise: “Travel insurance fraud continues to be a major concern for insurers, and while claims for supposedly lost or damaged items continue, the trend is towards more ambitious and sophisticated scams by professional fraudsters. While these are on the rise, other types of fraud have gone into decline.”
For example, Colonnese said that fraudulent claims for sickness and food poisoning, once big trends, have been exposed and are no longer as effective as they once were. “The ‘tummy bug blaggers’ have been found out,” he said. “This type of opportunist claim is not quite a thing of the past, but will soon hopefully be consigned to the history books.”
Fraud detection isn’t just about increasing skills, it’s also about maximising reach and collaboration
David Scott, Partner at Horwich Farrelly, which provides legal and handling services to the UK general insurance claims sector, also said that he has seen a growth in the number of claims made under the Package Travel Regulations (PTR) over the last few years, particularly in respect of gastric illness. “This has been driven by the unscrupulous activities of so-called ‘claims farmers’ encouraging and assisting holidaymakers – often with promises that they could at least recover their holiday costs – to pursue claims against tour operators directly and seeking to enforce the strict liability provisions under the PTR,” he said. “These claims have been lucrative for claims companies to pursue, as until recently there was no limit on the amount that could be recovered in terms of legal costs. On investigation, many of these claims have proven highly suspect, with some notable court cases hitting the headlines in the national media.”
This suggests that while individual holidaymakers may not be having the same luck they once had with fraudulent claims, there are bigger forces at play. Scott said that lobbying from the package travel industry and Horwich Farrelly led the UK Government to introduce new rules in April of this year that restricted the amount that could be recovered in legal costs for PTR gastric illness claims. This has meant that the number of claims companies operating in this area has significantly reduced, along with the volume of claims made. Steps are being taken and success seen.
The evolving battleground
Other trends that the experts ITIJ spoke to have witnessed include fictitious and exaggerated claims and policyholders changing the circumstances of a claim after their initial attempts to claim are rejected. The general consensus, though, seems to be that it is the common medical provider-related fraud that insurers need to watch out for. These include hospitals overcharging for care, hotels sending guests to expensive health providers in exchange for financial incentives, and even hospitals charging for completely unnecessary treatment.
Simon Cook, Head of Technical Claims for CEGA’s Special Investigations Unit, told ITIJ that fraudsters are becoming more devious in this regard: “The rise in global travel and medical tourism has seen fraudsters submitting ever more cunning claims from far-flung corners of the world, often for pre-planned medical treatment masquerading as medical emergencies,” he said. “Some unscrupulous medical providers will over-treat customers with unnecessary tests and procedures, overcharge insurers, and even collude with patients to produce fraudulent claims.”
Fraudsters are evolving their tactics when it comes to non-medical related claims too, and their understanding of how insurers attempt to combat fraud is growing. Scott Clayton, Head of Claims Fraud at Swiss insurance company Zurich Insurance Company Ltd, pointed out that fraudsters are becoming more aware of the claims process. “We have not seen a significant evolution of methods used by fraudsters within travel insurance, but rather more of an appreciation of the process and what is required to validate a claim," he said. "For example, an experienced fraudster who is falsely claiming for loss or theft knows that the incident must be reported to the police and documentation is required to prove ownership.”
Colonnese agrees: “Fraudsters have had to become far more devious. Dodgy claims by the public giving into temptation are in decline, but in its place, we enter the world of the professional criminal, now using increasingly powerful computing tools such as photo editing and word processing applications to create fraudulent claims’ evidence. This means we now have sophisticated criminals setting up scams, acting them out, and then attempting to back this up with what looks like legitimate evidence.”
So, it sounds as though fraudsters have had no choice but to become more devious in order to successfully defraud insurers who are becoming wise to their tricks. But in turn, as the perpetrators of fraud have become even more unscrupulous, how have insurers upped their game?
Shielded from the blow
Jamie Hersant, Head of Lifestyle Claims at French multinational insurer AXA Insurance, said that there are core methods in place for identifying and managing potential fraud, including well-trained claims teams, data and on-the-ground investigations. “Spotting the potential for fraud at the earliest stages is the best way to prevent it from occurring,” he told ITIJ. “It could be a change in story, or documentary evidence that doesn’t look right. Spotting this and flagging anything that looks out of the ordinary for further investigation is essential for any effective claims team. Using a range of data and systems to build patterns can help us identify the potential for high-risk claims, as well as determine the appropriate techniques for investigating them, while sending investigators to establish the facts on the ground – including going to the scene of an incident to establish the credibility of a set of circumstances, or interviewing policyholders and witnesses – can ensure claims are genuine.”
When dealing with bills presented by medical facilities, Hersant said that it is important to ensure that the bills being claimed are valid and that the treatment being claimed for took place and hasn’t been inflated, check bills for false charges, for example overcharging on equipment used or duplication of items within the same bill, and blacklist hospitals where it has been established that over-treatment is taking place, which puts customers at risk and leads to inflated bills. He emphasised that these are just some of the considerations when dealing with fraud in the travel insurance market: “It is imperative we continue to evolve our technology and people capabilities to deal with future risks, as well as the current challenges presented by fraudulent claims.”
Colonnese concurs, telling ITIJ that technology plays an important role in exposing fraudsters: “Analytics and algorithms can see through most of these tactics, once the authorities are aware of the trends and patterns and can programme software to look out for patterns. Management by exception means our systems show only what investigators need to see, and flag areas of concern immediately. Add in the emergence of AI and it may well be game over for the fraudsters before too long.”
A double-edged sword
Technology is an exciting tool that can help insurers to defend themselves from fraudsters. When it comes to blockchain, for example, Colonnese believes this could play a future role in fraud detection and prevention, although there may be some barriers to this. “Blockchain dominates transactional technology debate at the moment,” he explained, “and it may have an important role to play in the future claims process. But opening sharable ledgers on individuals is still some way off; notwithstanding the bigger question about data protection and whether we as an industry and a society (and in a post-GDPR world) are comfortable – or indeed authorised – to share this level of information so openly. Time will tell if blockchain is desirable or can bring something new to the table. One of the biggest potential benefits of blockchain is that the code is nigh on ‘unchangeable’, so fraudulently altering historical records is almost impossible. This feature of blockchain could have excellent anti-fraud applications, if the industry can agree a set of unified standards and protocols.”
With potential for blockchain to be incorporated into future fraud prevention efforts, what else does the future have in store regarding technologies that can be harnessed in the fight against fraud? Giacomo Squintani, Marketing Manager (International Division) at Cegedim Insurance Solutions, a provider of software and services across the healthcare ecosystem, said that digital tools are key weapons in the fight against fraud. “In this never-ending fight, insurers must equip themselves with digital tools and AI solutions, empowering assessors to spend more time on suspicious claims while techniques such as ‘straight-through processing’ relieve them of the burden of high-volume, low-complexity claims management,” he said. However, Squintani also highlighted the fact that the same technology that insurers are leveraging to improve their business can be abused for fraudulent purposes: “As soon as humans began to sign documents, they began to forge signatures. As we increasingly rely on fingerprint technology to smooth the digital experience, somebody somewhere is no doubt looking to exploit this trend for fraudulent purposes.”
[with] the emergence of AI … it may well be game over for the fraudsters before too long
Indeed, Squintani believes that technology is there to be used, but that an agile approach is key: “If the industry is willing to come together to leverage it, the technology is there to identify fraud hotspots, common techniques and types of fraudulent claims, allowing insurers to deploy their resources accordingly. But as soon as the industry makes inroads, fraudsters will attack from a different angle. That’s why an agile approach is required; and the most agile insurers will be those who have chosen to partner with a specialised solution provider.”
Collaboration is certainly a key element in fighting fraud. “Fraud detection isn’t just about increasing skills, it’s also about maximising reach and collaboration,” agreed Cook. “Investigators can’t be effective in isolation.”
Dominic Stannard, Communications Officer at the Association of British Insurers, also emphasises the importance of collaboration: “Insurers recognise that fraud cuts across commercial considerations, and can best be tackled by working together wherever possible, in addition to actions which individual insurers take to tackle the issue.” Clayton also agrees that both collaboration and innovation are key: “I believe that technology, apart from human instinct and expertise, is one of the most important tools we have to help fight against travel insurance fraud. Data collection and sharing, as well as collaboration within the industry, are essential to combat fraud on the large scale.”
Technology is certainly evolving to assist insurers in the fight against successful fraudulent claims, and all insurers can do is keep abreast of change. “With waves of innovation on both sides, there will always be times when the number of successful fraudulent claims rises,” Squintani told ITIJ, “but in the long run, by supporting human intelligence with digital tools and interoperable systems, travel insurers can stem the tide and protect the interests of their stakeholder ecosystem.” ■