White paper:

Fraud forum 2001

Introduction
On September 10, 2001 the International Association of Special Investigation Units at their 16th Annual Training Seminar in Palm Springs, CA hosted the first annual update to the 2000 National Fraud Forum. The 2000 National Fraud Forum sponsored by the Coalition Against Insurance Fraud, the International Association of Special Investigation Units, and the National Insurance Crime Bureau, the National Insurance Fraud Forum was held in Washington, D.C. on June 5 — 7, 2000. Attending the 2000 Forum were 100 leaders and experts in the field of insurance fraud. The attendees were representatives of private industry, law enforcement, state fraud bureaus, government regulators and professional organizations.

The purpose of this first annual update to the 2000 National Insurance Fraud Forum was to:
- Review the five key areas covered during the 2000 Forum
- Determine the progress made during the first year
- Publish an update to the White paper that followed the 2000 Forum

The five key areas discussed included the following:

- Legislation and Regulation
- Public Awareness
- Emerging Insurance Fraud Issues
- Public / Private Partnerships
- Measuring the Fraud Problem and Quantifying Results

The sponsoring organizations will continue to issue annual reports on the progress of these issues through 2004. The next update session is scheduled to take place on September 9, 2002 at the 17th Annual Seminar of the International Association of Special Investigation Units in Albuquerque, New Mexico. The National Insurance Fraud Forum will meet again in 2005 to set the anti-fraud agenda for the following five years.


Legislation and Regulation

Introduction
The purpose of the September 10, 2001 group discussion was to review the key legislative and regulatory issues as outlined in the October, 2000 National Insurance Fraud Forum White paper. Because legislation impacts very directly on the work of the Special Investigative Unit personnel, there is a high level of interest in the approaches taken to these issues. In addition, the topic area is considered extremely complicated and constantly in flux. For these reasons, the participants agreed that further study and attention should be devoted to legislative and regulatory matters at both the federal and state levels.

Overview and Highlights
The participants agreed that the issues identified in the first Forum were worthy of consideration. However, it became increasingly clear in the discussions that very few participants were able to clearly articulate their concerns with the recommendations. There was general agreement that the Special Investigative Unit personnel are often not made aware of significant developments affecting these areas. This hampers their ability to speak intelligently to the Fraud Forum's legislative and regulatory areas. Furthermore, this situation often causes them to be reactive in their duties. Not withstanding, the participants felt that the legislative and regulatory issues should be constantly monitored. They recommended that their company government affairs personnel partner with them to create a truly meaningful anti-fraud fighting agenda.

Discussion Summary

1. Globalization
All participants agreed that the global economy will continue to spur the development of technology. This means that technology will always be out front of laws and regulations. For example, we are playing catch up with the European Union in terms of guaranteeing that US laws and regulations adequately protect consumer information. Very few participants had a clear understanding of what their company plans and capabilities were for global expansion. Therefore, it was agreed that this should be an ongoing and open issue for the Forum. We noted that it could be represented as the second tier to the Gramm-Leach-Bliley (GLBA) Act.

2. State vs. Federal Law
It was agreed that milestone legislation has been created with the GLBA and subsequent action taken by the states in regard to privacy legislation and its impact on the SIU community. Opening up these issues further could cause possible rewrites that have the potential to cause even more punitive or restrictive measures. This is an important area and should remain a focus of the Forum.

3. Industry Consolidation
Many felt that the real effect of industry consolidation has been insolvencies. There will be an increased workload on the field investigator who must be able to be proactive — exemptions for fraud fighting are a must. There should also be an education campaign aimed at CEOs to focus the industry on the severity of the losses. The NICB CEO's background qualifies him as the CEO Crime Fighter and he should be positioned to speak with company CEOs.

4. Integrated Products
It was agreed that this is a complicated area and one in which the SIU community may not have the most expertise. Because it is a major issue facing both the financial and insurance services sides of the house, integrated products should be retained.

5. Professional Organizations
Discussion group wants continued public awareness efforts to fight fraud. It should be emphasized that self-regulation has been an abysmal failure. We should be seeking a higher level of dialogue with professional associations. These include the legal and medical associations.

6. Privacy Advocates
The consensus was that this issue is red hot and will not go away. While the companies may think all is well because they sent out their privacy notices, plaintiff lawyers are attacking everyone on the convoluted language that exists in many of the notices. It was agreed that we may just have to "Agree to Disagree" with the plaintiff's bar. This remains an open issue.

7. Congress
There is always the possibility that new federal legislation will be more restrictive than what presently exists. SIUs need to know in advance what the proposals look like so that they can coordinate comments with their company government affairs representatives. Lack of coordination hinders the fraud fight.

8. State Legislators
Similar sentiments were expressed about legislation at the state level — lack of knowledge regarding pending proposals and how to positively impact them. While redistricting will be a major focus in 2002, fraud issues should continue to be made a focus of the company lobbyists.

9. Immunity
State immunity statutes are essential and should be as broad as possible. If there are questions regarding a state's immunity provisions, then that automatically makes it ineffective. The group would like to pursue the need for a federal immunity statute and whether or not company representatives would support such a move. This remains an open issue primarily because of creeping federal regulatory proposals.
10. Unique Property Identifiers

This remains an open issue because a credible database for HINs still does not exist. The Coast Guard talked about creating a major database but funding limitations were evident. There has been more progress seen on off-road equipment and the road equipment manufacturers have agreed on a 17 character PIN.

Conclusion
All issues remain open. There was consensus that each topic area directly impacts SIU operations. The most important strategic change suggested was that company government affairs personnel and retained lobbyists need to fully understand the impact of legislative & regulatory proposals on the SIU community. A stronger bond between these two groups needs to be developed so that credible input is given to company lobbyists and detrimental proposals are defeated.

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Public Awareness

Introduction
One of the big vulnerabilities of today's anti-fraud efforts lies with lax public attitudes. Many consumers and even members of some professional groups either tolerate others committing fraud or willingly bilk insurers themselves, consumer attitude research consistently shows. Many people rationalize their role in this $80 billion-a-year crime.

Pick your excuse:
Insurance fraud is only a harmless prank...

1. I've paid expensive premiums without making claims for years, so a little fraud lets me get some of my money back.

2. Insurers are rich and can afford to lose a few dollars.

3. It's only a little white lie.

But ultimately, fraud contributes greatly to rising in premiums in almost every line of insurance; auto, homeowner, workers compensation, business and others. With varying degrees of success, fraud fighters have begun paying increasing attention to building a climate of public intolerance toward insurance fraud and the large price Americans pay.
Public awareness campaigns can go a long way toward building support needed to help shut down the fraud business. These efforts can incite public outrage toward cheaters, grow awareness of the price everyone pays, stir fear of getting caught, inspire people to turn in cheaters, and convince consumers to avoid committing fraud themselves. Ultimately, public awareness can help build a national climate of intolerance that makes it harder for insurance cheaters to operate effectively. But so far, outreach efforts by fraud fighters have met with uncertain success. Despite their laudable efforts, fraud fighters have struggled to prove that outreach programs in aggregate have seriously changed people's attitudes, let alone significantly helped reduce fraud as a national scourge.

Current Efforts
Anti-fraud outreach efforts amount to a crazy quilt of disparate efforts that have varying degrees of impact. There are many reasons. Among them is the greater need for:

- More funding. Anti-fraud outreach campaigns often are second-tier priorities with cash-strapped state fraud bureaus and insurers. In some smaller states, especially, fraud-bureau staff resources for public outreach are meager or non-existent.

- More expertise. Fraud bureau investigators sometimes must spearhead outreach efforts themselves, despite little formal training in public outreach. They bring commitment and enthusiasm, but often must learn a complex profession on the fly.

- More manpower. Insurer PR staffs usually must juggle numerous urgent priorities. Same with fraud bureaus. Fraud may or many not be a high priority. Or if it is, then often only for a limited campaign period.

- More coordination nationally. State fraud bureaus, insurers and other anti-fraud groups often operate separately from each other. Each unit may have its own idea what outreach messages and strategies work best.

- More consensus over messages and strategies work best. Little research exists to pinpoint exactly what outreach strategies and messages work best, let alone the audiences that campaigns most need to target.

Original Findings
The first discussion group concluded that public outreach can be a truly effective anti-fraud tool only if all involved groups unite behind a long-term national campaign spearheaded by a diverse alliance of insurance and non-insurance groups. The group recommended a phased effort. The first phase would last five years and work to achieve these goals:

- Average consumers. Target average consumers and borderline criminals who likely can be dissuaded from committing fraud.

- Soft fraud (primary). Focus on soft fraud -- the smaller, garden-variety scams. Public outreach can more-realistically change the attitudes of people who commit these crimes than the career criminals who commit larger-scale fraud.

- Hard fraud (close secondary). Create a national environment of intolerance that empowers honest consumers to fight back against serious cheaters.

- Messages. Create clear and simple themes: Insurance fraud is a crime, everyone pays a high price, getting caught has heavy consequences, and there is a strong likelihood of getting caught.

- Grassroots focus. The campaign will have a strong grassroots focus, using localized strategies wherever practical.

- Insurer funding. Large national insurers likely would be the primary funding sources. The effort would cost several million dollars a year. Exact cost and sourcing needs to be determined.

- Management & Coordination. This still needs to be determined. Who runs the effort: A council of diverse interest groups? Do they hire at PR agency or use staff from participating groups?

Review of Game Plan

This campaign blueprint set the stage for the follow-up session at the IASIU annual seminar in Palm Springs last June. About 30 fraud fighters, mostly from insurers and state agencies, reviewed the current game plan in detail. Here are their consensus opinions.

National Campaign.
The group confirmed the need and value of a truly national outreach campaign. The effort should be localized wherever possible, and should personalize fraud: "How does fraud affect me, and what can I do about it?"

Audiences. We should broaden our audiences to include educating:

- State legislators. The backing of legislators is important to passage of new anti-fraud laws and for securing public funding of the outreach campaign.

- Law enforcement. Law enforcement's backing will enhance the campaign's credibility and possibly lead to more resources being directed toward arrests and prosecution of cheaters.

- Prosecutors: Prosecutors often don't see insurers as true victims, and thus place insurance fraud low on their priority list. The campaign should work to convince prosecutors that they should attack insurance fraud more vigorously.

- Employers. Educate employers of all sizes, since they pay the higher premiums resulting from workers comp fraud.

- Employees. Make sure employees understand the cost of claims fraud.

Public Attitudes. Consumers will fight back if they think their efforts make a difference. People often are reluctant to report suspected scams because they don't believe state authorities will act. In California, however, referrals have skyrocketed since the district attorney's office began giving presentations about its anti-fraud hotline to consumers. The campaign also should address the common consumer attitude that they are entitled to insurance money. "I have paid premiums for many years without making a claim. Now is my opportunity to get a return on the investment regardless of the actual loss I suffered."

Soft Fraud. Broaden the campaign beyond soft fraud. Try to address hard fraud as a primary goal as well. Hard fraud involves too much money and crime volume to be second-tier. The campaign reviewers were uncertain exactly what balance of hard and soft fraud is necessary, however.

Messages. Keep national campaign messages and themes very broad during the first years of Phase One. Avoid too many detailed state-specific messages until the campaign has effectively educated the nation about generally what fraud is, what price we pay, and what we can do about it. Cite specific examples of fraud, and show the punishment cheaters can expect when they're caught.

- Price we pay. Build moral outrage by promoting the price innocent people pay for committing fraud: Equate fraud to other acts that outrage people, such as stealing groceries.

- Punishment. Promote that perps will be caught and punished with jail time. Use real cases to convey the idea that insurers and law enforcement are actively investigating and prosecuting fraud.

- Hotlines. Promoting insurance fraud hotlines should form one prong. This will give consumers a viable way to fight back.

Campaign Tactics

The participants suggested these potential campaign tactics:

- Licensing. Consider licensing campaign themes, materials, ads, PSAs and other material already used effectively by other anti-fraud groups. This could reduce startup time and costs.

- Community groups. Identify and speak to community groups such as local chambers of commerce, employers, professional groups, AARP chapters, AMA/nursing groups, unions and ethnic groups.

- MADD. Borrow campaign ideas from Mothers Against Drunk Driving and other groups that work successfully at the community levels.

Funding

Insurers may not be able to provide all campaign funding. Thus we should diversify our sources. Among the sources:

- Donations. Consumer groups, police unions and other allies might donate funds or services.

- Local fundraising. Ask allied local groups to spearhead local fundraising efforts.

- News coverage. Planting stories with the media can be an inexpensive and effective way to get our messages out.

- Public service announcements. PSAs on radio and TV can be created at low cost, and placed free in local media that are familiar to, and trusted by, the community.

- Government grants?

Consider setting up an independent nonprofit organization to oversee the effort. This would create a focused -- and accountable -- vehicle to ensure the campaign gets going and stays on track.

Conclusion

The Palm Springs group refined and expanded on several aspects of the original game plan, while agreeing on most core elements. These insights are advisory, and will be carefully considered as we continue moving toward a workable campaign plan. Before planning continues, however, we must identify and gather together a small core of leaders who will form the inner circle of change agents. These organizations will work to mobilize a larger council of groups committed to a national campaign. Initially, this council will manage issues such as funding, who oversee the effort, who should take part, whether to hire a PR agency, and related startup issues.

Whether the core council remains in place as a long-term management vehicle or serves only as a short-term startup group will have to be decided. But in any event, bringing together these basic startup elements must occur before the campaign itself can take further shape. Once we have the long-term backing and commitment of key organizations, we can begin working on an outreach campaign that has a visible impact in reducing insurance fraud throughout America.

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Emerging Issues

Introduction

In an ongoing effort to maintain a "live" document, the International Association of Special Investigative Units (IASIU) in conjunction with the National Insurance Crime Bureau (NICB) and the Coalition Against Insurance Fraud convened a working group at the September 2001 IASIU annual conference in order to update the original White paper findings on emerging issues.

In attendance were several members of the original emerging issues committee as well as a cross section of industry professionals. Also present were representatives of the international community specifically, delegates from Sweden and the United Kingdom.
The demographics of this session were much different than the original groups. No State/Federal Regulators or Law Enforcement personnel were present. The group was heavily weighted with industry representatives and there were several people from For-profit entities, which service the insurance industry. Of the insurance participants, the vast majority were from property/casualty companies while only two were from life/health. A breakout of attendees was as follows:

State/Federal Regulators- 0
Law Enforcement — 0
For-profit — 3
Insurance — 30

This compares to the original group of 10/2000:

State/Federal regulators — 7
Law Enforcement — 7
For-profit — 5
Insurance — 17

In order make the session accurately reflect parallels or differences with the original findings, a similar methodology to the one applied in the 2000 Fraud Forum was used in structuring discussion and findings for the IASIU working group of 2001. Four categories of emerging issues were discussed, Fraud Schemes, Fraud Detection, Legal Issues and SIU Management Issues. For each category, emerging problems, threats and opportunities were covered.

Original Findings

In the original forum, e-commerce and the lack of personal contact in evolving distribution mechanisms was cited as a causative factor for the increase in financial schemes involving insurance products, identity theft and the creation of totally fictitious identities.

Special Investigations was viewed as a reactive rather than a pro-active exercise. It was determined that automated systems, some of which were already available for use, needed to be more widely implemented to ferret out "hidden" fraud patterns currently missed by standard file referral methods. Utilization of these tools was seen as a driver for different skill sets that might be desirable in the SIUs of the future, i.e. proficiency in understanding various information technologies such as data warehousing, link analysis and predictive modeling systems.

Diminishing human resources were cited as a problem. Cuts in staffing levels seemed to be prevalent and many carriers were looking for outsource solutions. This trend has led to concerns about the quality and scope of investigations as well as the accuracy of state compliance filings.

The global nature of all business coupled with e-commerce had begun to present a host of prosecutorial problems only seen on a much smaller scale in the past. International schemes involving multiple jurisdictions made it harder to identify and pursue fraudsters criminally. International regulations, varying privacy laws, the Internet and competing priorities in the fight against crime generally, are making prosecution on an multinational level difficult at best.

Finally, several overarching concepts were discussed in the original sessions relative to SIU management's approach to "selling" the value of their programs. It was determined that SIU Managers, "must invest in better selling/marketing to broaden awareness of all types of fraud and the true fraud implication on the business of insurance". Moreover, the, "selling/marketing must lead to a mindset change by senior management. Anti-fraud efforts should be seen as an essential part of the business of insurance by top management for good business reasons". Fraud can no longer be considered a victimless prank, a cost of doing business or an unpleasant but unavoidable part of our insurance business lives, "We must manage fraud not as a necessary expense but as a competitor for our ... corporate assets".

Discussion Summary

The following is a list of bullet points developed by the 2001- working group.

Fraud Schemes

Emerging Problems/Threats:
- Financial fraud — fraudulent securities, bonds or bond look-alikes issued on "company" paper.
- "Theft Packages" used for personal property claims of 100K or more — "rent a receipt" schemes.
- Identity Theft Kits
- Total Identity Creation
- Cloned Vehicles
- Catastrophe fraud resulting from terrorist acts.

Emerging Opportunities:
- Design Internet search strategies to find sites that offer "Packages" and perform "competitive intelligence" on sites to monitor emerging trends.
- Continuing public education for financial fraud.
- Public awareness campaigns

Fraud schemes continue to evolve. Financial fraud using bogus insurance related investment instruments continues to be an issue and the sophistication of the schemes is both broadening in scope and increasing in frequency. "Pre-packaged" do-it-yourself fraud kits are proliferating, some accessible through the Internet. Professional criminals are beginning to profit not only from the fraud they themselves perpetrate, but also from supplying others with the knowledge and means to defraud. Identity theft and complete fabrication of identities is making anti-fraud efforts much more difficult to detect and prosecute. Finally, new ways are being used to commit vehicle fraud by creation of "ghost" cars.

Public awareness was cited as an important means of educating consumers to ways in which they can be victimized by unscrupulous investment scams. Proactive measures to ferret out sources of "package" schemes were cited as the best opportunity to stay current with the latest trends. Creating search strategies to uncover new web sites offering this type of information was discussed.

Parenthetically, this workshop was held the day before the World Trade Center was attacked. Since that time it has become clear that in such disastrous circumstances there is ample opportunity for fraud to occur. Diversion of salvage, business interruption, inventory exaggeration and a plethora of other schemes are beginning to emerge. Even life and accident claims may be suspect.

Fraud Detection

Emerging Problems/Threats
- Privacy issues prevent effective investigation.
- Loss of experienced adjusters.
- Need for U/W automated detection systems similar to those now used for claims - more needs to be done on the front end to prevent fraud from occurring.

Emerging Opportunities
- Data mining.
- Automated referral systems need to be developed and enhanced. Training on those systems must become widespread.
- U/W anti-fraud training must be further developed and implemented (7 people in the session already did U/W training in addition to Claims training).
- The industry must make clear to legislators the impact new privacy initiatives will have on what we do — increased lobby efforts.

Fraud detection is threatened by the proliferation of privacy laws that do not take into account the effect they will have on diminishing the industry's ability to protect itself from illegal schemes. While cited in the original study, fears seem to have increased as bills move forward through federal and state legislatures and laws take effect. Additionally, as companies trim staff, the pool of experienced adjusters is becoming smaller. This phenomenon was sited as becoming a major problem because as the overall level of experience decreases, the likelihood of fraud slipping by increases especially in the absence of automated detection systems. Since savvy adjusters have always been the bulwarks of early fraud detection, this does not bode well for anti-fraud efforts. Partially offsetting this concern is an increasing awareness and reliance upon automated fraud detection systems to uncover both claims AND underwriting fraud in some companies.

Legal Issues

Emerging Problems/Threats
- Trial lawyers have an effective lobby to block anti-fraud legislation and it must be countered more effectively.
- Plaintiff's bar move to eliminate EUO as a duty under the contract (California).
- Multi-jurisdictional problems increasing.
- The perception on the part of criminal prosecutor's that insurance fraud is only a problem for insurance companies seems more firmly entrenched than ever in some jurisdictions.
- Medical/Professional peer oversight agencies/boards do not effectively regulate their members behavior nor do they utilize meaningful sanctions

Emerging Opportunities
- Training/Awareness programs for prosecutors of the financial impact of fraud on the public.
- Increasing use of the Internet as a means to communicate issues — especially to the public.

In the original session, Legal Issues and Fraud Case Resolution were considered two separate areas however, due to time constraints in 2001, these areas were combined. There was a definite feeling among the group that the plaintiff's bar had been more successful in their recent lobby efforts than the insurance industry. Cited, as an example was the move to eliminate the Examination Under Oath, (EUO) as a duty under the contract in California.

Multi-jurisdictional problems reported in the original findings are becoming more troublesome as the insurance business and insurance fraud becomes more international in scope. These problems are projected to increase in frequency and magnitude.

Some problems, which have been around in years gone by, seem to be re-emerging. Prosecutors attitudes about pursuit of fraud were thought to be regressing in that many had the perception insurance fraud was only a problem for the insurance companies and not as a societal phenomenon demanding special attention.

Medical/professional peer oversight agencies continue to be an ineffective alternative to the legal system. The general feeling was that these boards do not effectively regulate their member's behavior nor do they provide meaningful sanctions for those who violate codes of ethics.


SIU Management Issues

Emerging Problems/Threats
- Cost benefit of anti-fraud programs — ways must be found to give executive management a clearer more relevant view.
- Executive insurance company management needs to provide more practical support for their anti-fraud programs to promote adequate staffing and fund the use of new technological tools.
- A declining economy may lead to an increase in insurance fraud at a time when resources allocated to combating the problem are diminishing.

Emerging Opportunities
- Training of SIU management on effective presentation of issues to executive management.
- Better use data to highlight the effectiveness of anti-fraud programs for executive level management.
- SIU management communication with executive level management must shift from "crime fighting" to an emphasis on assisting with the attainment of corporate business objectives, i.e. anti-fraud programs must align with revenue goals and be seen as an integral part of achieving profitability.

SIU management issues must focus on new ways to express the cost benefit of SIUs. It is generally acknowledged that such tools as savings must be augmented by new approaches that convey the business sense it makes to maintain and support a special functional area to fight fraud. Executive management must see the wisdom of bearing the expense of an SIU not just because it's the right thing to do but because it is a sound business practice essential to overall corporate success. This is all the more important now because of the declining economy and pressures to cut costs. SIUs are already understaffed and are being asked to do more with less. SIUs must not be viewed as an area from which "easy" savings can be realized when companies decide to cut operating expenses. The dire financial consequences of such actions must be presented in cogent and meaningful ways so that the true expense to a company can be revealed.

Conclusion

Globalization, technology, diminished resources and developing new ways to illustrate the strategic importance of an effective SIU to overall company profitability are the core emerging issues we are faced with today. SIU management must rise to the challenge by developing new skill sets geared to a rapidly changing environment allowing them to make informed decisions on a range of complex emerging issues. Perhaps most importantly, SIU management must develop new approaches to executive level management so that they see the importance of a successful anti-fraud effort to their company's bottom line and to their own personal success in meeting the profitability goals for which they are held accountable.

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Public/Private Partnerships

Introduction

The purpose of the September 10, 2001 group discussion was to review the identified successful public/private partnerships and strategies used to fight insurance fraud, as published on October 2000, in the Fraud Forum Discussion Papers on Key Issues. Although such partnerships have been highly effective and are considered important to future successes in fighting fraud, there are additional concerns that were brought out and should be considered when using this approach.

Discussion Summary

The discussion group agreed with prior issues and concerns that were previously identified and concur with the recommendations made that could be used to resolve or reduce the impact of the fraud problem by either new public/private partnerships or expansion/enhancement of existing ones.

Specifically, the group agreed that the problems/issues they are confronting include the lack of insurance fraud prosecutions as well as the use of all civil remedies available to punish insurance fraud offenders. Although advances have been made in information sharing between the public/private sector and immunity statutes have been broadened to encourage exchanges of insurance fraud information, better information sharing is required to effectively fight insurance fraud. Training and education of all stakeholders (insurance industry, law enforcement, consumers, and legislators) continues to be an issue that needs more attention. Funding for prosecutors, regulators and law enforcement involved in fighting insurance fraud is limited.

The group also agrees that a lot of focus has been placed on property/casualty and health insurance fraud, but the public sector has limited means to check duplicate/suspicious life insurance claims and the private sector has difficulty identifying the insurer in life insurance fraud cases. The insurance industry is faced with fraud reporting requirements to many agencies (prosecutors, law enforcement, regulatory agencies), which are costly, inefficient and duplicative.

This discussion group agreed with the following recommendations regarding public/private partnerships to fight insurance fraud, as outlined in the Fraud Forum 2000 White paper and added a number of additional recommendations:

Discussion Group Recommendations

- Educate and encourage use of civil litigation/remedies by the private sector in coordination with the public sector ensuring no negative impact for either party. Develop a global education strategy to reach the management structure within Law Enforcement, Prosecutorial Agencies and Legal Bureaus. It is believed that the problems/concerns stem from the lack of understanding by the decision makers in law enforcement and prosecutorial communities.

- Encourage the sharing of information to increase use of license revocations, business closure, inspections of business and services of those involved in insurance fraud. Work with the ethics sections/departments within the particular trade groups and/or associations to encourage them to police their own. Encourage both federal and state agencies to allow and/or mandate public disclosure of adverse information.

- Use the Federal Health Care model to develop dedicated prosecutors and investigative resources to fight fraud.

- Ensure appropriate representation on the Congressional Privacy Commission that is knowledgeable of both the public/private issues and educate the commission about privacy matters needed to fight insurance fraud.

- Educate insurers and law enforcement concerning Department of Justice (DOJ) and Health and Human Services (HHS) guidelines for sharing of insurance fraud information between the public/private sectors, and encourage similar guidelines in state jurisdictions. Develop a horizontal and vertical Communications Strategy that will help explain the overall value of public/private sharing of information to assist in the fight against fraud. Improve and explore avenues to improve sharing of insurance fraud information to include:

1. Educate people regarding legal limits on information sharing.

2. Encourage sharing of training and education programs about insurance fraud between the public and private sectors and among associations fighting insurance fraud.

3. Share obtained public information between these sectors.
- Supply through public/private partnership peace officer standardized training, as well as training for prosecutors/judges and all fraud investigators.

- Explore developing the National Insurance Crime Training Academy (NICTA) concept through a strong public/private alliance. Obtain a written Participation Agreement from all public sector NICTA participants. This should be encouraged due to the high turnover rate and changing agendas within the public sector.

- Create a life insurance claim database accessible by both the public and private sector.

- Work with NICB/ISO to develop one insurance fraud reporting system accepted by all agencies so carriers can efficiently report suspected fraud to one agency that will then distribute the information to all interested parties/agencies.

- Explore a system of "earmarking" a percentage of fines, penalties, restitution, asset seizure against those involved in insurance fraud to fund-dedicated prosecutors, investigators and taskforces fighting insurance fraud.

Conclusion

The Palm Springs Discussion Group was in total agreement with the recommended strategies outlined by the Fraud Forum White paper published in the October, 2000. However, the group made several recommendations as to how the strategies can be enhanced. It is believed that as environments change in both the public and private sector modifications to the strategies may be needed in the future.

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Measuring Fraud and Quantifying Results

Introduction

In 2000, the National Insurance Fraud Forum explored the areas of fraud measurement, the quantification of the incidence of insurance fraud, and the methods to measure the performance of fraud fighters. Participants of that meeting reviewed the obstacles of attempting to quantify such a hidden crime and previous attempts to do so. One of the key obstacles was defining specifically what constitutes fraud, whether measurements should encompass legal definitions, common definitions of other alternatives. Another aspect of such measurement includes the type of fraud to measure (claims fraud, underwriting fraud, insurer fraud), the lines of insurance involved (property/casualty, life, disability, health, etc.) and whether fraud against government insurance programs should be included in the equation. Previous estimates of the amount of fraud are wide-ranging and most lack much scientific basis.

Measuring the performance of SIUs and state fraud bureaus presents challenges on their own. SIUs use a variety of methods to evaluate individual and group performance. Some insurers report they do not use any statistical evaluations such as savings or restitution to gauge performance. Others have developed detailed formulas that consistently seek to measure. One aspect of fraud that is difficult if not impossible to measure is the degree of deterrence that fraud-fighting activities generates. To a large degree the savings generated by deterrence provides a greater return on investment than the current pay and chase mode that many SIUs operate in. The same can be said about fraud bureaus and other law enforcement agencies, although measuring these agencies is somewhat easier because information about them is public and more accessible.

The 2000 Fraud Forum proposed a list of recommendations for the future, including the development of uniform definitions, the development of methodologies to measure all fraud and building consensus among anti-fraud organizations on the current estimates they publish.

Discussion Summary

Since the June 2000 forum, there have been a few developments related to the issue and to the implementation of the recommendations.

In late 2000, Conning & Company, the insurance management and research company, issued a wide-ranging report on insurance fraud and insurer anti-fraud activities. In a 1998 study, Conning estimated fraud at $92 billion, mainly relying on other estimates by line (10% for property/casualty) to arrive at its aggregate total. The new study refines the estimates, providing more details for lines such as life and disability and offers more explanation on how the authors arrived at the estimates. Conning estimates that it costs insurance consumers in 1999 a total of $96.2 billion in higher premiums. This figure is in line with other estimates. However, Conning goes further and estimates fraud cost society a total of $530 billion in total costs of goods and services. The methodology for the latter estimate seems flawed, and may lack credibility with many observers.

Another study issued since 2000 is the study of fraud bureau statistics conducted by the Coalition Against Insurance Fraud. This study provided a five year (1995 to 2000) review of fraud bureau activities and overall concluded that fraud bureaus were becoming more mature and more successful in investigating and prosecuting fraud.

The other development since June 2000 is the creation of a taskforce on fraud measurement created by the Coalition Against Insurance Fraud. This new task force has been charged with investigating the existing estimates, proposing uniform definitions for fraud for the purposes of measurement and exploring methodologies for new research on better gauging the true extend of the problem. The taskforce also plans to review existing methods in measuring the performance of fraud bureaus and SIUs to determine whether any recommendations should be made as well. While this taskforce is just being organized, it plans to have completed its work by the end of 2002.

All of the issues involving fraud measurement were discussed by approximately 70 participants who attended the September 2001 conference of the International Association of SIUs. The participants reviewed the recommendations of the June 2000 Fraud Forum and held that they were still valid and that they still a great need to implement them in order to helped manage the fraud issue and convince the public and policymakers of the seriousness of the problem.

Much discussion also ensued involving performance measurement of SIUs. This group was slightly more in favor of developing measurement tools for insurers to use to measure their anti-fraud operations. There was general agreement that a lack of sound measurement tools leaves SIUs vulnerable to being measured by means that may not accurate calculate their worth to the insurer's bottom line. However, it was strongly voiced that any method of measuring SIUs contribution should be distributed with clear guidance that such measurements must also take into the consideration the intangibles, such as deterrence, that SIUs provide.

Conclusion

Implementation of recommendations to review existing estimates; develop uniform definitions and explore potential new methodologies for estimating fraud. Additionally, guidance should be provided to insurers on SIU measurement in some form.

Lastly, the Coalition Against Insurance Fraud plans to continue conducting its annual study of state fraud bureaus to continue to measure the performance of these agencies. In 2002, there will be a focus on refining the survey instrument to reflect changes that are being made in the capabilities and structure of the fraud bureaus.

Forum Sponsors


The National Insurance Crime Bureau has the mission to combat fraud and theft for the benefit of its customers and the public through information analysis, forecasting, criminal investigation support, training and public awareness.
Website: www.nicb.org

The International Association of Special Investigation Units (IASIU) was founded in 1984 by a handful of insurance industry fraud investigators. IASIU is a non-profit
organization dedicated to:

- Promoting a coordinated effort within the industry to combat insurance fraud;
- Providing education and training for insurance investigators;
- Developing greater awareness of the insurance fraud problem;
- Encouraging high professional standards of conduct among insurance investigators; and
- Supporting legislation that acts as a deterrent to the crime of insurance fraud.
Website: www.iasiu.com

The Coalition Against Insurance Fraud is a national alliance of insurers, consumer groups and government organizations dedicated to fighting insurance fraud through public advocacy and public education. The Coalition's mission is to combine the influence and resources of consumers, government organizations and insurers to combat fraud as a means to restrain insurance costs for consumers and insurers by reducing the financial impact of fraud. Objectives include enacting new laws and regulations to help the fraud-fighting community, communicating the scope of the fraud problem and potential solutions to all major audiences, serving as a clearing-house of fraud information and conducting research.