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

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

It looked at the impact of fraud that crosses industries todetermine if there was evidence that potential perpetrators alsocommitted 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 financialrepercussions.

Shift in fraud trends

It's been estimated that the cost of fraud to the insuranceindustry could be as high as $250 billion annually. Even moresobering — anywhere from 10 to 20 percent of every claim dollarspent pays for fraud in one way or another. So it's not surprisingthat insurance organizations indicated that they see the mostcross-industry fraud and believe it impacts their owninvestigations more than other industries, especially compared togovernment and health care organizations.

Fraud trends have been shifting in recent years. While stagedaccidents were the tools of the hard fraud trade 10 years ago,investigators are finding much more fraudulent activity in thetreatment of bodily injuries, among medical providers and casesthat 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 decipherwhether this rise in referrals is due to an increase in these typesof claims being filed, or if it is because methods for identifyingfraud have improved.

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

The impact of multiple industry fraud

Diving into what insurers said about this complex cross-industryfraud, it is apparent that unscrupulous individuals and rings haveleft an impression on fraud mitigation experts. Where 84 percent offraud mitigation professionals see that some fraud cases theyinvestigate are connected to another industry, those in insurancemost often say that all of their cases are cross-industry (12percent) compared to three percent of health care, four percent ofgovernment and communications organizations, and five percent offinancial services and retail.

Respondents from insurance report the highest financial impactof cross-industry fraud cases (61 percent high impact), especiallycompared 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 caseshave a larger financial impact than fraud cases in their ownindustry.

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

Leverage outside data

Study respondents indicated that they see value in using dataabout fraud cases from outside of their organizations. Insuranceand financial services organizations were more likely to leverageoutside data, with 68 percent of insurance respondents and 64percent of financial services respondents indicating thatwithin-industry data would be very valuable or valuable, and 53percent of insurance and 48 percent of financial services reportingthat outside-industry data would be very valuable or valuable.Additionally, both insurance (60 percent), communications (60percent) and financial services (50 percent) said that they wouldhighly consider submitting outcomes of their cases to acontributory database.

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

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

Hope on the horizon

All is not doom and gloom, especially when factoring in thatclaims professionals overwhelmingly believe combining and usingindustry claims data will help carriers more quickly identify andfight 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, theapplication of internal rules-based identification systems or otherinternally developed models, the utilization of third-party vendorsoftware managed internally, and externally developed or managedmodels. However, claims processor review tends to be the mostpopular.

Regardless of the method used, one of the biggest problems indetecting fraud is that these methods don't provide the fullpicture insurance companies need to pursue organized fraudulentactivity. That view comes through the carriers' ability to pullclaims-related information from outside of their own activities tohelp identify connected fraudulent claims, including informationthat 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 fromfive Ohio payers. It was cross-referenced with cross-industry data,and the analysis helped to identify a small subset of highlysuspicious medical providers previously undetected throughtraditional techniques. They potentially represented $600,000 infraud, waste and abuse.

In another effort, 897,963 commercial claims from multiplecommercial auto writers during 2012-2015 were analyzed, lookingspecifically at unrelated claimants. Between six to 12 percent ofthe claims paid were associated with individuals who also had amatch from another industry. Additionally, the average amountincurred for these claims was almost twice the overall average. Theanalysis showed that about three percent of the claimants indicatedsome type of suspicious activity.

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

An effective insurance fraud-fighting strategy comprises sixfactors:

1. The continuous evaluation of everyclaim.

2. Predictive analytics.

3. Internal and external data set usage.

4. The application of usage watch lists and businessrules.

5. A seamless workflow integration.

6. Special investigative tools.

Claims are living entities. Fresh information constantly becomesavailable and automation assists with looking at new and existingclaims throughout their life. Predictive analytics takes the dataand identifies patterns, utilizes models and predicts futureoutcomes, providing a potential fraud "early warning system" foradjusters.

Having access to information in the larger insurance communityand beyond could be transformational for the industry, along withstructured data (like Social Security numbers) and unstructureddata (like file notes). Usage watch lists and business rulesamplify the value of these data sets to further illuminatefraudulent activity.

With information like this, an SIU can better focus resources onthe claims that have the potential to be fraudulent, and claimsexecutives can rest a ittle easier knowing their program has addeddepth and breadth through insight both within insurance and frompeers in other industries.

Todd Fannin ([email protected])is director, claims, insurance at LexisNexis RiskSolutions. He has more than 25 years of claimsexperience.

Related: How to tell if your insured is being honest withyou