THIS MONTH'S EXPERTS:
David Rioux Corporate Security and Investigative Services Manager Erie Insurance Group (Erie, PA), $3 billion direct written premium)
Laki Balaji Vice President, Insurance Predictive Risk Software Solutions, Fair, Isaac (San Rafael, CA)
John Lucker Senior Manager Advanced Quantitative Services (AQS, Hartford), Deloitte & Touche
Carl Balko Automation Consultant, Claim Fraud Unit, The Hartford (Hartford) , $167 billion in assets.
Rick Worthington Director, Special Investigations Unit, SAFECO (Seatlle), 32.5 billion in assets.
Richard P. Boehning Senior Vice President, Insurance Services Office, Inc. (ISO, Jersey City, NJ).
Q: As technological means of detecting fraud improve, is the insurance industry making headway in fighting this problem?
A: David Rioux, Erie: Small incremental changes in the fraud identification and investigation process can have a large impact on the fraud mitigation rate. Anti-fraud technology provides benefits beyond the hard dollars in loss impact that can be realized from electronically enhanced detection and investigation efforts. Integrating fraud detection and investigation technology can further help to focus investigative resources on claims and in areas having a greater impact on fraud; act as a fraud prevention and deterrent tool by publicizing the use of advanced technology to combat insurance fraud; and ensure a uniform, consistent and less subjective fraud screening process throughout the claims operation. Erie has also developed fraud awareness training through the use of DVD technology to assist claims handlers with uncovering insurance fraud.
A: Laki Balaji, Fair, Isaac: In the past ten years, insurance companies have continued to adopt technology to capture and manage claims data. With technology becoming part of everyday business, in-depth analyses using sophisticated techniques have enabled better decision-making capabilities and business management. To that end, many insurers have deployed fraud and abuse detection solutions for early detection and to generate actionable decision-making output.
A: John Lucker, Deloitte & Touche: The insurance industry is making good progress combating flagrant ("hard") fraud in those product areas where such fraud is most prevalent (workers' compensation and private passenger auto). A blend of traditional investigative and technological techniques are used by SIUs special investigative units to identify, investigate, and shut down hard fraud. However not as much progress has been made developing tools and techniques to mitigate "soft" (opportunistic) fraud despite widely held estimates that such fraud accounts for 15-25% of every claim dollar. The biggest impediment to the fight against soft fraud is that the investigative costs for each suspected incident are usually greater (sometimes much greater) than the cost of the soft fraud itself. Great potential exists in the extended use of predictive modeling techniques currently used by underwriters to assess the best from the worst risks. These techniques are emerging in the industry. By prospectively evaluating an insurer's book of risks, these segmentation techniques allow insurers to identify those risks which are expected to perform worse than average with a natural extension of this logic being that the worse than average risks are also more likely to experience a higher than average incidence of soft fraud. Based on this investigative resource triage technique, insurers can build operational processes to better review and/or challenge certain claims arising from these worse than average policies.
A: Carl Balko, The Hartford: We have developed many new tools to detect potential fraud but we're still wrestling with the most effective, comprehensive ways to integrate data from various sources into current operating systems. You might say that the industry has invented a new engine and is doing its best to connect it to a buggy. What we need to do is develop the overall vehicle that will maximize its effectiveness. We've made tremendous progress in detecting insurance fraud perpetrated by organized rings that involve a large number of claims. We're also getting better at using automation in our front-end claim systems to assist in detecting potential fraud.
A: Rick Worthington, SAFECO: When you're talking about fraud-fighting technology you're really discussing two different areas. The technology used to determine fraudulent events has significantly enhanced our performance. Fraudulent-claim detection technology, though, has not progressed as much as we would like. The greatest technology need today: a front-end fraud scoring tool that flags questionable claims at the initial point of collection. With overall claims-processing speeds increasing, we need tools that buy us time, without slowing down overall customer service.
A: Richard Boehning, ISO: Newer technologies, such as data visualization, claim scoring and modeling, are available to help claims investigators analyze claims data, identify suspect claims and speed up the payment of legitimate claims. Insurers are learning to apply these new technological tools in their efforts to more effectively detect fraud.
Q: What kind of collaborative activities can help against fraud, including tapping government and industry sources through technological means?
A: Rioux: By being actively involved with organizations like the Coalition Against Insurance Fraud (Washington, DC), NAII (National Association of Independent Insurers, Des Plaines, IL) and NICB (National Insurance Crime Bureau, Palos Hills, IL), Erie has an opportunity to network, share information and work collaboratively with other organizations on the common goal of fighting fraud. Locally, Erie Insurance investigators work closely with law enforcement agencies including the Erie Police Department and District Attorney's Office.
A: Balaji: NICB represents a collaborative effort among approximately 1,000 property and casualty insurance companies from which it receives support. NICB maintains a national database of reported repeat offenders and other strategic information from which the insurers can draw upon to supplement their investigative efforts.
A: Balko: There is no question that networking and the exchange of intelligence and data will be one of the cornerstones of our success. But this has to be done uniformly and within the limits of the law. Also, it has to be done with some overall consciousness and direction as established by organizations such as the NICB working with all insurance carriers. Fraud detection functionality should be kept in mind as an organization develops an overall technical architecture. It's easier and less expensive to build in fraud functionality up front rather than after. This also facilitates access to all data pertinent to fraud detection throughout the organization. The Hartford is being proactive and is one of the leaders in working with the NICB and other carriers in the exchange of appropriate information. We're also actively participating in industry groups like the Coalition Against Insurance Fraud and the International Association of Special Investigative Units.
A: Worthington: ISO and NICB membership by all carriers is vitally important. ISO's All Claims Database is far from perfect, but every day it gets better. It is exactly the tool we need and it can only improve through the participation of more companies. Technology firms need to get closer to their customers, especially during the research and development stage. A lot of software companies have made promises that their products could never deliver.
A: Boehning: Coordination of important information is key to detecting and fighting fraud. Participants in our ISO ClaimSearch system, , the only national, all-claims database and clearinghouse established by the industry for claims handling, can access information from government and industry sources, such as information on recovered vehicles from the National Crime Information Center, vehicle export information, and data from vehicle manufacturers. Participants can also access other sources of public records and criminal and civil records to significantly enhance claim evaluations and special investigations. Public records provide current and past addresses, Social Security numbers, dates of birth, vehicle and driver information, business data, criminal and civil court data, and so forth. Used in conjunction with claims and policyholder data, these can be key weapons in any investigator's arsenal.
Participation in the ISO ClaimSearch system allows insurers to send claims and search claims data and other information to help fight fraud. Insurers enter claims in the ISO ClaimSearch database. The system searches for matching claims and produces a Match Report with detailed information. Also available are (1) Claims Inquiry, a function allowing customized queries of the database, and (2) VINDecoding with NICB VINassist", a web-based, encrypted application for users to edit and decode 17-character vehicle identification numbers (VINs). Insurers can also search public records and criminal records.
Anthony O'Donnell has covered technology in the insurance industry since 2000, when he joined the editorial staff of Insurance & Technology. As an editor and reporter for I&T and the InformationWeek Financial Services of TechWeb he has written on all areas of information ... View Full Bio