The old saying, "What you don't know can't hurt you" isn't something you'll find crocheted onto a pillow in the office of a special investigation unit. The people charged with uncovering fraud schemes for insurance carriers know information is the key to fighting fraud. The guy who stages phony collisions or the chiropractor who offers "free" examinations to accident victims (only to turn around and bill their insurance carriers) are the ones who like to operate quietly in the shadows.
"Borders don't mean a lot to crooks," said Joe Cohen, president of the International Association of Insurance Fraud Agencies (IAIFA) and director of the insurance fraud division of the Kentucky Department of Insurance. Once they've made their money in one city, state, or even country, they move on to the next, hoping that word doesn't reach their new destination until they've perpetrated another fraud on an unsuspecting community or insurer.
"I think the biggest problem today is a lack of technology," Cohen said. "It's difficult to keep track of people." There are more people fighting fraud than a decade ago, but the lack of a national or international database makes fraud investigation more difficult. While most fraud experts praise the Insurance Services Office (ISO) claims database as the largest of its kind, Cohen maintains that a separate fraud database is necessary. But there are enough hurdles in the path of such a project to make even the bravest steeplechase rider pull back on the reins.
"First off, what names do you enter? Who do you put in such a database?" Cohen asked. "Do you include people who are suspected of committing fraud? How about those who have been indicted? If you only enter the names of people who have been convicted of fraud-related crimes, is it worth the effort?"
A second problem Cohen pointed to is confidentiality protection. With state governments taking a more active role in fraud investigation in the last decade, there are problems government agencies face that don't relate to private industry, such as the federal Freedom of Information Act or Sunshine laws adopted by various states.
A good database also needs a traffic cop, or, as Cohen put it, "Who can put information into the database and who can take it out?"
Dennis Jay, CEO of the Coalition Against Insurance Fraud, agrees that privacy issues are an obstacle, but thinks a bigger problem could be the expense involved in such a project. "You're looking at massive costs just to maintain a database," he said. That might not have been a problem five years ago, but today's economy is not what it was in 1996.
Putting the negatives behind him, Cohen points out that other industries in the financial services field have compiled lists of their own troublemakers. "The banks and the SEC have databases, but insurance doesn't have one," he said. Unlike the banks and the securities field, though, insurance has traditionally been regulated by the 50 states, not one centralized government body.
Financial reforms have been changing that picture, though, and more reforms could aid the battle against fraud. HR 1408 is under consideration by Congress to "safeguard the public from fraud in the financial services industry, to streamline and facilitate the antifraud information-sharing efforts of federal and state regulators, and for other purposes," according to the bill.
In his work with the IAIFA, Cohen maintains that most countries trail the U.S. in antifraud efforts-they tend to have privacy issues to deal with. As a state regulator, Cohen also works with the NAIC, which has its own database working group. "[It is] trying to come up with a list of important databases to link together," he said. "There are a number of databases out there, but unfortunately there is not a national database."
While he doesn't endorse state fraud agencies as a replacement for an insurance carrier's SIU, Cohen sees more companies dropping out of the investigative process. A decade ago there were just a dozen states with agencies dedicated to fraud investigation. Today the number is 41. He believes more money is being spent on technology than on shoe leather in the investigative field, but the big push has been to educate the public on what fraud means to them personally, to their insurance policies, and to the public at large.
John Eager, senior director of claims services for the National Association of Independent Insurers, thinks technology can go a long way toward educating the public. "If all of our members included a small message on fraud on their home pages you could have a tremendous impact," he said.
Companies can also use technology to educate their employees about fraud. While most claims employees have a high awareness level, other departments within the carrier believe it is a problem for claims or the SIU, not for them. Knowledge management software can spread information to all departments of the insurer.
Jay agrees. "You don't fight it one fraud at a time. You have to cross-train for fraud throughout the company."
Some people view the SIU as the first line of defense against fraud, "but that's not necessarily true," Eager said. "There are a lot of different roles in the company that can help fight fraud if you broaden their awareness."
Whether it is a state regulator or a carrier's SIU, the tools of technology have been an incredible help, particularly in detecting criminal patterns. "What used to take a week to do by going through files can now be done in a matter of seconds," Eager said. "It might not prove to be fraud, but it gives you something to look for."
The training of investigators has improved as regulators and private industry share their skills. Companies are seeking ways to improve their efforts and often it is their competitors showing them how to do it.
Throwing more money at the problem is another major focus. Eager said the amount of money spent on combating fraud has risen from $200 million to $650 million in the last five years. State agencies, new legislation and provisions to protect whistleblowers from retribution have had a significant impact.
But the public is the ultimate fraud fighter. "Until the average citizen perceives that fraud is wrong and is ultimately costing the consumer, you are never going to reach the level of protection that can have a major impact on fraud," Eager said.
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Coalition Against Insurance Fraud: www.insurancefraud.org
National Association of Independent insurers: www.naii.org
International Association of Insurance Fraud Agencies: www.iaifa.org
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