The cost of insurance fraud is staggering with estimates ranging from $80 to 120 billion annually. Many insurance companies have started to take anti-fraud efforts more seriously in recent years, but why? Perhaps this is a result of better analysis to justify ROI or insurance executives are simply trying to hedge against what appears to be a growing threat. Whatever their motives, understand there are numerous reasons insurance companies should be taking a closer look at their special investigations unit (SIU), but more specifically, their overall fraud strategy.
But what is strategy in an insurance fraud context? Large-scale anti-fraud efforts are a relatively new frontier in the insurance world. Unlike marketing, underwriting, or customer service, fighting fraud has rarely gotten lots of attention, but the fundamentals of a good strategy are still the same. Collect information, form decisions based on analysis, and be willing to adapt as fraud does.
Unfortunately, some companies are taking a more arbitrary approach to the design of their SIU and overall fraud strategy, but here are some tips to ensure your company is on the right track:
Know your people and their skills
There are a lot of questions to consider in the development and design 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 or investigative backgrounds who are great at investigations, but weak on business fundamentals. The second type, insurance/business professionals who understand business, but possess little knowledge on how to obtain confessions or run an effective investigation.
It is very rare that individuals possess both skill sets, so if you see this clear divide in your personnel, ensure you have the business-minded “managers” in supervisory positions, triaging cases and assisting with analytical assessments that shape your fraud strategy. Just the same, make sure you have “investigators” on the front lines who understand fraud dynamics, run efficient investigations, and possess critical interview skills.
Those managers should be forming into fraud strategists; business professionals who understand fraud dynamics and make innovative yet data-driven decisions to combat this growing threat. When you find individuals capable of delivering that approach, here is where you should be headed:
Develop your SIU’s strategy
Ask yourself: How many investigators do I need, how many cases do 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. Insurance companies are designed differently, both in the products they offer and their application/claim processes. As such, their exposure to fraud is not universal. This means that while industry benchmarks can be a terrific starting point in the design and operation of your SIU, the most important element of your fraud strategy should involve data collection and analysis. Ask yourself, do we have the right measurement systems in place and are we analyzing this data to 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. In 2004, a British insurance company reported to the New York Times they had seen a 25% decrease in the number of auto-theft claims after customers were notified they had implemented CVSA lie-detection software (computerized voice stress analysis) in their claim process.
In the past few years insurance companies have been very focused on projecting an image of simplicity in the claim process. For example, it’s not uncommon to see catch phrases like “easy and hassle-free” or “we will pay you in as quickly as…” These efforts are well intended. However, as a consequence many insureds believe there is no real vetting process going on behind the scenes. Instead, they think insurance companies are simply shuffling paperwork in order to pay them as quickly as possible.
This is evident in a 2010 survey by Accenture, where 68% of those surveyed said they believed insurance fraud happens because people believe they can get away with it. That number is up from 49% in 2003, hence the “growing threat.”
So let’s assume we want to change that perception to assist in the deterrence of insurance fraud. How do we tell people there is a vetting process and scammers are getting caught, without simultaneously hurting our image and making our customers believe we are just working to deny claims?
First, ensure your SIU has a dedicated webpage on your company’s website. On this page you can display information about your SIU and what they do. Try highlighting successful investigations, perhaps showing when suspects were arrested by police. First impressions are important, you don’t say “look at our fraud unit… they are helping put our insureds in jail,” instead “another SIU success, collaborating with law-enforcement and working hard to ensure scammers don’t take another bite out of your premium discounts!” See the difference?
By projecting the unit’s success you are helping convey the fact that there is a vetting process and fraudsters are getting caught. Fraud stories are interesting and no one likes getting scammed, so help 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 power of deterrence!