Today's fraud investigation teams still are led by former lawenforcement personnel, but the look of today's antifraud effortsfor property/casualty insurers is changing. Carriers are turning todata analysis as their weapon of choice in the fight to recoversome of the estimated $80 billion carriers industrywide annuallylose to criminals–professional and otherwise.

|

“We've got a lot of people doing just analysis,” says JohnSargent, director of the special investigations unit for MetLifeAuto & Home. “They're not in the field. They're doing deskinvestigations and then sending [referrals] to the field, orthey're completing the entire investigation at their desks.[Technology] has changed the complexion of our whole unit,” headds.

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Fraud departments are moving toward information intelligence andspecialties such as information analysis, according to Dave Rioux,assistant vice president and manager of corporate security andinvestigative services for Erie Insurance Group. With newtechnology tools being developed, the focus is on finding the rightpeople to operate the tools. Case intelligence units andinformation specialists have been spawned. “There are few companiesthat have a total solution where you have electronic frauddetection tools on the front end and data-mining tools andintelligence analysts on the back end using that information andsupporting the field investigators,” Rioux says.

|

Success Stories

|

A successful fraud unit needs experts on claims handling,according to John Elder, chief scientist with Elder Research. “Youneed someone who knows what a normal claim looks like to workclosely with someone who knows mathematics,” he says. “You don'tsee a lot of success if you give a tool to someone who doesn't knowinsurance. You need to have those parties working together. A smallpilot project usually is a good idea. You can show tangible resultsand quantify what the potential return on investment is.”

|

MetLife Auto & Home began data mining to fight fraud aboutfive years ago, reports Sargent. Analysts defined the searches andanalyzed the results. They then made the determination whether theclaim was suspicious enough to launch an investigation. “We hadgreat results with that, but we felt we could automate,” hesays.

|

The carrier co-developed the tool, known as Fraud Evaluator,with Computer Sciences Corporation. “We were able to be part of thedevelopment process so we got everything we wanted,” explainsSargent. The system analyzes the carrier's claims every night. Oneof the analysis portions of the product includes a model thatcompares current claims against a claim that previously had beeninvestigated and was found to be fraudulent, he says. Over the lastfive years, MetLife Auto & Home continued to enhance theproduct with upgrades and a new data-mining tool within theproduct.

|

Different Strokes

|

Every company does fraud detection differently, Sargent pointsout. The course MetLife Auto & Home chose was to have theclaims scores reported to the SIU where one of the unit's analystswould determine whether the case warranted an investigation. “Ifyou believe the industry numbers that up to 10 percent of claimsare fraudulent, then 90 percent of claims are legitimate,” Sargentnotes. “What we want our claims reps to do is concentrate onproviding good customer service and expert claims-file handling. Toburden them with one more additional task, added to the long listof things they already have to do, didn't seem to make sense tous.”

|

The claims adjusters are not completely off the hook. Sargentacknowledges the adjusters still have the responsibility to detectfraud, and the company remains aggressive in providing the claimsstaff with training in how to do that. “We felt if we brought theright people into our analyst unit–people with significant claimsexperience–they would look for what we wanted them to look for andthe claims reps could work on 90 percent of the cases that arelegitimate,” he says.

|

While Erie is going from a reactive to a proactive state thanksto technology, Rioux adds the carrier still will continue to bereactive. “The best line of defense for fraud always will be thefront-line claims handlers,” he states. “No amount of technology orintelligence information is going to replace what the best fraudindicators do for the industry. Most of the time, [thoseindicators] are the gut feelings and instincts of the claimshandlers. We augment that significantly by getting [claimshandlers] tools to steer them to certain claims that have a greaterpropensity for fraud.”

|

Predictive Modeling

|

The whole concept of data mining within the insurance industryis gaining more attention, not only in the area of fraud but alsoin the area of predictive modeling, according to Steven Sumner,director in the insurance advisory practice with the consultingfirm PricewaterhouseCoopers. “Insurance companies are beginning torealize they need to move away from the traditional way of doingbusiness and find other solutions to their problems, especially inthe area of fraud because it costs the industry billions ofdollars,” he says.

|

Many business tools give carriers new and better insights intowhat has happened in the past, Elder asserts. “It's just betterthan a guess,” he says. “It's valuable for where you have to makedecisions. Hopefully, the things you discover in the analysis ofthe data help you modify your procedures so you maybe add a certainquestion or two when a particular issue comes up.”

|

For Erie, Rioux indicates the carrier was one of the first totake on both modeling and analytics. “We wanted to do somepredictive modeling and make that a tool for the claims handler tobetter detect potential fraud,” he says. “At the same time, weneeded to work smarter on the back end through data analytics.”

|

First, Erie wanted the ability to check cases of fraud so theydon't slip through the cracks. “The goals we set were quitesimple,” says Rioux. “If we were going to do fraud technology andmove our SIU operation to the next level, we wanted to detect fraudearlier in the claim life cycle and as soon as possible. The longertime goes by, the harder it is to prove something. The older aclaim is and the more people have established their stories, theharder it is to prove [fraud]. If you can catch the [potentialfraud] earlier in the claim life cycle, you have greatersuccess.”

|

Erie's second goal was to get better quality referrals–claimsthat are suspicious–in the hands of the SIU as soon as possible.The third goal was to determine whether there was more fraud beingcommitted, and if so, the carrier wanted to find it.

|

Even though not all companies employ predictive analysis, Riouxnotes the science has been used for a long time in insurance,particularly among life insurers. “Actuaries can tell you how manypeople are going to die and where they are going to die; they justcan't tell us whether it's you or me,” he says.

|

Erie has found since it began implementing predictive analysis,it has experienced a good return on investment, according to Rioux,who credits the technology in helping an adjuster to identifyclaims that need to be investigated. “It's not an exact science,but for every 15 notified claims that have scored high, we get onegood quality, questionable claim that needs to be investigated,” hesays. “Without technology, it would be more in the area of one in200 to 300 claims.”

|

Rioux reports many companies he's been in communication with arein the process of researching predictive modeling and other fraudtechnologies, and many others currently are deploying systems.“It's growing quite rapidly,” he says of the field. “At one point,the industry as a whole questioned whether predictive modelingwould work, but I think people are starting to see there are clearresults. Each company has to look at ways to make predictivemodeling even better.”

|

Erie annually rebuilds its models, and as the models take in theprevious year's results, they become more intuitive. “This is oursecond rebuild cycle, and the models we've just deployed for 2006are better than the prior year's models because we have more knownoutcomes,” Rioux says. “The more known outcomes we have, we can usethem to build a more intelligent model.”

|

Sitting It Out

|

There still are insurers that don't participate in the fightagainst fraud, but Sumner believes those holdouts are beginning tosee the price tag associated with fraud. “The number I readrecently was $40 billion just for the property/ casualty industry,”he says. Sumner also contends regulators are coming down harder onthe insurance industry to do something about fraud. To wage thebattle, insurers are looking at their technology and their data.“[Insurers] are getting more sophisticated at it,” Sumner observes.“They are generating reports that help identify the areas wherethey can take a closer look at some of the claims-handlingprocesses, and they also are doing more on the underwritingside.”

|

One example of what many carriers can do is to automate claimsfiles to capture the data as it is being reported. “Unless you havethe data in [the system], it is very difficult to do your datamining and extract the data you need to investigate fraud,” saysSumner. The insurance industry is going to spend somewhere around$50 billion on antifraud technology by 2010, he estimates, pointingout that's more than two or three times what was spent at the endof 2005.

|

Helping Hand

|

“Today, fraud has become more complex,” comments Rioux. “It'sdifficult to investigate totally from field investigators alonewithout the support and the backing of some informationintelligence.” Erie is a member of the National Insurance CrimeBureau (NICB) and the Coalition Against Insurance Fraud. The NICBworks with carriers to investigate fraud and develop intelligence.From that intelligence, information generated provides alerts forcarriers. In the past, Rioux felt some of the intelligence reportswere too vague and lacked what he calls “actionable intelligence.”Today, though, the reports are more specific. The NICB alerts alongwith other information are part of the intelligence watch list Eriehas created. “We put all that intelligence in electronically, andit constantly screens our system moving forward,” he says.“Sometimes we find fraud activity is not with us today, but it maybe with us next week, next month, or next year.”

|

The NICB has employed a strategic and tactical information unitfor about five years, according to Aaron Soline, manager of thestrategic analysis unit for the NICB. The unit's goal on thestrategic side is to supply analysis on new trends and forecastmodeling for the industry. The tactical analysis side of the unitprovides direct case support.

|

The NICB has multiple data sources it uses and a number ofdifferent programs depending on the data source. The major datasource is the ISO claims database.

|

In the strategic analysis unit there are a number of predefinedquestions that everyone wants answered. “One of the big things wedeal with is auto theft,” says Soline. “People want to know wherestolen vehicles are traveling to, when they most likely are to bestolen, and where they are most likely to be recovered.” Those arerelatively easy questions, he points out. “You take your data set,and you insert one of your queries, and you usually can find theanswer to it,” says Soline.

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The second side is more proactive with analysts looking forabnormalities in the data. “You take a large data set, and you lookfor the stuff that not everybody else is doing–the one vehicle thatis traveling the other way while all the other stolen vehicles aregoing to a different area,” Soline says. “You try to identify thetrend before it becomes a trend.”

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Share and Share Alike

|

Elder is a proponent of sharing as much data as possible. “Aprecious commodity is a known and labeled case of fraud,” he says.Whenever a company mines data, he adds, it needs to have examplesof fraudulent activities in order to find more like them and tobuild patterns that help predict where the next case is going tobe. “Data mining needs to bootstrap up from some examples ofexisting fraud,” he says. “On the one hand you don't want fraud,but if you've got it, you want as much of it as possible labeled soyou can identify and squelch more of it.”

|

One of the key components to a successful data-mining project iswhether the gain is able to be leveraged, Elder claims. Withinsurance fraud, he maintains that clearly is the case. “If you canstop fraud, the dollars [saved] come straight to your bottom line,and that quells a potentially exponential loss that occurs if youdon't stop it,” he says. Elder also suggests companies have to havesomeone high in the organization who believes fighting fraud shouldbe a priority.

|

The Future

|

From Sargent's perspective, his company has been very aggressivewhen it comes to fighting fraud. “We've invested significantcapital and personnel resources to developing and implementing thesystems, providing the staff to make sure [the systems] are runproperly, and ensuring there are enough investigators to do theinvestigations,” he says. From an industry perspective, though,Sargent rates the work being done as worthy of a grade of C-plus ora B. To improve that grade requires companies to work closer thanthey have in the past. “That's the next hurdle we have toovercome,” he says. “The industry as a whole doesn't seem to cometogether as well as it should.”

|

More universal access to data is where the future lies infighting insurance fraud, Soline indicates. “A lot of companieshave individual databases they look at, and a lot of people aredoing their own analysis,” he says. “Once you start combining thosedifferent data sets and people start looking at them as anaggregate as opposed to just their individual concern, I thinkthey'll start finding a lot more [fraud].”

|

As an example, Soline mentions a medical clinic might becommitting just enough fraud against one insurance company to stayunder the carrier's radar, but if investigators had the ability tostudy the data from multiple companies, they might find a pattern.Most companies enter their data into the ISO claims database, andSoline says he is glad to see ISO is going to a universal formatthat will provide richer data. “As more companies convert over to[universal format], I think [data] will become more valuable,” hepredicts. “But I'm not talking just about claims data. There is aton of information that's available. The more [carriers] share, themore productive everybody is going to be.”

|

Improvement will come with the development of electronic claimsfiles and having the adjusters use them, Sumner believes. “As theindustry starts to figure out how to overlay its underwriting withits claims to start drawing parallels, that's when you are going tostart seeing things evolve,” he says. “You are going to see theindustry using its claims data to help in predicting underwritingresults and the whole decision-making process. As the industryinvests in technology, it's not only for fraud, it's for othercost-efficient measures.”

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As for the industrywide data, Sargent contends the data thatresides within ISO is extremely valuable, but he feels allowing theindustry to capture additional data as it pertains to suspiciousclaims would increase the success of SIUs significantly. “Ifcompanies can share not only the fact there was a claim but thefact there was a fraud investigation by the SIU, that's going toadd some significant value to the industry as we move forward,” hesays. “We think there's real opportunity with the data that sitsout there that's been untapped.”

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However, there is a resistance in most companies in sharingdata, Elder believes. “People see only danger in sharing theirdata,” he says. “The guardians of data tend to be extremelyprotective of it even with peers within their ownorganization.”

|

@Global, Inc.

|

Breckenridge, Colo.

|

303-377-2608

|

www.atglobal.com

|

Accenture

|

Murray Hill, N.J.

|

267-216-1049

|

www.accenture.com

|

Adjustable Software

|

Markham, Ont., Canada

|

905-415-0664

|

www.adjustablesoftware.com

|

ADP Claims Services Group

|

Elk Grove Village, Ill.

|

847-718-3381

|

www.adpclaims.com

|

AGO Insurance Software, Inc.

|

Mt. Arlington, N.J.

|

973-770-3200

|

www.agois.com

|

Allegient Systems

|

Wilton, Conn.

|

203-761-1289

|

www.allegientsystems.com

|

Allegis Communications, Inc.

|

Seattle, Wash.

|

800-566-6112

|

www.allegisteam.com

|

American Management Systems

|

Fairfax, Va.

|

800-255-8888

|

www.ams.com

|

Apex Data Systems.com

|

Tucson, Ariz.

|

520-298-1991

|

www.apexdatasystems.com

|

Attus Technologies, Inc.

|

Charlotte, N.C.

|

704-752-6249

|

www.attustech.com

|

The Bluebook International

|

Lake Forest, Calif.

|

888-425-8326

|

www.bluebook.net

|

Bramerhill Technology Group

|

Norcross, Ga.

|

770-368-3255

|

www.bramerhill.com

|

Bridium

|

Atlanta, Ga.

|

920-451-9777

|

www.bridium.com

|

Brightwork, Inc.

|

Chicago, Ill.

|

773-529-1100

|

www.brightworkinc.com

|

Burkitt Computer Corp.

|

North York, Ont., Canada

|

416-642-6159

|

www.bccorp.com

|

Business Software Solutions

|

Mt. Laurel, N.J.

|

856-866-5601

|

www.bssnj.com

|

Castek

|

Toronto, Ont., Canada

|

416-777-2550

|

www.castek.com

|

CCC Information Services

|

Chicago, Ill.

|

800-621-8070

|

www.cccis.com

|

CGI

|

Andover, Mass.

|

978-946-3343

|

www.cgi.com

|

ChoicePoint

|

Alpharetta, Ga.

|

800-342-5339

|

www.choicepoint.net

|

ClaimIQ

|

San Francisco, Calif.

|

415-498-2415

|

www.claimiq.com

|

Clear Technology, Inc.

|

Westminster, Colo.

|

303-583-4150

|

www.clear-technology.com

|

Computer Sciences Corporation

|

Financial Services Group

|

Austin, Tex.

|

800-345-7672

|

www.csc.com

|

Corporate Systems

|

Amarillo, Tex.

|

800-858-4351

|

www.csedge.com

|

Covansys

|

Farmington Hills, Mich.

|

913-469-8700

|

www.covansys.com

|

Cunningham Lindsey

|

Lewisville, Tex.

|

214-488-5139

|

www.cunninghamlindsey.com

|

Decision Research Corp.

|

Honolulu, Hawaii

|

808-949-8316

|

www.decisionresearch.com

|

Delphi Technology

|

New Brunswick, N.J.

|

732-418-0008

|

www.delphi-tech.com

|

Docucorp International

|

Dallas, Tex.

|

800-735-6620

|

www.docucorp.com

|

DWL

|

Toronto, Ont., Canada

|

416-364-2045

|

www.dwl.com

|

EasyLink Services Corp.

|

Piscataway, N.J.

|

732-652-3589

|

www.easylink.com

|

Ebix, Inc.

|

Atlanta, Ga.

|

678-201-2023

|

www.ebix.com

|

E-Claim.com

|

Gretna, La.

|

504-433-9599

|

www.e-claim.com

|

EigenSoft

|

Portsmouth, N.H.

|

603-430-8032

|

www.eigensoft.com

|

Fair Isaac & Co.

|

Irvine, Calif.

|

949-655-3300

|

www.fairisaac.com

|

FARA

|

Mandeville, La.

|

800-259-8388

|

www.fara.com

|

FileNet

|

Costa Mesa, Calif.

|

714-327-3400

|

www.filenet.com

|

FINEOS

|

Cambridge, Mass.

|

877-893-7904

|

www.fineos.com

|

First Notice Systems

|

Boston, Mass.

|

800-310-4367

|

www.firstnotice.com

|

Fiserv Insurance Solutions

|

Cedar Rapids, Iowa

|

800-943-2851

|

www.fiservinsurance.com

|

FLIR Systems

|

North Billerica, Mass.

|

978-901-8105

|

www.flirthermography.com

|

Fuego, Inc.

|

Plano, Tex.

|

972-801-4218

|

www.fuego.com

|

GAB Robins

|

Parsippany, N.J.

|

973-993-3400

|

www.gabrobinsna.com

|

Genelco Software Solutions

|

St. Louis, Mo.

|

800-983-8114

|

www.genelco.com

|

GenSource Corporation

|

Valencia, Calif.

|

661-294-1300

|

www.gensourcecorp.com

|

Group 1 Software

|

Lanham, Md.

|

301-918-6381

|

www.g1.com

|

Guidewire Software, Inc.

|

San Mateo, Calif.

|

650-357-9100

|

www.guidewire.com

|

Hawkins Research

|

Murray, Ky.

|

800-736-1246

|

www.powerclaim.com

|

Hyland Software, Inc.

|

Westlake, Ohio

|

919-462-8505

|

www.onbase.com

|

ILOG, Inc.

|

Mountain View, Calif.

|

650-567-8000

|

www.ilog.com

|

Infinity Systems Consulting, Inc.

|

New York, N.Y.

|

212-541-7602

|

www.infinity-consulting.com

|

Infoglide Software

|

Austin, Tex.

|

214-357-4636

|

www.infoglide.com

|

Information Builders

|

New York, N.Y.

|

212-736-4433

|

www.informationbuilders.com

|

Injury Sciences

|

San Antonio, Tex.

|

877-979-7378

|

www.injurysciences.com

|

The Innovation Group

|

Danbury, Conn.

|

203-743-6000

|

www.tigplc.com

|

Insurance Data Processing

|

Wyncote, Pa.

|

800-523-6745

|

www.idpnet.com

|

Insurance Services Office

|

Jersey City, N.J.

|

800-888-4476

|

www.iso.com

|

InsureWorx, Inc.

|

Emeryville, Calif.

|

510-596-1300

|

www.insureworx.com

|

InsurSys

|

San Francisco, Calif.

|

415-975-0966

|

www.insursys.com

|

ISCS

|

San Jose, Calif.

|

888-901-4727

|

www.iscs.com

|

JCRS Inland Marine Solutions

|

Oakland, Calif.

|

510-444-4811

|

www.jcrs.com

|

Jury Verdict Research

|

Horsham, Pa.

|

215-784-0860

|

www.juryverdictresearch.com

|

JW Software, Inc.

|

St. Louis, Mo.

|

800-828-6120

|

www.jwsoftware.com

|

Magnify

|

Chicago, Ill.

|

312-214-1420

|

www.magnify.com

|

MapInfo

|

Troy, N.Y.

|

800-327-8627

|

www.mapinfo.com

|

Marshall & Swift/Boeckh

|

New Berlin, Wis.

|

800-285-1288

|

www.msbinfo.com

|

Metropolitan Reporting Bureau

|

Philadelphia, Pa.

|

800-245-6686

|

www.metroreporting.com

|

MFX

|

Toronto, Ont., Canada

|

416-385-4800

|

www.mfxfairfax.com

|

Mitchell International

|

San Diego, Calif.

|

800-854-7030

|

www.mitchell.com

|

MountainView Software

|

Layton, Utah

|

888-533-1122

|

www.claimzone.com

|

n'site solutions

|

Urbandale, Iowa

|

888-282-6596

|

www.nsitesolutions.net

|

OpenFlex

|

Los Angeles, Calif.

|

213-252-2360

|

www.openflex.com

|

P&C Insurance Systems, Inc.

|

New York, N.Y.

|

646-442-8810

|

www.pcisvision.com

|

PayFlight

|

Clinton, Ill.

|

309-834-1590

|

www.payflight.com

|

Peak Performance Solutions, Inc.

|

Hoboken, N.J.

|

410-531-8528

|

www.peakpsi.com

|

PCMS

|

Dallas, Tex.

|

972-855-3515

|

www.pcms.info

|

ProcessClaims

|

Manhattan Beach, Calif.

|

310-937-4040

|

www.processclaims.com

|

Quest Claims Services

|

St. Johns, Mich.

|

800-541-2593

|

www.questsoftware.com

|

Rebus Systems

|

Secaucus, N.J.

|

401-247-4925

|

www.rebusgroup.com

|

ReClaim Technologies

|

Newark, Ohio

|

740-344-6956

|

www.reclaimtech.com

|

Red Oak E-Commerce Solutions

|

Red Oak, Va.

|

512-363-4297

|

www.roesinc.com

|

Results International Systems

|

Dublin, Ohio

|

800-875-2126

|

www.resultscorp.com

|

RGL

|

Englewood, Colo.

|

303-721-8898

|

www.rgl.com

|

Risk Sciences Group, Inc.

|

Schaumburg, Ill.

|

800-619-0224

|

www.risksciencesgroup.com

|

Robert E. Nolan Co.

|

Dallas, Tex.

|

972-248-3727

|

www.renolan.com

|

SAP America

|

Newtown Square, Pa.

|

888-727-8591

|

www.sap.com

|

Sapiens Americas Corp.

|

Cary, N.C.

|

919-405-1510

|

www.sapiens.com

|

Scene Genesis

|

Pittsford, N.Y.

|

585-387-9883

|

www.scenegenesis.com

|

SeaTech Consulting Group, Inc.

|

Torrance, Calif.

|

310-328-8119

|

www.seatech.com

|

Simsol Software

|

Orlando, Fla.

|

800-447-4676

|

www.simsol.com

|

Sirius Financial Systems, Inc.

|

Englewood, Colo.

|

303-209-5914

|

www.sirius-inc.com

|

Stargate Solutions Group

|

Indianapolis, Ind.

|

317-469-7512

|

www.stargatesolutions.com

|

StarTech Software Systems

|

Novi, Mich.

|

248-344-2266

|

www.startechsoftware.com

|

SunGard Sherwood Systems

|

Armonk, N.Y.

|

877-777-8437

|

www.sungard.com

|

Tropics Software Technologies, Inc.

|

Sarasota, Fla.

|

941-955-1234

|

www.gotropics.com

|

Trumbull

|

Windsor, Conn.

|

877-285-2174

|

www.trumbull-services.com

|

Valley Oak Systems

|

San Ramon, Calif.

|

925-242-4600

|

www.valleyoak.com

|

Visibillity, Inc.

|

Chicago, Ill.

|

888-484-7424

|

www.visibillity.com

|

VS Visual Statement, Inc.

|

Kamloops, B.C., Canada

|

888-828-0383

|

www.visualstatement.com

|

XACT TeleSolutions

|

Mt. Juliet, Tenn.

|

800-558-1545

|

www.xactservices.com

|

Xactware

|

Orem, Utah

|

800-424-9228

|

www.xactware.com

|

XDimensional Technologies

|

Brea, Calif.

|

800-789-2567

|

www.xdimensional.com