Over the years, specialinvestigation units (SIUs) have rapidly evolved in terms ofmethodology and structure in response to a changing world andemerging fraud schemes. Just ask Tim Wolfe. Here, CNA's SIUdirector talks to Claims' Christina Bramlet about the shift as wellas how insurers are parlaying qualified vendors and specializedfunctions to combat fraud and stay nimble.

SIUs have undergone various permutations since the 1990sheydays of large field teams. Would you speak to the changinglandscape?

At one time, the model was that carriers would have their ownin-house SIUs staffed primarily by former members of lawenforcement. These professionals would go out and conductinvestigations and interviews, prosecuting for fraud when evidenceexisted. In 2001, a watershed occurred. All of a sudden, insurerswere not making money with investments. This necessitated cutbacks,which included substantial scaling back in SIU.

Outsourcing became increasingly more common. Some companies wereforced to lay off their entire SIU staffs, whereas others employeda skeleton crew to start managing national SIU vendors.

How have market fluctuations impacted CNA's approach toinvestigations?

The shift here was more gradual. From 2000 to 2005, we utilizedsurveillance operations, a data investing group, and a large staffof field investigators. Then the underwriting appetite changed,especially after September 11, 2001 terrorist attacks. We foundthat claim volume reduced significantly, while SIU referrals wanedas well.

There just wasn't enough work to keep the field staff busy. So,over the course of three years, we had downsized to the currentmodel of 25 professionals. Since we retained a small core group, wesolely rely on outsourcing for the majority of our investigationand surveillance activities. Surveillance is very common,especially when handling workers' compensation or liability claims.In 2002, we opted to completely outsource surveillance functions.Additionally, in 2005 we began restricting field investigations —which entails going to the loss site, taking statements,interviewing witnesses, and so forth. This is now outsourced almostexclusively; however, we have retained a small team for “majorinvestigations.” This team deals with provider fraud (doctors,attorneys) cases that require special expertise. We also hired fournationwide vendors to handle all surveillance and approximately 95percent of field investigations. While we have reduced the numberof nationwide vendors, we continue to operate in this fashion.

What are the caveats of wholly outsourcedinvestigations?

Many companies still embrace the model of fully outsourcingthese functions. However, there are various problems associatedwith that approach. Without having a clear oversight of allvendors, companies may end up paying exorbitant prices for serviceswhile lacking a quality control structure. Sure, completelyoutsourcing investigations may be cheaper than hiring your ownfield staff. But you want to make sure that you are only payingwhat is truly owed, and that each vendor is performinginvestigations to your specific standards.

Are there major challenges associated with a hybridmodel?

One persistent concern is the quality of the investigationsbeing conducted by vendors. CNA has a very structuredquality-control function in place. We assembled a team whoseprimary task is to audit the contracted vendors. This team views asampling every month, scoring vendors, and relaying results. It isimportant to note that the experience level of investigators canvary because vendors are constantly hiring. This mix of rookie andveteran investigators can yield a mixed bag of results. We areselective in the investigators we use and assign casesaccordingly.

Is it possible to maintain a high degree of qualitycontrol when farming out certain functions?

As I noted earlier, CNA started with four vendors in 2005 andthen whittled that down to two in 2007. We are constantlyevaluating results and have detailed service level agreements inplace that stipulate vendor expectations. We even went so far as toprovide reporting format samples for each type of case and fullyexpect vendor compliance.

It's crucial to take a proactive approach. For instance, weprovide questionnaires that are broken down by line of businessoutline expectations clearly. We expect questions to be covered atan absolute minimum. In addition, every quarter we hold astewardship meeting with each vendor. We discuss results,complaints, and kudos. This also provides a forum for us to offerfeedback aimed toward making improvements on both our end and onthe vendor side.

How does CNA alter the current model to combatfraud?

Medical provider fraud is noticeably rising. Last year, half abillion dollars in bogus diagnostic tests were billed. In response,we have increased staff on the major investigations team,introduced technologies, and hired a data analyst. This allows usto focus on people who are bilking not just on one claim at a timebut on claims across multiple lines of business. Common scenariosare billing for services not rendered and medical identity theft.There's also been some new technology piloting recently that wouldidentify any sudden trends.