Study: Fraud spreading, tech helps apply brakes

Tools deployed against cyber, auto scammers to help control premiums

tech_reportTechnology is a valued ally of insurers in combatting insurance fraud. And for good reason — this crime is growing.

These are two findings of the Coalition’s newest study of how insurers use tech to combat billions of dollars in fraud each year.

The study is one of the surest barometers of progress in how insurers wield technology against fraudsters. It’s also a window into scams that most concern property-casualty insurers, and how they’re responding.

Fraud is climbing, more than 60 percent of insurers say in the study. Cyber-fraud is a newer problem area that insurers are using tech tools to combat.

Technology is especially adept at helping uproot auto-insurance scams — long among the biggest losses inflicted on insurers. High auto premiums are an emotionally charged issue for many consumers. Analytics help keep auto premiums more in line by controlling bogus crash claims. This does a service to drivers who pay their premiums honestly.

Organized rings, crooked medical providers and drivers who falsely register vehicles in other locales to lower their auto premiums are priority schemes analytics play an important role in counting, the study shows.

Fraud-busting tech plays an ever-growing role for insurers. Tech seems to have turned the corner internally. Anti-fraud departments have done a good job of selling upper management on the business benefits of tech in helping stem large losses. Fraud fighters see less need to keep justifying tech, and fully one-third of insurers expect larger IT budgets in 2017.

Predictive analytics — which can forecast the likelihood of certain fraud crimes — continues rising as a star player. Powerful software also helps insurers automate detection of false claims, thus making fraud-busting faster and more-efficient than ever.

For all the gee-wiz headlines that cool tech breeds as a kind of new-era fraud-busting messiah, we should remember that tech tools are mostly buckets of code and data until humans make sense of the findings.

More to the point … fraud fighters also bring an unmatched 360-degree ability to size up fraud investigations from every angle — digital and street-level — to reach correct conclusions about claims. Nor am I aware of software programs grunting through a home’s blackened rubble for a possible insurance arson.

Analytics also are more than just hi-IQ data crunchers. Anti-fraud tech helps insurers serve the ultimate master: policyholders. Claims can get resolved faster and more accurately. Premiums are better controlled. Honest policyholders have a better experience, and fraudsters have a worse one. That’s what insurance should be all about.

About the author: Jim Quiggle is director of communications for the Coalition Against Insurance Fraud.

Angry consumers more likely to bilk insurers

New research suggests keeping consumers happy is a good strategy

angry_manFear and anger are two emotions that drive human behavior. But only one of them — anger — is more likely to cause people to cheat.

That’s the finding of a recent study that tested how people’s emotions can influence ethical behavior. When situations put people in fear, they are more likely to be honest, the study concluded. This seems obvious. The threat of jail or embarrassment keeps people from committing insurance fraud.

But the new revelation here is that anger tends to have the opposite effect. It emboldens consumers to defraud, especially against businesses, the researchers say. This is in line with a Coalition study from 2007. It found that consumers who had a positive claim experience in the past three years were much-less-tolerant of fraud than those who didn’t.

Insurers should take note and adopt more customer-service policies that are less likely to tick people off.

Everyone seems to have an insurance horror story, and many originated from the lack of understanding about insurance. The insurance industry just doesn’t do a good job of explaining coverage and the nuances of underwriting.

I was reminded of that this week when a boater friend relayed his horror story about relocating his vessel eight miles from southern Georgia to northern Florida. His annual premium went from $1,500 to more than $4,000. He was livid, especially since the insurer didn’t bother explaining the 100-percent-plus premium hike.

Whether it’s underwriting, claims handling, marketing or any contact insurers have with consumers, insurers could profit by making their customers a little less angry and a lot more informed.

About the author: Dennis Jay is executive director of the Coalition Against Insurance Fraud.

Defending against identity thieves

Insurers can counter threats with robust data, analytics

medical_ID_theft_11-16Is your organization equipped to fight identity fraud? Insurance fraud costs the property-casualty insurance industry an estimated $32 billion per year.

It is unknown how much stems from identity-related crimes. But due to the shift of in-person agent interactions to a direct sales model, the risk of identity fraud has increased significantly.

Consider the nearly 75 percent of auto-insurance shoppers who obtained an auto quote online in 2015. Advances in technology have provided streamlined sales and claims, but also have opened customers to more identity-fraud risks.

One way this crime is perpetrated is when identities are stolen by organized crime rings to file fraudulent no-fault injury claims from staged crashes. A similar scheme is when stolen personal information is used to impersonate an insurance agent or policy applicant. This false or stolen identity information is then used on applications for auto or life insurance so the perpetrator can collect a commission on new policies.

These crimes should be a warning sign to insurers: Firm up your defenses against identity threats. You will protect your bottom line and ensure honest policyholders the safest insurance experience possible.

Use technology innovations to combat fraud: Mobile-device technology and capabilities, data and advanced analytics and linking tools all can quickly verify and confirm valid identities. They also can recognize anomalies through the driver license barcode imagery. And when mobile-device technology is used against fraud, it won’t slow policy application workflow.

Another way insurers can defend against identity fraud is by leveraging external data sets to gain a multi-dimensional view of policy applicants. This reduces dependence on self-reported information that may be false or inaccurate. These sources can include shared non-claims data from other industries that could shed light on investigations. Sources also can include public records data (name, phone number, address, SSN, and other “footprint” data such as bankruptcies, deceased files, watch lists and criminal records).

This week is Fraud Awareness Week 2016. LexisNexis Risk Solutions and the LexisNexis® Fraud Defense Network are partnering with the Coalition and several other leading fraud-fighting organizations to discuss the problems and solutions surrounding identity fraud. In recognition of this incredibly serious threat, this group is leading a global effort to minimize the impact of identity fraud. We encourage insurers to visit our microsite. It provides insights and actionable ideas for insurers to protect themselves and their customers from identity fraud.

We hope you join this important conversation all week. Stay up-to-date by following #StandUpToIDFraud and #FraudWeek.

Bill Brower is Vice President, Product Management, Claims for LexisNexis Risk Solutions. He leads the development of innovative products that help insurers achieve greater efficiency within their claims departments. With 30 years of P&C Insurance industry experience, Brower has held numerous leadership roles with top carriers such as Liberty Mutual and Nationwide Insurance Company. Most recently Brower served as Vice President and Manager of Strategic Partnerships for Liberty Mutual Personal Insurance. He led innovation efforts and managed vendor relationships across all claims disciplines. Brower earned his bachelor’s degree in Organizational Leadership from Franklin University and his MBA from Shorter University.

 

Election fallout ripples through anti-fraud world

Changes at the state and federal levels could affect enforcement

election-falloutWhile the shock of the national elections continues to be felt, the Coalition is sizing up the likely impact on fraud-fighting.

The biggest concern is whether the Trump administration will continue the federal government’s aggressive stand in combating healthcare fraud. FBI investigations and Department of Justice prosecutions have helped set records for arrests, convictions and financial recoveries in the last eight years.

Another potential concern is whether repealing the Affordable Care Act will gut anti-fraud programs that were part of the original bill. Medicare has much more capacity and authority to crackdown and prevent healthcare fraud today. Its ability to shut down scams quickly and use the latest technology such as predictive modeling could be in jeopardy.

Republicans also likely will push for interstate sales of health insurance. We’ve repeatedly warned that such an unregulated system will spur scam artists to sell fake policies to unsuspecting consumers.

Another potential casualty could be the Healthcare Fraud Prevention Partnership, an alliance of more than 60 private insurers and public agencies.

The partnership’s data-sharing program has helped save more than $260 million for healthcare payers. It would be foolish not to continue, but the program operates at the whim of the administration and HHS secretary. That’s one reason we advocated writing the program into federal law, but it’s too late for that now.

As for state elections, Wayne Goodwin, the insurance commissioner in North Carolina, lost his election. He’s a strong supporter of anti-fraud measures. Goodwin sponsors an effective fraud bureau, and chairs the NAIC Anti-Fraud Task Force.

The change of governors and insurance commissioners in other states, such as Delaware, also may affect law-enforcement efforts to combat fraud.

We’ll continue analyzing the federal and state results. We’ll report developments as they emerge. In the meantime, the Coalition stands ready to work with the new office holders to advocate strong measures that effectively combat insurance fraud.

About the author: Dennis Jay is executive director of the Coalition Against Insurance Fraud.

Fraud bills coming, start planning for 2017 now

Busy year possible, fraud fighters can help pass bills as trusted experts

Legislation_2017Voters will cast their Election Day ballots in a few days. We’re electing more than a President and members of Congress. A good number of state governors, insurance commissioners and legislators are on ballots as well.

They’ll barely be settled in when statehouses start opening for 2017. Quite a few fraud bills could be on tap — a lot of early chatter is making the rounds in several states.

Many policymakers know little or nothing about insurance fraud or how this crime damages their constituents. We’ll have many opportunities to convince state legislators to vote “yes” for bills that support fraud-fighting efforts.

I’ll share a secret that can open doors and increase your own impact.

But first, here’s what we know so far about 2017 — and more bills are sure to be introduced throughout the year. …

Restrict assignment of benefits. Insurers are concerned about contractors in Florida. Scofflaws inflate repair bills, and typically sue the insurer if the claims are denied or not paid quickly. All this happens behind the unsuspecting claimant’s back.

The vast damage damage caused by Hurricane Matthew will bring out legions of swindling contractors. That has vaulted the issue higher on insurer legislative agendas in the state.

Crashing staged crashes. Penalties for staging crashes in Nevada are pretty weak. The state AG is considering drafting a bill stiffening jail terms and fines. The Las Vegas area, especially, is a hotbed of crash rings and inflated whiplash claims.

Some rings target big-rig trucks. Current law does little to deter hardened fraud rings, many fraud fighters in the state believe. The AG is listening and may seek legislation to add more teeth in 2017, Coalition sources say.

Widening statute of limitations. Firming up the statute of limitations will be high on the Colorado AG’s 2017 agenda: Start the clock when the scam is discovered. The clock now runs for five years after the fraud occurred. The enhancement would be more realistic: The fraud crime often is detected well after it occurs. Also being looked at is adding insurance fraud as a crime to be covered under the state’s RICO, racketeering laws. Both would help the anti-fraud effort in the state.

More hotspot states. Look for action in Kentucky (expand immunity/information-sharing; limit access to crash reports; contractor cons). The Coalition is working with Kentucky fraud fighters to help strengthen the state’s anti-fraud laws … and New York (contractor scams and crash rings).

This is where fraud fighters come in. You need to start planning for 2017 right now. This means identifying current bills and the committees that will move the measures.

It also means thinking about introducing bills with friendly committee members or other legislators as the sponsors.

I’ve seen fraud bills start moving within days after the statehouse doors swung open. All the more reason to start thinking now.

Now about that secret — your impact in legislation is all about personal relationships. It’s the same principle you use so often to build close ties and contacts when pursuing fraud cases.

One fraud fighter I know convinced a state legislator to co-sponsor a bill simply by having a friendly chat about a fraud problem in his state. So few legislators know much about insurance crime in any real detail. You can be the trusted eyes and ears of legislators on scams that must be stopped to protect honest consumers.

You’ll have a strong leg up if lawmakers already know and trust your expertise as a frontliner. You can help educate them about an issue … weigh in about bill wording that makes sure the measures help shut down targeted scams.

You’ll find a great deal of support from the Coalition. I can personally assist in many ways — bill wording, overall bill strategy, effective talking points, helping set up meetings with key movers. You can easily reach me at Howard@InsuranceFraud.org with any ideas or questions.

More resources are tucked away on the Coalition’s website.

Check out suggested state legislation for laws other states enacted on your hot-button fraud issues. Auto rate evasion and tighter limits on using check-cashing stores in workers-comp scams are new additions. Model bills also take on crash-ring recruiters, immunity and other concerns.

Get involved through groups such as IASIU and NSPII. Check with me about what’s happeing in your state, and how you can get involved. 

Grassroots efforts work. You’re the roots of grassroots.  Once the November balloting is done, we’ll soon move into a election cycle: electing fraud laws. Let’s move fraud bills together as partners. We can pass smart fraud bills that are good for insurers, and right for the residents of your state.

About the author: Howard Goldblatt is director of government affairs for the Coalition Against Insurance Fraud.

Arsonist to insurers: Check fire claims more closely

Closer look deters arsonists, discovers scams, benefits all policyholders

kenny allenKenny Allen was a likable fellow. He went to church, coached youth basketball in the Muncie, Ind. area, and was making his way through life with limitless potential ahead.

He also lived in a secret world: He was an insurance thief. Kenny was a driving force behind the largest home arson ring in Indiana history. And one of the largest ever in the U.S. His gang helped torch at least 73 buildings while he sang hymns of righteousness in pews.

Insurers were easy to defraud, Allen says. Their adjusters were so intent on making customers happy — he contends — that they rarely asked tough questions. Insurers could’ve quickly exposed the claims for burned homes as money grabs with a little more effort.

Kenny went straight after nearly five years in federal prison. He admits he screwed up, and today gives workshops for investigators to help make amends. He partners with Mike Vergon, the former ATF agent who arrested him. They’re friends and supporters in life — a touching story of Kenny’s redemption.

Yet his saga speaks to a bigger dilemma for insurers. If they investigate too many claims too closely, they risk policyholders thinking they’re cold and money-grubbing.

If insurers let too many suspect claims slide through too easily, they risk being prey for hunters like Kenny was. This slippery slope can grow fraud losses, help raise premiums and — yes — reinforce a belief among many consumers that insurers are cold and money-grubbing.

Life isn’t always fair when you’re an insurance company, no matter how many good deeds you perform. Corporations are targets of consumer upset simply because they’re big and make money.

Checking closely into suspicious claims can trigger a lot of emotions. Fair or not, people’s feelings of aggrievement or entitlement can quickly damage an insurer’s reputation. Especially when viral social posts can reach millions of sympathetic consumers in just hours.

Over the longterm, it’s a risk worth taking, and a story worth telling.
Insurers should do a far better job of telling people why they fight fraud — and why all policyholders benefit.

Being justifiably known for protecting policyholders from thieves seems like a pretty good way to build a business brand. And doing right by consumers.

If Kenny Allen’s right, taking the easy way out could’ve cost insurers more than millions in false arson claims. He’s the first to admit, it’s a miracle nobody died in his fires.

About the author: Jim Quiggle is director of communications for the Coalition Against Insurance Fraud.

Fraud prosecutors in N.J. lose tool against defendants

Loss of pre-trial detention hampers cooperation by fraudsters

NJ_pre-trial_detentionPrisons and jails across the U.S. are overcrowded, costly and at a breaking point in many states. Jurisdictions are working to ease the pressure in a variety of ways. California, for example, has released more than 30,000 inmates early in the last five years. Other states use alternative sentencing.

New Jersey is taking a different approach. It has done away with pre-trial detention except for the most-violent crimes or people who are flight risks.

Fraud prosecutors in the Garden State say the new law makes their jobs tougher. A runner employed by a staged-crash ring who gets caught no longer has to worry about making bail. The threat of pre-trial detention often spurs a runner to cooperate with law enforcement and help nail the gang’s masterminds. But no longer.

Now, runners are  processed and given a summons, kind of like getting a traffic ticket.

The concern here is that the lack of pre-trial detention throws up one more roadblock for many local prosecutors who already are overworked and hesitant to take complex, time-consuming fraud cases.

There are no easy answers. It’s unlikely lawmakers will make an exception to the law for non-violent, white-collar crimes.

Deterring fraud rings is difficult, though achievable. The anti-fraud advertising campaign by the Office of Insurance Fraud Prosecutor and state AG is excellent, though it’s oriented towards everyday consumers, not organized criminals. Perhaps outreach to lower-level gang members about the dangers of committing fraud might help deter.

The best approach might be for insurers to focus even more on taking the profit out of insurance crime. Greater use of technology will detect scams earlier before claims money goes out the door. More civil suits with treble damages against crooked medical providers and other ringleaders will hurt them where it counts.

Fraud fighters around the U.S. will have to rely less on arrests and prosecutions. They still can curb insurance fraud by improvising and relying more on their creative expertise.

About the author: Dennis Jay is executive director of the Coalition Against Insurance Fraud.

Selling interstate invites scams

State oversight weakened, consumers vulnerable

health_insurance_interstateI grew up in the Northeast, and now live in a Mid-Atlantic state. I understand Fall. The weather is crisp and the leaves turn colors. Happens every year.

Just like the leaves turning colors in the Fall, someone predictably come up with a supposedly great idea: let consumers buy health coverage from insurers across state lines.

The argument is always the same: Interstate sales increases competition and reduces costs for consumers. This sounds workable on paper. The latest go-around was raised in this past week’s presidential debate as the fall leaves tumbled — just like consumer protections.

Problem is, interstate sales open the door wide for fraud, and water down consumer protection. And, most people advocating this system usually don’t include important and necessary protections when pushing their interstate plans.

Yes, neighboring states can legally create partnerships that allow insurers to cover consumers in any state within the partnership. Yet partnerships have strict, built-in legal protections when states agree to work together. Insurance regulators know who’s doing business. Networks also offer consumers choices of doctors and facilities.

These protections and coverages may not exist under a blanket permit for consumers to buy coverage in any state.

Consumers don’t know what insurance regulator to reach for help. And would the regulator in the state where the consumer lives have much incentive to help if the health insurer is domiciled another state? Would the regulator where the insurer is domiciled help a consumer living in a different state?

We already see crooks peddling bogus health insurance to unsuspecting consumers and small businesses. This problem would be magnified if interstate sale of health insurance was allowed without strict and well-defined oversight. 

Insurers must be state-licensed to do business in a given state. How can state oversight properly protect consumers if anyone can offer insurance to any consumer in any other state?

Who makes certain the insurer is solvent and can do business in another state? And, would an insurer in one state have an adequate network of doctors, hospitals and pharmacies to cover the health needs of consumers in another state?

These questions are raised every time interstate health-insurance sale is broached. Yet we never hear answers — just the simplistic nostrum that interstate sales will help reduce healthcare costs.

Don’t just spoon out more words like falling autumn leaves — prove that consumers would be better protected.

About the author: Howard Goldblatt is director of government affairs for the Coalition Against Insurance Fraud.

Lemonade: smart business or soft fraud target

Crooks likely to probe the P2P insurer with bogus claims

lemonadeThis is a blog about a blog. It’s also a predictor of things to come.

The new insurer Lemonade thinks it has a winning formula. Get rid of agents and most other personnel. Just digitize policy sales and claims. It’s part of the bigger trend of peer-to-peer firms rapidly sprouting in various consumer sectors.

Dennis Jay wrote about Lemonade last week. I’m so fascinated by the upstart startup’s P2P business model that I had to weigh in with my two cents worth.

Lemonade thinks its formula will lower fraud, blogs board member Peter Diamandis.

Policyholders can have underwriting profits donated to nonprofits they choose. Insurance becomes “a social good, rather than a necessary evil.”

People are less likely to try and bilk Lemonade, Diamandis contends. Why would they defraud the insurer and thus reduce the charity donations?

Many policyholders likely will be kind-hearted, as I see it. They’ll keep applications, renewals and claims sparkling clean for the good of the cause.

Two other classes of insureds may be less charitable. First are the desperate ones. They’re average, everyday people whose finances are sagging. Maybe their home or SUV is near foreclosure, their bank account nearing empty.

They’ll worry more about saving their own skins than what money Lemonade sends to charity. If they can rifle Lemonade to bail themselves out with false claims, their adrenalin-addled brains will impel them to pounce. They could, for instance, trash their car and claim it was stolen or wrecked in a hit-and-run.

Then there’s another class: the greedy.

Some of the greedy are everyday people. They’re not desperate. Many are just opportunists. Maybe they just want to trade up to a bigger diamond engagement ring, and tell Lemonade that, sorrow of sorrows, it slipped off the wife’s finger at the beach. Or double the cost of a sound system lost in a home fire.

Organized rings are another kind of greedy, often led by dangerous sociopaths. Fraud is their business, a science. They’ll study Lemonade and probe for weaknesses in the application and claims system. Just like many crime rings test brick-and-mortar insurers when plotting staged crashes with mass injury claims.

Professional and amateur criminals look for weaklings to exploit, just like wolf packs stalking elk herds. My bet is they’ll try to infiltrate Lemonade to see how much juice is for the taking.

Lemonade’s elysian P2P concept will appeal to tech-savvy millennials — and provide another choice in the marketplace. Maybe Lemonade will inspire traditional insurers to tighten their own operations if they lose large numbers of customers to its community-minded model.

Meanwhile, this trusting P2P business model likely will be tested to the max on the mean streets. Here’s hoping Lemonade’s leadership grasp this truth, and develops new innovative firewalls to protect the company from some very smart street criminals.

About the author: Jim Quiggle is director of communications for the Coalition Against Insurance Fraud.

Lemons or lemonade?

First P2P insurer says it will slash fraud costs

Lemonade_appDo insurance consumers have a thirst to buy policies using their smartphones? Will they be less fraud-prone knowing some of their excess premiums get donated to charity? And will the prospects of quick claim cash motivate them to switch carriers?

One new insurance startup is betting yes, offering to quench that thirst.

Lemonade, the first so-called peer-to-peer insurance company, debuted this week to much fanfare.

Started by technology entrepreneurs, the company is targeting smartphone users by offering ease-of-service transitions and cheap prices on homeowners and renters coverage.

Lemonade says most insurance “sucks” (their words) because insurers hassle claimants, are bloated and make too much profit. And thus, claimants are more likely to file inflated or fake claims.

The company says it will undercut traditional insurers by using streamlined, tech-oriented transactions and reduced fraud costs. In an interview this week, Lemonade president Shai Wininger said:

“With insurance, over 90 percent of the fraud is perpetrated by supposedly normal upstanding citizens like you and me. So what is about insurance that brings out the devil in us? Why is it that when it comes to insurance, we feel entitled to break the law?” 

Research suggests consumers are less likely to defraud a company they feel good about. Customers designate a favorite charity to receive their share of company profits at the end of the year, if there are any.

Call me skeptical, but I doubt Lemonade’s approach will make that much difference in policy pricing.

Still, Millennials who love transacting business on their cellphones and are socially conscious should be drawn to this model. It will be interesting to see if Lemonade has a magic formula to reduce fraud. We’ll be watching to see if this new player leaves a sweet or sour taste in the mouths of its customers.

About the author: Dennis Jay is executive director of the Coalition Against Insurance Fraud.