The plight of catastrophe victims–whose lives are foreverchanged by events such as the Sept. 11, 2001 terrorist attacks orHurricane Katrina–moves us emotionally, but as insurers we mustalso deal with the troublesome long-term effects of a disaster–thatbeing the threat of fraud. Regrettably, profiteers and fraudstersbelieve that the greater the misfortune of others, the easier itwill be for them to seek their fortune.

During the worst of times, catastrophe fraud–or cat fraud, asit's sometimes called–runs rampant. And despite the past efforts ofgovernment, law enforcement and the insurance industry, the problemis getting worse, not better.

Catastrophe fraud is twofold. The first to feel its effects arethe disaster victims, and they get hit twice.

First, a natural disaster destroys life as they know it, andthen they can't get the help they need from the insurance companyin a timely fashion because the insurers are tied up trying todetermine who is legitimate and who is cheating.

Cat fraud directly affects insurers as well–they wind upsettling questionable claims to the tune of millions of dollarsover a period of years. It attacks their bottom line and they maybe forced to raise premium rates–affecting, in turn, policyholders,who will have less to spend on goods and services. Fraud, then, hasan impact on the economy as a whole.

The news isn't all bad, though. We can take action. If we investmore of our time, energy, ingenuity and money, we can successfullycurtail cat fraud, and we have many tools already at hand to helpin the effort.

First, we need to understand how the special case of the claimsenvironment during a catastrophe can work in favor of thefraudsters.

Immediately after disaster strikes, claim representativesexperience pressure from numerous policyholders at once–people who,understandably, want their claims settled quickly. Naturallyenough, the sympathetic claim representatives want to settle claimsquickly, too, so the victims can return to some normalcy.

At the same time, insurers also feel the pressure to settlecatastrophe-related claims quickly. They want to help the victims,yet they realize that–especially with events such as majorearthquakes, hurricanes or other newsworthy disasters–the mediawill scrutinize their actions.

Add to these difficulties the living conditions following adisaster. Often, claim representatives must use primitive,makeshift accommodations.

In many cases, they–along with the victims–will be withoutelectricity, readily available water and food, heat, airconditioning or phone service. In addition, while they may not haveexperienced the initial trauma of the disaster, they must cope withthe devastating aftermath.

It's easy to see how fraud can slip past the beleaguered claimrepresentatives under such circumstances. That's why it'sespecially important for us all to understand and be vigilant forthe classic indicators of fraud, as well as for emerging trends infraud techniques.

More education and training of the kind offered by organizationssuch as the National Insurance Crime Training Academy are needed atevery level. Every agent should receive materials explaining inclear language what to look for after a catastrophe, and everyaffected policyholder should receive a simple flyer or brochurewarning them about common scams and explaining how to reportsuspected fraud.

In addition to initiating education and awareness measures,industry leaders also need to insist that all claims be submittedusing the Insurance Services Office Universal Format. Currently,almost half of claims submitted use legacy formats, meaning thereare fewer data matches, fewer suspicious claims flagged and,ultimately, fewer fraudsters caught than should be.

We must improve upon our existing analytic technologies tobetter detect the patterns and links that indicate fraud. Insurersneed to provide their carriers with the proper technology andrequire ISO Universal Format compliance if they expect to getresults, even if that means a major investment in system upgradesand software.

Unfortunately, there's no way around it–cracking down on fraudwill require a greater financial investment. We need rules engines,predictive modeling applications and visualization tools, and thenwe need to find better ways to exchange the data we gather withothers in the industry and with law enforcement and governmentagencies.

It can be done. A great example is the post-Katrinacollaborative work done by the Louisiana State Police, the NationalInsurance Crime Bureau and NICB member-company staff.

Through physical inspections, data collection and investigativework, this team was able to create a database of over 309,000flood-damaged vehicles' Vehicle Identification Numbers, which hasseen 2.5 million Web site hits from insurance companies, consumers,finance companies and law enforcement over the course of ayear.

This joint effort has prompted well over 300 investigations, 72arrests and an estimated monetary fraud exposure of $11.3million.

Sadly, though, the team has uncovered only the tip of the fraudiceberg, and it will take efforts outside the industry to have agreater impact on the problem.

We need to push for changes in state and national legislation.Inconsistency in the law has contributed toward poor conviction andjail-time rates for insurance fraud cases…and there is littledeterrence.

We need a uniform legal definition of insurance fraud, and everystate government should have an official fraud bureau. Further, wemust urge lawmakers to establish consistent and comprehensiveimmunity statutes to protect all those involved in fightingfraud.

Without doubt, cat fraud is a challenge to the industry. But,working together, we can create a better system to track downfraudsters, and we can press for fraud statutes that will helpvictims of fraud obtain justice. Although we can't preventdisasters, we can, at the very least, work to thwart theunscrupulous from finding profit in the pain of others.