Digital technology is upending many aspects of insurance and that includes the industry’s ever-present shadow – fraud.
On one end, increasingly accessible technology such as scanners and printers are making it easier than ever for fraudsters to fake receipts for false claims. On the other side, fraud investigators are making increasingly sophisticated use of metadata and statistics to pin down fraud.
The Insurance Fraud Bureau of Australia (IFBA) is a well-muscled arm of the Insurance Council of Australia (ICA). The IFBA’s members, several of whom come from a law enforcement background, and others represent major insurers from within the industry, has its sights set firmly on professional, organised fraud. This is an issue, it says, that costs the Australian insurance industry up to $2 billion annually.
The community pays for it in the long run. The cost of fraud goes back to the consumer.
The IFBA is understandably reluctant to discuss details of their current investigations, but they say they include a large syndicate in Melbourne operating staged motor vehicle accidents and another motor vehicle syndicate in NSW involved in the repair of damaged vehicles.
“One of the sad things about fraud is that the general opinion is that it is a victimless crime,” says the IFBA’s Laurie Ratz, an ex Victoria Police officer and now Special Risks Manager within the ICA. “But that is not the case. The community pays for it in the long run, whether it is insurance fraud, bank card fraud, credit card fraud etc. The cost of the fraud goes back to the consumer.”
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The IFBA, Ratz says, is currently working to analyse the exact scope of the problem within the insurance field. A study from eight years ago, he says, revealed that fraudulent claims cost the industry about $73 per policy, assuming 10% of claims are fraudulent in some way. “The 10% estimate would certainly be close to the truth,” Ratz says. “That is the experience we’re seeing overseas as well. We follow the trends in the UK, the USA and Canada and they would be looking at a similar percentage, even though the types of products they offer are slightly different.
“Fraud is certainly significant and we’re trying to benchmark at the moment with the industry. We’re trying to measure it and see if it is growing. And I would confidently say that it is growing.”
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So how does the industry fight fraud in an environment where their investigative processes may be shackled by factors such as privacy laws and anti-competitive regulations?
“The key in the identification of suspect insurance claims is raising awareness among all claims frontline staff,” says Kevin Walsh, Chubb’s Special Investigations Unit (SIU) Manager. “Chubb SIU regularly runs fraud training programs concentrating on recent case studies, fraud indicators and the potential actions of a suspect claimant. This training empowers claims staff to adequately explain the role of the SIU to our clients and insureds. A small quantity of suspect claimants have withdrawn their claims with no reason provided, once they know their claim will be investigated.”
“It is also important to provide training to brokers so that they understand why the SIU may investigate a claim. An SIU investigation does not necessarily mean the claim is fraudulent. It may simply mean that more information is required so a determination can be made on the claim.”
Chubb utilises what it calls predictive modelling, which Walsh says allows insurers to discover hidden relationships in volumes of big data, and to use those insights to confidently predict the outcome of future events and interactions.
“For example, predictive modelling enables identification of a greater percentage of fraudulent insurance claims and allocates them for urgent investigation, and just as importantly, allows identification of genuine claims so they can be paid quicker,” he says.
Ratz says the IFBA similarly attempts to recognise patterns, including the early identification of opportunities – spotting the likely methods that would be used by the bad guys even before the bad guys know about them.
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So where are the big fraud trends occurring? Ratz says it used to be thought that as soon as the economy turned downwards, fraud would rise. But that is no longer true, he says. Fraud is now a constant. “What we do see are trends in how it is
committed,” Ratz says. “The thing we see most of the time is organised fraud involving motor car claims. That could be staged accidents or rebirthing of motor cars and those sorts of things. It is a big industry and there is a range of issues that we deal with.”
“We have seen an increase in fraud in travel insurance, probably because a lot more people travel now than they did 10 or 15 years ago. Finally, we’re also seeing an increase in fraud in everyday property insurance, like contents claims. But certainly motor car claims are our biggest focus.”
Walsh says technology such as scanners and colour printers, to create fraudulent invoices with which to make claims, are tools of the fraudster trade. But technological advances, including metadata and predictive modelling data sets, are being used with great success by those fighting fraud, too.
“Professional insurance fraud is about searching for an opportunity,” Ratz says. “And fraud is a dynamic industry. The insurance industry writes a lot of policies each year. They process hundreds of thousands of claims. They pay out 98% of claims.
“So there is a lot of money coming in and a lot of money going out. So from time to time it opens up those opportunities for those intent on committing fraud. Certain people seek out these opportunities then have a go at them. And it’s our job to stop them.”