Insurers' Antifraud Measures: Insurance companies are not law enforcement agencies. They can only identify suspicious claims, withhold payment where fraud is suspected and to justify their actions by collecting the necessary evidence to use in a court. The success of the battle against insurance fraud therefore depends on two elements: the resources devoted by the insurance industry itself to detecting fraud and the level of priority assigned by legislators, regulators, law enforcement agencies and society as a whole to eradicating it.
Special Investigation Units (SIUs): Many insurance companies have established special investigation units (SIUs) to help identify and investigate suspicious claims; some insurance companies outsource their units to other insurers. In 1999, 40 percent of property/casualty insurers had SIUs, according to the Coalition Against Insurance Fraud. By 2001, that proportion had more than doubled.
These units range from a small team, whose primary role is to train claim representatives to deal with the more routine kinds of fraud cases, to teams of trained investigators, including former law enforcement officers, attorneys, accountants and claim experts to thoroughly investigate fraudulent activities. More complex cases, involving large scale criminal operations or individuals that repeatedly stage accidents, may be turned over to the National Insurance Crime Bureau (NICB). This insurance industry-sponsored organization has special expertise in preparing fraud cases for trial and serves as a liaison between the insurance industry and law enforcement agencies. In addition, it publicizes the arrest and conviction of the perpetrators of insurance fraud to help deter future criminal activities. Insurance company surveys confirm that SIUs dramatically impact the bottom line of many insurance companies.
In the mid-1990s insurers said that for every dollar they invested in antifraud efforts, including SIUs, they got up to $27 back, but these returns have become harder to achieve as the more apparent fraud schemes have been uncovered and more effort is necessary to ferret out the sophisticated fraud that remains. A 2000 study by Conning Research & Consulting suggests that results vary widely. Using the ratio of "claims exposure reduction" to the expense of running SIUs, the study found ratios ranging from a low of 3 to 1 to a high of 27 to 1, depending on the year and line of insurance. Although some insurers are cutting back on fraud investigation by outsourcing investigations and dissolving their fraud units, advances in software technology, especially programs that sift though the millions of claims that large health insurers process annually, are proving effective in fighting fraud. These "data mining" programs can uncover repetitions and anomalies and analyze links to fraudulent activities or entities. (See below.)
New Technology: The consolidation of insurance industry claims databases has put a valuable new tool in the hands of investigators. ISO's system, known as ClaimSearch, utilizes a data-mining program. ClaimSearch is the world's largest comprehensive database of claims information. The NICB has developed a program called Predictive Knowledge, which collects and analyzes information that can be disseminated to insurers and law enforcement agencies to detect, investigate and prevent insurance fraud. In addition, the NICB, in partnership with iMapData Inc., has a progarm called CATfraud, which identifies potentially fraudulent catastrophe/weather-related insurance claims.
The latest technology offers valuable tools that can help insurers fight fraud before it occurs. Software can verify the accuracy of information provided by prospective policyholders on application forms. These systems are relatively new but may be able to eliminate potentially fraudulent claims at the point of underwriting instead of after a claim. Once a claim is made, insurers can use a number of different software tools, ranging from voice stress analysis and "red flag" identifiers to datamining and database searching. Software is also available to compare claims to baselines or thresholds developed from examining many similar claims. Analysts are able to determine if the claim they are handling is an exception to the norm.
Fraud Academy: A national fraud academy - a joint initiative of the Property Casualty Association of America, the FBI, NICB and the International Association of Special Investigating Units - was designed to fight insurance claims fraud by educating and training fraud investigators. It offers online classes under the leadership of the NICB.
Privacy: An emerging issue for insurers using data sharing services is their impact on privacy. Financial institutions, including insurers, must respect the privacy of their customers and protect their personal information, a practice that may deter efforts to combat fraud. The federal financial services deregulation legislation, the Gramm/Leach/Bliley Act of 1999, raises this issue.
RICO: Insurers may also file civil lawsuits under the federal Racketeering Influenced and Corrupt Organizations Act (RICO), which requires proving a preponderance of evidence rather than the stricter rules of evidence required in criminal actions and allows for triple damages. Since 1997, some of the largest insurers in the country, especially auto insurers, have been filing and winning lawsuits against individuals and organized rings that perpetrate insurance fraud.
State Legislation: While insurance fraud, like other types of fraud, is illegal in all states, some laws are more effective in fighting it than others. It is easier to prosecute cases of insurance fraud in states where it is identified as a specific crime in the penal code and where what constitutes insurance fraud is defined, along with the penalties that can be imposed. Where insurance fraud is not specifically mentioned, it falls under general fraud provisions such as fraud by deception. The level of seriousness attached to the crime also varies by state. Some states classify insurance fraud or certain types of insurance fraud as a felony, others as a misdemeanor, a lower level of crime. Some classify insurance fraud as a felony when more than a certain dollar amount is involved.
Privacy laws protect the rights of policyholders and claimants against the release of information considered confidential. However, to successfully bring a case to trial, insurers must be able to provide information to prosecutors on individuals suspected of fraud. Immunity laws that allow insurance companies to report information without fear of criminal or civil prosecution now exist in all states, but not all laws cover insurance fraud specifically, or allow information to be reported to law enforcement agencies as well as to state departments of insurance. Many are limited in other ways, providing protection against libel suits or violation of unfair claims practices acts only in auto insurance fraud, for example, or arson investigations. Some experts believe that immunity laws should be extended to also include good faith exchanges of certain kinds of claim-related information among insurance companies. The National Association of Insurance Commissioners has developed model bills for immunity as well as insurance fraud laws to encourage states to address the problem of insurance fraud and to assist them in formulating appropriate legislation.
Most states have set up their own fraud bureaus, often with insurance industry funding. Many have law enforcement powers. In some states, laws require insurers to establish SIUs and to file antifraud plans with the insurance department. The NICB has set up a standardized computer program to eliminate duplicate reporting and to speed up the electronic transmission process.
Source - http://allafrica.com