Business Insurance RMIS Article

"Insurance Fraud More Likely: Study"

June 2, 2003

by MICHAEL BRADFORD

An increase in insurance fraud is likely during today's tough economic times and agents and insurers with outdated computer systems are particularly vulnerable, an expert contends.

A survey of insurance buyers released earlier this year by Chicago-based Accenture showed that 66% of respondents believed that people are more likely to commit property/casualty insurance fraud during an economic downturn than in times of prosperity. Nearly half, 49%, said they believe people commit insurance fraud because they can get away with it.

"It means we're going to see an increase-given the economic state that we're in right now-in the amount of fraud," said Michael A. Lucarini, a partner with Accenture in Philadelphia.

Accenture commissioned Horsham, Pa.-based Taylor Nelson Sofres Intersearch to conduct the survey by telephone last November. Respondents were 1,030 adults over 18 years of age.

Mr. Lucarini told attendees at the annual conference of the Assn. for Cooperative Operations Research & Development last month that the survey showed 40% of respondents were unlikely to report fraud. "The burden is on the claims organization," he said, to make sure the proper tools and skills are in place to detect and prevent insurance fraud.

"Aging technology and inefficient processes make you a target," Mr. Lucarini stressed.

With more fraud likely and many unwilling to report it, "the theme here is that everything is stacked up against the insurer, from a consumer perspective," said Mr. Lucarini. In fact, 24% of those surveyed said they believe that overstating the value of a claim is acceptable. And 11% approved of submitting claims to insurance companies for items that are not lost or damaged.

Insurance companies should be concerned, he said, and "if you don't address it and institutionalize how you address it, your long-term profitability will suffer."

To stop fraud, "we need something that is much more dynamic than what we have today," Mr. Lucarini said. The system of training claims handlers to recognize red flags in claims and refer them to special investigative units is not an efficient way to address the problem, he said.

A computerized method of checking claims, not just when they are reported but also when changes are made, is a better way of determining whether fraud is being attempted, Mr. Lucarini said.

Simply put, such a system can be designed so that claims are first sent to Insurance Services Office Inc.'s claims search service so that they can be compared with "all insurance company data as opposed to just our own data," Mr. Lucarini pointed out. Once that process is completed, claims should be filtered through a fraud detection package, he said, and results from both processes can be sent to a computer system accessed by adjusters, investigators and claims recovery personnel.

"What's important to understand is that every time the data changes...this process has to repeat itself," Mr. Lucarini said. If a new participant, such as a doctor or attorney, is added to a claim, or addresses, Social Security numbers or other "potential indicators that would change our score" are resubmitted, the claim should be rechecked, he said.

The technology won't make a decision as to whether fraud is being attempted, Mr. Lucarini noted, but will indicate a decision needs to be made.

Despite the fact that nearly half of those surveyed believe fraud is committed because the perpetrators believe they won't get caught, a large percentage think insurers already have the means to detect fraud. Eighty-three percent said they think insurers are capable of identifying or preventing fraud related to property/casualty claims.

And, 80% said it is either extremely important or very important for insurers to investigate fraud.