The cost of insurance fraud is staggering with estimates rangingfrom $80 to 120 billion annually. Many insurance companies havestarted to take anti-fraud efforts more seriously in recent years,but why? Perhaps this is a result of better analysis to justify ROIor insurance executives are simply trying to hedge against whatappears to be a growing threat. Whatever their motives, understandthere are numerous reasons insurance companies should be taking acloser look at their special investigations unit (SIU), butmore specifically, their overall fraud strategy.

But what is strategy in an insurance fraud context? Large-scaleanti-fraud efforts are a relatively new frontier in the insuranceworld. Unlike marketing, underwriting, or customer service,fighting fraud has rarely gotten lots of attention, but thefundamentals of a good strategy are still the same. Collectinformation, form decisions based on analysis, and be willing toadapt as fraud does.

Unfortunately, some companies are taking a more arbitraryapproach to the design of their SIU and overall fraud strategy, buthere are some tips to ensure your company is on the righttrack:

Know your people and their skills

There are a lot of questions to consider in the development anddesign of your SIU, one of the most important being your personnel.Most often there are two types of people seen in the SIU industry.The first are investigators, routinely from law-enforcement orinvestigative backgrounds who are great at investigations, but weakon business fundamentals. The second type, insurance/businessprofessionals who understand business, but possess little knowledgeon how to obtain confessions or run an effective investigation.

It is very rare that individuals possess both skill sets, so ifyou see this clear divide in your personnel, ensure you have thebusiness-minded “managers” in supervisory positions, triaging casesand assisting with analytical assessments that shape your fraudstrategy. Just the same, make sure you have “investigators” on thefront lines who understand fraud dynamics, run efficientinvestigations, and possess critical interview skills.

Those managers should be forming into fraud strategists;business professionals who understand fraud dynamics and makeinnovative yet data-driven decisions to combat this growing threat.When you find individuals capable of delivering that approach, hereis where you should be headed:

Develop your SIU's strategy

Ask yourself: How many investigators do I need, how many casesdo they get, which cases do I assign, what technology should I use,how much should I spend?

The effects of insurance fraud are not universal. Insurancecompanies are designed differently, both in the products they offerand their application/claim processes. As such, their exposure tofraud is not universal. This means that while industry benchmarkscan be a terrific starting point in the design and operation ofyour SIU, the most important element of your fraud strategy shouldinvolve data collection and analysis. Ask yourself, do we have theright measurement systems in place and are we analyzing this datato tweak our fraud strategy and SIU efforts to obtain maximum ROI?

Understand the power of deterrence

Deterrence is one of the most powerful tools to fight fraud. In2004, a British insurance company reported to the New YorkTimes they had seen a 25% decrease in the number of auto-theftclaims after customers were notified they had implemented CVSAlie-detection software (computerized voice stress analysis) intheir claim process.

In the past few years insurance companies have been very focusedon projecting an image of simplicity in the claim process. Forexample, it's not uncommon to see catch phrases like “easy andhassle-free” or “we will pay you in as quickly as…” These effortsare well intended. However, as a consequence many insureds believethere is no real vetting process going on behind the scenes.Instead, they think insurance companies are simply shufflingpaperwork in order to pay them as quickly as possible.

This is evident in a 2010 survey by Accenture, where 68% ofthose surveyed said they believed insurance fraud happens becausepeople believe they can get away with it. That number is up from49% in 2003, hence the “growing threat.”

So let's assume we want to change that perception to assist inthe deterrence of insurance fraud. How do we tell people there is avetting process and scammers are getting caught, withoutsimultaneously hurting our image and making our customers believewe are just working to deny claims?

First, ensure your SIU has a dedicated webpage on your company'swebsite. On this page you can display information about your SIUand what they do. Try highlighting successful investigations,perhaps showing when suspects were arrested by police. Firstimpressions are important, you don't say “look at our fraud unit…they are helping put our insureds in jail,” instead “another SIUsuccess, collaborating with law-enforcement and working hard toensure scammers don't take another bite out of your premiumdiscounts!” See the difference?

By projecting the unit's success you are helping convey the factthat there is a vetting process and fraudsters are getting caught.Fraud stories are interesting and no one likes getting scammed, sohelp customers see how insurance fraud is affecting them.

So if you are ready to move beyond the status quo, remember,know your people, develop your strategy, and understand the powerof deterrence!