From the June 2011 issue of Claims Magazine • Subscribe!

Fraud Detection: Using Your Resources

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Detecting auto fraud is no easy task, and one after another, people are staging accidents and benefitting from the resultant medical billing. Minimizing fraud losses can be a daunting task, but with the right strategy, your organization can nab more fraudsters than you might think.
At America’s Claims Event (ACE) this month, James Ruotolo, principal for insurance fraud at the SAS Institute, will present a hybrid approach to insurance fraud detection. Attendees at this Thursday afternoon session will learn to combine detection techniques, helping to minimize a false-positive rate while maximizing their available investigative resources.

“Individual detection methods each have value but tend to produce a high false-positive rate on their own,” Ruotolo explained. “Investigating false positives is a waste of limited SIU capacity.”

Ruotolo says that the biggest challenge today for special investigation units (SIUs) is the need for a shift in thinking and methodology to address organized fraud exposure. In this interactive session, Ruotolo will discuss the pros and cons of various detection methods, how a hybrid approach can combine the best features of each detection method, and how to overcome the hurdles to implementing a fraud detection technology program.

“For years, the industry has relied almost exclusively on business rules or ‘red flags’ to detect suspicious claims,” Ruotolo said. “Furthermore, SIUs have been structured to handle single claim investigations. Detection and investigation of organized fraud ring activity, such as staged accident fraud, requires more advanced technology to handle the large amount of data involved.”

One technique Ruotolo will discuss is breaking down silos via advanced data integration. Silos can exist in all parts of an organization and can create divisions within an SIU.

“[Silos] might exist between underwriting and claims but could also exist between lines of business like auto and property,” he explained. “Many organizations now have dedicated investigators or teams to focus on large multi-claim investigations.” 

According to studies by both the National Insurance Crime Bureau (NICB) and the Insurance Research Council (IRC), auto fraud has been increasing significantly. On April 26, the NICB released a report asserting that vehicle collision questionable claims increased by 17 percent from 2009 to 2010, and related the number to a 15 percent increase in bodily injury (BI) and personal injury protection (PIP) insurance claims during that same period. The correlation suggests a link between suspicious vehicle collision claims and bodily injury claims.

Organizations like the Coalition Against Insurance Fraud (CAIF) and the PA Insurance Fraud Prevention Authority help educate the public on these matters, but Ruotolo says there is still work to be done.

“Despite these efforts, research by the CAIF shows that a large (and increasing) percentage of American adults are tolerant of insurance fraud,” Ruotolo asserted. “And a recent study by Accenture suggests that poor customer service can cause individuals to commit fraud against their insurer.”

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