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The changing face of fraud

Fraud trends are changing and investigators are finding activities crossover into multiple industries. (Photo: iStockphoto)
Fraud trends are changing and investigators are finding activities crossover into multiple industries. (Photo: iStockphoto)

Fraud affects every industry and companies serious about targeting fraudsters are taking some new steps to make it more difficult for them to succeed in their fraudulent endeavors.

A recent study of more than 800 fraud mitigation professionals from the insurance, financial services, retail, health care, government and communications industries was conducted by the LexisNexis Fraud Defense Network in 2015 and 2016.

It looked at the impact of fraud that crosses industries to determine if there was evidence that potential perpetrators also committed other types of fraud.

The overwhelming answer from insurance professionals was yes, evidence of cross-industry fraud exists in a majority of cases. Moreover, these cases have moderate-to-high financial repercussions.

Shift in fraud trends


It's been estimated that the cost of fraud to the insurance industry could be as high as $250 billion annually. Even more sobering — anywhere from 10 to 20 percent of every claim dollar spent pays for fraud in one way or another. So it's not surprising that insurance organizations indicated that they see the most cross-industry fraud and believe it impacts their own investigations more than other industries, especially compared to government and health care organizations.

Fraud trends have been shifting in recent years. While staged accidents were the tools of the hard fraud trade 10 years ago, investigators are finding much more fraudulent activity in the treatment of bodily injuries, among medical providers and cases that touch other industries.

Rise in referrals


The frequency of questionable claim referrals is rising overall. However, every carrier needs to look at its business and decipher whether this rise in referrals is due to an increase in these types of claims being filed, or if it is because methods for identifying fraud have improved.

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credit card fraud

Identify theft and loss of financial information is one of the primary concerns for those in the financial and retail industries. (Photo: Shutterstock)

The impact of multiple industry fraud


Diving into what insurers said about this complex cross-industry fraud, it is apparent that unscrupulous individuals and rings have left an impression on fraud mitigation experts. Where 84 percent of fraud mitigation professionals see that some fraud cases they investigate are connected to another industry, those in insurance most often say that all of their cases are cross-industry (12 percent) compared to three percent of health care, four percent of government and communications organizations, and five percent of financial services and retail.

Respondents from insurance report the highest financial impact of cross-industry fraud cases (61 percent high impact), especially compared to health care (46 percent) and government (48 percent). It is insurance (36 percent) and communications (42 percent) professionals who most often report that cross-industry fraud cases have a larger financial impact than fraud cases in their own industry.

When asked what type of fraud most concerned all professionals: identity theft topped the list, particularly within financial services and retail; hacking, especially within communications; fraud involving employees, which was government fraud professionals’ top concern; and claims fraud for insurance and health care. According to these professionals, fraud is mostly encountered during customer service interactions, followed by customer applications for goods or services.

Leverage outside data


Study respondents indicated that they see value in using data about fraud cases from outside of their organizations. Insurance and financial services organizations were more likely to leverage outside data, with 68 percent of insurance respondents and 64 percent of financial services respondents indicating that within-industry data would be very valuable or valuable, and 53 percent of insurance and 48 percent of financial services reporting that outside-industry data would be very valuable or valuable. Additionally, both insurance (60 percent), communications (60 percent) and financial services (50 percent) said that they would highly consider submitting outcomes of their cases to a contributory database.

About three quarters of those surveyed are using both external data and analytics solutions in their fraud mitigation programs, most often driven by the desire for compliance and accuracy. The primary deterrent for use of these solutions is budget, followed by the perception that there is not a need for such solutions. When fraud mitigation professionals were asked how they would spend additional budget, their priorities would be technological systems, followed by training, data, process improvements, staff, and then analytics.

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Fraud illustration

One of the biggest problems in detecting fraud is that many methods don't provide the full picture insurance companies need to pursue organized fraudulent activity. (Photo: Thinkstock)

Hope on the horizon


All is not doom and gloom, especially when factoring in that claims professionals overwhelmingly believe combining and using industry claims data will help carriers more quickly identify and fight fraud — and many of them are willing to do it.

Carriers today use a mix of methods for identifying fraud, including referrals based solely on claims processer review, the application of internal rules-based identification systems or other internally developed models, the utilization of third-party vendor software managed internally, and externally developed or managed models. However, claims processor review tends to be the most popular.

Regardless of the method used, one of the biggest problems in detecting fraud is that these methods don't provide the full picture insurance companies need to pursue organized fraudulent activity. That view comes through the carriers’ ability to pull claims-related information from outside of their own activities to help identify connected fraudulent claims, including information that exists in other areas of the company and outside of it.

Claims data finds abuse, fraud and waste


The LexisNexis Fraud Defense Network analyzed claims data from five Ohio payers. It was cross-referenced with cross-industry data, and the analysis helped to identify a small subset of highly suspicious medical providers previously undetected through traditional techniques. They potentially represented $600,000 in fraud, waste and abuse.

In another effort, 897,963 commercial claims from multiple commercial auto writers during 2012-2015 were analyzed, looking specifically at unrelated claimants. Between six to 12 percent of the claims paid were associated with individuals who also had a match from another industry. Additionally, the average amount incurred for these claims was almost twice the overall average. The analysis showed that about three percent of the claimants indicated some type of suspicious activity.

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fraud investigation

Seeing the relationships between claimants, service providers and other data can help flag fraudulent claims sooner. (Photo: Shutterstock)

An effective insurance fraud-fighting strategy comprises six factors:

1. The continuous evaluation of every claim.

2. Predictive analytics.

3. Internal and external data set usage.

4. The application of usage watch lists and business rules.

5. A seamless workflow integration.

6. Special investigative tools.

Claims are living entities. Fresh information constantly becomes available and automation assists with looking at new and existing claims throughout their life. Predictive analytics takes the data and identifies patterns, utilizes models and predicts future outcomes, providing a potential fraud “early warning system” for adjusters.

Having access to information in the larger insurance community and beyond could be transformational for the industry, along with structured data (like Social Security numbers) and unstructured data (like file notes). Usage watch lists and business rules amplify the value of these data sets to further illuminate fraudulent activity.

With information like this, an SIU can better focus resources on the claims that have the potential to be fraudulent, and claims executives can rest a ittle easier knowing their program has added depth and breadth through insight both within insurance and from peers in other industries.

Todd Fannin (todd.fannin@lexisnexis.com) is director, claims, insurance at LexisNexis Risk Solutions. He has more than 25 years of claims experience.

Related: How to tell if your insured is being honest with you

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