Honesty Is the Best Policy

Insurance fraud costs Americans $80 billion a year - $950 per family - according to the Iowa Insurance Division's Insurance Fraud Investigation Bureau (Des Moines). But large fraud rings aren't the only culprits - everyday consumers who pad "legitimate" claims also contribute to the deficit. But most often no one's going to find out if an average consumer stretches the truth a bit.

A new lie detector telephone technology may change that. Originally developed by voice analysis technology developer Nemesysco (Zuran, Israel) to combat terrorism, the Layered Voice Analyzer (LVA) measures micro tremors in the voice to determine the emotional state of speakers, including whether or not they are being deceptive, says Jayson Schloven, spokesperson for V Worldwide (Washington, D.C.), the only licensed American distributor of the patented technology.

Only recently available in the United States, the tool has helped U.K.-based carriers that have incorporated it into their fraud detection programs realize a savings over the past two years. Michael Lawrence, marketing and special projects manager of auto underwriter Highway Insurance (Brentwood, England; 250 million pounds in premium income), reports that before U.K. distributor Digilog's (Bucks, England) Voice Risk Analyzer (VRA) was incorporated in its fraud detection program, only 5 percent of claims submitted for auto theft were designated as fraudulent. Now, the carrier is able to identify that nearly one in five auto theft claims are fraudulent.

"The analysis takes place in our first stage of screening," says Lawrence of the process that begins once a policyholder reports a claim to the carrier's automated telephone system. Policyholders who engage in the automated system are informed that their calls may be monitored for fraud-prevention and detection and training purposes. "Thirty-eight percent of submissions pertaining to theft are deemed high risk [based on the VRA readings] and 18 percent are eventually deemed fraudulent," asserts Lawrence. Once a claim is flagged as suspicious, the policyholder is informed that further investigation is required and a live telephone interview is arranged, he says.

Calling Their Bluff

Highway has minimized its administrative expenses and its need for human resources by offering policyholders who are suspected of making fraudulent claims the chance to withdraw their claims at any time during the investigation process, without repercussion. "If a fraudulent policyholder decides to opt out, we are happy that their claim just goes away," says Lawrence.

As a result of fewer claims and more accurate determinations of fraud, Highway Insurance has saved more than 3 million pounds. "Before we started using this technology, we didn't know how much fraudulent claims cost us, because we didn't know which claims were fraudulent," explains Lawrence. "Now we are able to pass these savings along to our genuine customers."

When will American insurers - and policyholders - see their fair share of the savings? According to Dr. Richard Parton, CEO, V Worldwide, which began its U.S. marketing efforts in November, "We've gotten positive reception from workers' compensation underwriters and some life insurance companies." Parton says that the New Mexico Workers' Compensation Insurance Fund (Santa Fe, N.M.; $16.4 million in claims reserves) agreed to license the technology and will finalize the deal once funding is approved. The LVA's cost equates to about 20 percent of anticipated savings and is based upon the number of policies that a carrier underwrites rather than the number of claims determined to be fraudulent, according to Parton, because V Worldwide wants to avoid setting a bounty on fraud cases.

But the technology may face opposition from consumer groups that are concerned about privacy issues. So far, "We have not had that sort of push-back," asserts Dave Watson, general counsel and chief operating officer, V Worldwide. In fact, Watson says the distributor has actually gained approval from the American Civil Liberties Union. "The ACLU believes that this is a fabulous alternative to other fraud detection strategies because it only focuses on relevant topics rather than those that are unnecessarily invasive," he says.