Tag Archives: fraud

What’s New in Fight Against Fraud?

Insurance fraud has been around since, well, the beginning of insurance.

The ancient Greeks created a form of maritime insurance to indemnify against potential losses incurred with the sinking of a commercial ship in transit. It became a common scheme for the boat owner to hide the boat in a foreign port and collect the insurance money. Even in those early times, special investigators were hired to determine if the boat had indeed sunk.

Fast-forward to the present, and, for the last few decades, the industry has been using increasingly sophisticated technology to address fraud. Now, several technologies can change the game for detection.

For example, machine learning, social media and aerial imagery can all contribute. All generate and rely on massive amounts of data, including many new data sources. Whether we are talking about opportunistic fraud or organized crime rings – these technology areas provide terrific opportunities to combat fraud.

Of course, fraud may occur during the underwriting OR the claims process. When a person or business is applying for insurance, there is always the potential to purposely supply incorrect information to get a lower rate. On the claims side, fraud may occur at many points during the lifecycle. In the case of staged accidents, it is occurring even before the accident occurs.

So how is the advance of technology aiding in fraud detection today? First, let’s look at new data sources.

Rate evasion can be more easily spotted today due to the wide variety of new data sources that can provide checks on the information provided by a customer or agent. For example, for auto, it is easier to spot true garaging locations or identify if a vehicle has been in a flood. For property, there is a wealth of data about the current characteristics of the property.

See also: Identifying Fraud in Workers’ Comp  

When it comes to machine learning, big data approaches with massive computing power and huge data sets can spot patterns and anomalies that it would be impossible for humans to spot – and do so with a lower rate of false positives. Social media has become a central tool for investigators and law enforcement, especially for workers’ comp fraud. We’ve all heard stories about individuals claiming disabling injuries then show up in Instagram pictures skiing or skydiving. The social media universe also yields a lot of information about connections between various individuals and businesses that can be mapped to identify fraud rings. Using aerial imagery, it becomes easier to compare before and after pictures of a property to determine if damage was caused by a particular weather event.

One of the biggest benefits of all this new capability is that technology allows fraud to be detected significantly earlier in a claim and with greater accuracy, so that Special Investigative Units (SIUs) and claims processes are more effective (compared with before, when SIUs or management found out about a fraud three to four weeks or longer after FNOL, by which point it was too late).

There is still much work to be done to find the right solution partners, integrate new solutions with existing systems and determine the optimum balance of technology and human expertise. But there is now greater potential to finally make significant headway in reducing fraud, especially the potential for earlier identification and more accurate outcomes. That’s what’s new and encouraging in this long-running battle!

Fighting Fraud With Data Analytics

The FBI reports that the total cost of insurance fraud is estimated to be more than $40 billion per year, costing the average U.S. family – in the form of increased premiums – between $400 and $700. A long-established and growing problem, insurance fraud has its many guises – ranging from tiny, one-off opportunistic cases to multimillion-dollar syndicates of customers and suppliers working together to routinely defraud insurers.

Luckily, digital enhancements within the insurance industry have been able to help companies lessen certain fraud risks – particularly when data analytics is brought into the mix.

To remedy insurance fraud using data analytics, individuals and businesses must be analyzed as they exist in the real world – as holistic, connected entities. To make these kinds of connections accurately, detection strategies must process high volumes of data in real time, be able to generate and constantly update a view of entities and apply a scoring model to the full picture. This allows companies to track and catch fraud, even across insurance lines and when multiple people are involved.

Fortunately, there are now technologies that are able to do just that – detect fraud and understand risk throughout a customer’s lifecycle. This will, in the long run, provide better claims processing and a healthier insurance system.

See also: Leveraging Data Science for Impact  

Quantexa, a data analytics firm that uses AI technology to piece together suspicious customer behavior, enables companies to make better decisions with their data. Their technology allows users to knit together vast and disparate data sets and derive actionable intelligence, a task that would normally take a human many months to complete. This technology can be focused on a single person and the many data points that are correlated to him or her, or larger entities such as corporations.

Technology like that of Quantexa’s can gather both claims and policies and build a network that provides three levels to which one can apply analysis:

The claim: This analyzes claim behavior over a long period. For instance, has a person filed for soft tissue damage multiple times? If so, how often and at what rate? This frequency could be a marker for fraud. There is also the ability to review if claims are filed close to when policies are taken out – another marker for fraud.

The entity: The entity can be either a claimant or, say, a medical provider; the analysis lies within the relationship between the two entities. Believe it or not, there are instances where medical providers have intentionally and habitually provided the wrong injury code; for example, if a claimant is in the hospital for an injured leg, the medical provider bills the insurance company for a more expensive procedure, such as a hysterectomy. Technology can detect and assess injury code discrepancies.

The network: This is based on the density of relationships and connections between claimants, witnesses, medical providers and beyond, and can stem from both claim information and transactional data. For instance, are multiple claims from “different” claimants all going to the same bank account? Factors can be pieced together to paint a larger picture on where fraud is originating.

See also: How Connected Data Can Help Stop Fraud  

Technology allows fraud to be detected much earlier on and across much larger schemes than humans ever could – a fact that should give thieves something to be concerned about, and all honest insurance policyholders something to rejoice about.

A Way to Attack Healthcare Fraud

If insurers want to mitigate risk, rather than risk their time and money with litigation, if they want to guard against fraudulent claims, if they want to protect good doctors against wrongful claims, then they should invest in sound legal counsel.

Insurers should highlight the value of retaining healthcare lawyers with the intelligence to know—and the strength to do—what is necessary to defeat false allegations of fraud or abuse. A doctor’s career can hang in the balance when defending against a professional liability claim.

Without sound counsel, our best doctors may not be able to practice medicine. Unless we work to stop fraudulent claims, or make it more difficult for fraudsters to enlist the government to pursue these claims, our healthcare system will continue to suffer. Stopping this injustice starts with healthcare lawyers in search of justice—namely, healthcare lawyers whose expertise doctors need.

See also: Proof of Value for Medical Management  

According to Fenton Law Group, which specializes in defending healthcare providers against allegations of fraud and abuse, the charges themselves have their own nuances and degrees of sensitivity.

Take the firm’s representation of Dr. Alwin Lewis (Lewis v. Medical Board) before the Supreme Court of California, regarding a purported violation of a patient’s privacy rights. Because HIPAA prevents people from delving into personal medical records, an insurer cannot muster much of a defense without access to and knowledge of the very things that would exonerate a doctor from a wrongful claim.

Bear in mind, too, that insurance companies often hire panel counsel to defend against claims of fraud. Which is not to say that all insurance companies put savings ahead of saving doctors from fraudulent claims.

Given these circumstances, doctors need effective counsel. Insurers should, in turn, at least listen to what healthcare lawyers have to say about what constitutes a smart legal strategy.

Perhaps elevating the role of defense counsel will benefit insurers, reducing the number of fraudulent claims by increasing the difficulty of bringing claims against doctors who have done nothing wrong. Perhaps hiring the right healthcare lawyers is the right thing do.

Perhaps, indeed; but until then—until the honest unite against the dishonest—we need defense lawyers who can expose fraudulent claims and dismantle claims of fraud against innocent doctors.

We cannot afford to do otherwise. Not if we want to preserve our healthcare system and protect our preferred providers of healthcare.

We cannot afford to have insurers settle all fraudulent claims, either, because we will pay the price for these payouts in higher premiums and deductibles.

See also: 4 Reasons to Join Agency Networks  

The price will come at the expense of choice, leaving us with one of two choices: less affordable care or no care at all.

We must avoid that false choice.

We must have lawyers who champion our rights. We must have lawyers who defend the rights of doctors and healthcare providers. We must have lawyers who expand our rights.

To have lawyers at the forefront of this cause is a good thing, an altogether just and necessary thing.

Real or Fake? Finding Workers’ Comp Fraud

Security cameras in a company cafeteria recently captured a brazen attempt to fake a workers’ compensation injury. The video shows that the man dumped a cup of ice onto the floor, disposed of the cup and then lay down on the floor as though he slipped on the ice. Prosecutors have charged the man with insurance fraud and theft by deception.

In this case, the fraud was well-documented. But most employers do not have cameras in their lunch rooms or other areas of their work places. It can be very difficult to prove someone has faked an injury in the workplace without cameras catching the person in the act. But the consequences of undetected workers’ compensation fraud are enormous. Fraud is a costly financial burden to employers and taxpayers, and it interferes with providing benefits to the vast majority of injured workers with legitimate claims.

See also: Workers’ Comp Issues to Watch in 2019  

If an employer suspects an employee has attempted to create a fake injury or fraudulent claim, there are several steps to follow up on right away:

  • Identify and interview any witnesses to the injury.
  • Check to see if there was anything unusual in the area where the injury occurred (items on the floor, wet floor, torn carpet)? If the injured worker is alleging he tripped on something, secure the evidence and take pictures of the site.
  • Determine if there was anything unusual about the injured worker prior to the injury (limping, favoring any body parts, etc.)? An abnormality could indicate an attempt to reframe an existing non-occupational injury as a workers’ compensation claim.
  • Check to see if the employee ise on social media and review for any physical activities.
  • Obtain an Insurance Services Office claims report to see if the injured worker has a history of claims.
  • Take several statements from the injured worker – look for conflicting information.
  • Assign surveillance to determine if the injured worker is participating in activities inconsistent with the reported injury or has taken alternative employment during the disability.

Faked injuries may also be an indication of fraud perpetrated by dishonest medical providers or attorneys who operate “claims mills.” These fraud schemes recruit workers to submit fraudulent claims, can generate millions of dollars of undeserved benefits and affect employer loss experience, resulting in higher workers’ compensation premiums. It’s important that claimants understand that their participation in reporting fraudulent claims exposes them to prosecution and severe penalties.

Below are several “red flags” that could be indications of a faked workers’ compensation injury:

  • There are no witnesses to the injury. Was it unusual that the employee would be alone or out of place at the time of the injury?
  • Injury occurs at the end of the day on a Friday or on a Monday morning. The worker may have sustained a non-occupational injury over the weekend.
  • The employee changes the story about what happened. The statement to a treating doctor is different from what the person reported to the emergency room or put on the initial report of injury.
  • The worker has a history of previous claims. Someone who has received significant workers’ compensation payments previously may try to go to the same well again.
  • There’s a delay reporting the injury. If a worker reports an injury months after it allegedly occurred, it could indicate the possibility the claimant was recruited by a claims mill.
  • The worker is disgruntled, on disciplinary action or involved in a labor dispute. Employees may use a workers’ compensation claim to retaliate against their employer, or delay termination.
  • The worker (or a medical provider) refuses certain diagnostic tests or imaging. Avoidance of examinations that could confirm the existence of the reported injury is a key fraud indicator.
  • The injured worker has significant financial problems. The claimant may be trying to find a way to gain additional funds through a fraudulent claim.
  • The injured worker is hard to reach during the disability. A worker who does not return phone calls or emails could be avoiding requests for additional information or could be employed elsewhere.
  • The worker refuses modified-duty work or other return-to-work protocols. It could be an attempt to prolong the disability and could be a tactic of unscrupulous medical providers to get additional money.

See also: The State of Workers’ Compensation  

Employers who suspect a faked occupational injury or other workers’ compensation fraud or abuse should seek assistance from their insurer or claims administrator. Potentially fraudulent claims are referred to the Special Investigation Unit (SIU), and cases with enough evidence are sent to the district attorney for prosecution.

Can Insurers Stop Financial Crimes? Yes

What makes it difficult to detect and prevent fraud within an insurance firm is also what might make fraud attractive to criminals: The low number of transactions in insurance provide few tracks for tracing financial crimes. Outside of premium payments and claim submissions, insurance customers engage in relatively few transactions (compared with banking customers) from which companies can build and test anti-money laundering models on their own. And, while insurance is a heavily regulated industry, it has been relatively ignored when it comes to its anti-money laundering practices in comparison with the attention regulators give to financial institutions. For these reasons, some fear that an annuity account, for example, might be just the place a nefarious character would park funds as part of a larger money laundering scheme.

The Next Focus for Regulators

Immediately following the financial crisis of 2008, regulators were laser-focused on big banks’ policies and procedures for deterring financial crimes. Those that didn’t comply with the U.S. Patriot Act and Bank Secrecy Act were hit with hefty fines. No wonder: It is estimated that almost 70% of illicit finance flows through legitimate financial institutions, while less than 1% of global trade is seized and frozen. Regulators are now turning their attention to non-traditional banks like Western Union (which expects to pay compliance-related charges of up to 4% of its revenue in 2017) and PayPal (which in 2015 agreed to pay $7.7 million to the Treasury Department’s Office of Foreign Assets Control for sanctions violations). Insurance companies feel they are the next industry to receive the attention of examiners and are acting to comply with know your customer (KYC) and anti-money laundering (AML) rules.

At stake for insurers is not just large penalties if a regulatory agency feels that anti-money laundering policies don’t meet expectations. Risk to reputation is of top concern to insurers, which understand that it takes only nanoseconds for customers to find an alternative carrier or for investors to learn on social media that their institution was used in organized crime or, worse yet, funding for terrorist activities. A regulator’s ability to directly affect an insurer’s bottom line is also a major threat. A regulator could, for example, hamper the insurer’s expansion efforts, preventing it from entering a market or from acquiring a business because it lacks the right safety controls.

See also: Cognitive Computing: Taming Big Data  

How Insurers Can Mitigate Money-Laundering Activities

To avoid this, I recommend to my clients that they focus on evaluating the entire AML and KYC function across the enterprise, cleaning and enriching the data that firms already have and bolstering AML efforts with outside expertise.

Clean and Enrich Your Data

The availability of high-quality data that is meaningful and predictive lays the foundation for an effective financial crimes prevention strategy. This critical first step is often overlooked and no easy feat for the typical insurance carrier that operates in silos and segregates information within different systems and lines of business.

Before investing in new tools and technology, partner with data remediation experts to assess the quality, completeness and predictive power of the customer profile data and fill in missing data to ensure that KYC and AML systems work effectively.

Establish a Consistent, Enterprise-Level Customer Onboarding, KYC and AML Process

Regardless of the many products and channels your insurance company offers, you need to establish a single, consistent process for monitoring, evaluating and onboarding customers.

Many insurance companies bring in an IT partner to assess their AML and KYC policies and procedures, as well as how technology can be leveraged to improve effectiveness. The right partner will help you define an onboarding strategy with a strong customer experience component and establish the roles and responsibilities for different lines of defense. This includes the agents who capture the customer information and onboarding; the financial crimes unit that monitors transactions and customer behavior; and the internal audit group, which ensures all policies and procedures are followed and measures their effectiveness at preventing financial crimes.

In addition, with clean data and an enterprise-level AML process, you’re ready to customize off-the-shelf generic AML models with observed client performance, data from public sources and third-party data feeds for the industry.

Look Outside Your Industry for AML Expertise

Insurers can learn a lot from compliance experts in other industries, such as banking, law enforcement and the public sector. Your recruitment efforts should focus on building financial crime teams with people from these sectors.

Find opportunities to share stories and best practices with compliance professionals outside your industry. Attend conferences focused on financial crime and regulation where the attendee list includes both banks and insurance firms.

See also: Big Data? How About Quality Data?  

Insurers whose AML strategy is built on meaningful and predictive customer data and that create a culture of compliance that permeates all areas of the company, will succeed at strengthening their mandated AML/KYC functions. While these changes can’t happen overnight, by pulling in expertise from outside the industry insurance companies can make great strides toward protecting their assets from fraudulent activities.