Identifying strategies

Win the war against

insurance claims fraud Forensic
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Executive Summary
Insurance claims fraud in Ireland is estimated
to cost insurers €200 million annually¹. With
losses mounting from fraudulent claims, fraud
management has moved higher on the agenda
of senior management.
Many companies have taken steps to improve their
ability to identify and address fraudulent claims,
but these efforts have typically been fragmented.
Effectively addressing claims fraud rests on four
pillars of an integrated fraud management program:
01. Develop a fraud management strategy
02. Align the operating model
03. Improve information quality
04. Leverage advanced technology tools and
analytics
Explosion of insurance
claims fraud
Insurance fraud can be defined as “the
premeditated commission of a serious criminal
offence which merits trial on indictment before a
judge and jury in the criminal courts,”² When one
thinks of insurance fraud, it is common to think
of so-called “hard” fraud, that is, when someone
deliberately fabricates a claim, fakes an accident, or
coordinates a complex scheme involving multiple
parties such as agents, doctors, lawyers, claimants,
and witnesses. Yet, the lion’s share of fraud is due
to “soft” fraud, in which a claimant exaggerates
the value of a legitimate claim or misrepresents
information in an attempt to pay lower policy
premiums.
These four pillars encompass a strategy that
clearly articulates fraud management goals; the
organisational structure, business processes, and
workforce skills required to execute that strategy;
the ability to integrate quality internal and external
information; and the tools to promptly identify
fraud. The ability to move beyond piecemeal
efforts and adopt an end-to-end vision of the fraud
management process can make a big difference in
the ongoing war against fraud.
The economic impacts of fraud are enormous.
Insurance fraud costs insurance companies in
Ireland an estimated €200 million annually which
ends up being paid by honest policyholders.”³ The
Coalition Against Insurance Fraud estimates that
fraud costs insurance companies in the USA $80
billion annually⁴.
Motor insurance fraud, coupled with other factors,
has resulted in significant increases in premiums
over recent years. Such fraud can take many forms
but a number of recent court cases have highlighted
an increase in the prevalence of “staged incidents”.
Fraudulent claims can have an enormous impact on
the bottom line of an insurance provider.
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Barriers to addressing fraud
With fraudulent claims accounting for a significant
proportion of written premiums and with the
number of claims rising, senior management is
now recognising the importance of reducing claims
fraud in the industry. However, insurers face many
barriers in the battle against fraud.
Lack of a collective industry approach
While there have been positive steps taken to
encouraging coordination across the industry, most
insurers largely work independently on fraud. As a
result, there is a lack of consistency in organisation,
approach, and oversight. As a result, leading
practices are often not shared and efforts to deter
fraud have not received public attention.
Limited legal options and enforcement power
In prosecuting fraud, the onus is placed on the
insurer to demonstrate that a claimant is fraudulent,
and even where this is possible the legal process is
lengthy and expensive.
Problems with legacy systems and data quality
Many insurers continue to rely on legacy policy and
claims applications, cobbled together with an array
of “bolt-on” tools, which make it difficult to integrate
information across the organisation when handling a
claim. Compounding the problem, many companies
have been plagued by data issues—inconsistent
formats, poor quality, and insufficient granularity—
that inhibit effective decision making.
Ongoing talent crisis
Many insurers are faced with an aging workforce
among their most experienced claims adjusters
and Special Investigations Unit (SIU) staff and find
it difficult to replace the accumulated knowledge
and experience of these retiring seasoned workers
with new recruits. Further, over the last decade
many insurers have slashed headcount in an effort
to reduce operating expenses. The result has been
larger caseloads for claims and SIU staff, making it
more difficult for them to devote the time required
to investigate potentially fraudulent claims.
Tolerant consumer attitudes
Despite the fact that fraud drives up premiums,
many consumers have surprisingly tolerant
attitudes towards insurance fraud. In the USA, a
2008 survey by the Coalition Against Insurance
Fraud found that roughly one in five U.S. adults—45
million people—felt it was acceptable to defraud
insurance companies under certain circumstances.
The survey also found the number of consumers
that felt various types of insurance fraud (e.g.
misrepresenting facts on an insurance application,
inflating a claim, or misrepresenting an incident to
be paid for an uncovered loss) were unethical had
declined over the previous decade⁵.
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Adopting an integrated fraud
management framework
While many insurers have invested resources
in an effort to improve fraud management, few
have taken a broad or integrated approach. Some
companies have invested in improving data quality
and adopting technology tools, but still lack the
business processes, workforce competencies,
and organisational structure needed to act on the
insights gained from data analysis. Other companies
have worked to enhance their operating model, but
have failed to develop a clear strategy of what they
hope to achieve.
Recommended Actions
Strategy Establish an integrated fraud
detection, management, and
prevention philosophy and
strategy
Increase industry collaboration
and sharing of leading practices
to combat fraud
Operating Establish clear fraud
Model management goals and
performance objectives across
the national and global
enterprise
Organise for execution •• How do we effectively and efficiently organise and deploy our resources to address
with clear line of sight and
accountabilities across business
•• How do we continue to grow our institutional knowledge and capabilities on fraud
units and geographies
Information Institute consistent standards
Quality for data capture and
information quality
Improve anomaly detection and •• How do we standardise and better utilise data, both internal and external, to
management
Tools and Implement event and rules-
Analytics driven workflow
Develop and grow integrated
analytics capabilities
Although these efforts can yield some benefits, they are unlikely to capture
the potential synergies among the different aspects of fraud management. An
effective operating model supports implementation of a fraud management
strategy. Access to consistent, high-quality data and the latest tools and analytics
provides the oppor¬tunity for an operating model to reach its full potential.
And development of advanced analytics capabilities requires both high-quality
data as well as an operating model that can act on the insights generated. An
integrated approach addresses all four pillars of an effective fraud management
program (See below).
Questions to address for execution planning
•• What is the “end goal” we would like to achieve?
•• What is our vision and plan of action to address fraud?
•• What specific areas of fraud should be prioritised?
•• How do we increase industry and regulatory support for stronger fraud measures?
•• How do we incentivise industry stakeholders to employ common fraud
philosophies and standards as well as proactively share leading practices?
•• What fraud-specific business objectives and milestones are we trying to accomplish
and by when? How do we define success?
•• What are the performance metrics we should monitor and report on? How do we
incentivise employees/partners to drive desired/targeted outcomes?
•• How do we measure the impact of our fraud investments?
the fraud challenge and execute on our enterprise priorities?
management?
•• How do we effectively manage the quality, consistency, usability, security, and
availability of fraud information enterprise wide?
•• How do we transform data into a consumable asset to deliver hindsight, insight,
and foresight into fraud?
improve identification of claims with potential for hard or soft fraud?
•• What actions can we take to improve the timeliness and quality of fraud referrals?
•• How can we improve workflow to deliver insights and trigger appropriate
actions on fraud as early as first notice of loss?
•• What enhancements to our “ecosystem” (data, systems, tools, capabilities, and
business rules) will drive improved performance on detection, prevention, and
management of fraud across the claims lifecycle?
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Reports from the front lines
Some leading companies have made significant
progress in implementing breakthrough fraud
management strategies.
In Ireland, insurers are actively encouraging
consumers to report insurance fraud.
The website www.insuranceconfidential.ie set up by
Insurance Ireland contains details of “fraud stories”
across a number of different areas including⁶:
•• Motor Injuries
•• General Motor
•• Personal Injury
•• Home Insurance
•• Non-Disclosure
Since the website was launched in 2003, Insurance
Ireland reports that it has received and investigated
over 9,000 new cases of suspected insurance fraud⁷.
The road ahead
An integrated approach to fraud management offers
insurers the opportunity to make demonstrable
progress in combatting the rising tide of claims
fraud. The goal is to identify fraud much earlier in
the claims management life cycle and to handle
these claims with a new sense of urgency, promptly
and accurately referring them to SIU claims
investigators with specialised backgrounds and
skills in handing fraud. Throughout the process,
it is essential to document and share fraud case
experience and to continuously learn and apply
these concepts. By publicising these efforts, sharing
information, and collaborating more closely, insurers
can help raise industry awareness of the issue and
also gain a reputation for having zero tolerance for
fraud. However, insurers may not be as effective in
the battle against fraud on their own or in isolation.
Heighted awareness and collaborative action by
Insurance Ireland highlights a number of measures and initiatives that
have been introduced aimed at reducing Insurance Fraud in Ireland.
These include:
•• The ‘Guidelines for the reporting of suspected Insurance Fraud’ were
put in place with An Garda Síochána, to assist insurance companies
in the referral of cases for criminal investigation.
•• ‘Insurance Link’, the industry’s anti-fraud search engine, was
developed to enable insurance companies cross-reference claims
with their fellow insurers
•• The ‘Fraud Forum’ was set up to share information and expertise
between insurance companies. It is made up of specialist staff
from each company’s claims department who are trained in fraud
investigation.
•• The anti-fraud provisions in ‘The Civil Liability and Courts Act 2004’
added a specific offence of insurance fraud in relation to personal
injury, with offenders now facing a fine of up to €100,000 and/or up
to 10 years in prison.
governmental entities, law enforcement, and society
as a whole can play in important role in achieving
real and meaningful progress.
Companies should keep in mind that fraud
management is only one element of the claims
process. They should also work to increase
customer satisfaction among the vast majority
of customers who submit legitimate claims and
deserve prompt and fair claims service. Creating a
fraud process that reduces the false positives and
retains good customers is one important step in this
effort.
The battle against fraud is ongoing. But insurers that
adopt breakthrough strategies can gain the upper
hand in managing this persistent challenge to the
bottom line.
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Contact us:
David Carson
Partner, Forensic
T: + 353 1 417 2513
E: dcarson@deloitte.ie

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Director, Forensic
T: + 353 1 417 8998
E: barobinson@deloitte.ie

End notes:
1. http://www.insuranceireland.eu/consumer-information/insurance-fraud

2. Insurance Ireland, Insurance Fraud, http://www.insuranceireland.eu/consumer-information/insurance-fraud

3. Insurance Ireland, Insurance Fraud, http://www.insuranceireland.eu/consumer-information/insurance-fraud

4. Coalition Against Insurance Fraud, http://www.insurancefraud.org/statistics.htm

5. Coalition Against Insurance Fraud, http://www.insurancefraud.org/four-faces-study.htm

6. http://www.insuranceconfidential.ie/what-is-insurance-fraud

7. http://www.insuranceconfidential.ie/about

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