In the US, the FBI estimates the total cost of insurance fraud (non-health insurance) is estimated to be more than $US40 billion per year, which translates to between $400 and $700 per year in the form of increased premiums for the average family. With more than 7,000 companies collecting over $1 trillion in premiums each year in the US, the size of the industry provides more opportunities and bigger incentives for committing illegal activities, according to the FBI.
In Australia, the Insurance Council of Australia reports the most common form of insurance fraud to be the exaggeration of personal claims, or “opportunistic fraud”. In contrast, premeditated, or planned, frauds are usually committed by the professional fraudster and often by organised criminal gangs. According to the ICA, while the total cost of insurance fraud is difficult to estimate with precision, in 2017 insurers detected $AU280 million in fraudulent claims across all insurance classes, excluding those relating to health insurance or personal injury (CTP, Government run Workers compensation etc). With this figure the amount of detected insurance fraud, the amount that goes undetected is likely to be much higher.
According to the Insurance Information Institute (III), common types of fraud activity include “padding”, or inflating claims; misrepresenting facts on an insurance application; submitting claims for injuries or damage that never occurred; and staging accidents.
Customer service quality also plays some part in the fraud prevention cycle as some level of fraud committed by consumers can be driven by “revenge” or “retaliation” for a personal service exchange which they think is unfair.
Checking the types of insurance fraud
According to the III, the types of fraud insurance firms must work to combat include:
- Auto insurance fraud: Auto insurance fraud ranges from misrepresenting facts on insurance applications and inflating insurance claims to staging accidents and submitting claim forms for injuries or damage that never occurred, to false reports of stolen vehicles.
- Healthcare fraud: Although healthcare insurance is generally outside the purview of property/casualty insurance, healthcare fraud affects all types of property/casualty insurance coverage that include a medical care component, such as medical payments for auto accident victims or workers injured in the workplace.
- Workers compensation fraud: Employers who misrepresent their payroll or the type of work carried out by their workers to pay lower premiums are committing workers compensation fraud. Some employers also apply for coverage under different names to foil attempts to recover monies owed on previous policies or to avoid detection of their poor claim record.
- Property fraud: When disasters strike some individuals or groups see an opportunity to file claims that are either exaggerated or completely false. Some even intentionally damage property after a disaster to receive a higher payout.
For these reasons it is important to have a canonical audit trail of activity to identify and prevent fraud before it happens.
Polonious Co-CEO Alastair Steel, says insurance fraud can be dramatically reduced with more timely and accurate information that tracks all of the many moving parts of a claim or investigation. As we have discussed in other blogs, merely identifying potential fraud will not reduce the cost of the identified fraud. Simply adding notes to the claims system or customer files will not adequately manage a complex fraud investigation. Lastly, if you’re not tracking the amounts you save versus the costs of the investigation, you can’t be clear on on the value you’re providing.
A dedicated case management system is the hub that brings all of your monitoring and insights together – insights from your claims handlers looking at files and insights from your analytics engines running over your data – and helps your investigators turn them into strong briefs you can use to deny fraudulent claims or recover those already paid. Lastly, all of your reporting can be used to identify trends and feed back into analytics, to help you identify more fraud.