The magnitude of insurance fraud surprises even insiders when they see the
numbers. Property-casualty fraud is estimated by the Insurance Information
Institute at $32 billion per year. The Coalition Against Insurance Fraud (CAIF)
estimates further that fraud comprises up to 10 percent of loss and loss
adjustment expense each year. Finally and overall, according to the CAIF
estimates, annual fraud costs $80 billion per year across all lines of
insurance.
That's $400–$700 per year in increased premiums and costs the average
consumer $900 per year in reduced compensation. Clearly, claim fraud is a
significant problem for the insurance industry and one that is growing in the
workers compensation line even while average claim frequency is on the
decline.
Insurance Fraud as a Crime?
The states ascribe significant importance to insurance fraud as well. The
District of Columbia and 48 states make insurance fraud a specific crime.
Further, the District of Columbia and 41 states have a fraud bureau dealing
with multiple lines, solely workers compensation or both. Importantly, all but
14 states have statutorily mandated fraud reporting requirements, typically
defined as only requiring a "suspicion."
Insurance companies have been viewed by many as justifiable targets of fraud
and malingering and other behaviors that most would agree are less than honest.
This is a cultural problem in America and elsewhere and is reflected in a March
20, 2013, Insurance Journal survey of US consumers titled "Insurance
Fraud: A Public View, 2013 Edition," which shows the following.
- 24 percent believe it is acceptable to pad an insurance claim to make up
for a deductible.
- 18 percent believe it is acceptable to pad a claim to make up for
premiums paid in the past.
- 55 percent say poor service from an insurer is more likely to cause
fraudulent behavior.
- 76 percent say they are more likely to commit fraud during an economic
downturn (up from 66 percent in 2003).
- 68 percent say they believe insurance fraud happens because people
believe they can get away with it (up from 49 percent in 2003).
I believe many of these beliefs and behaviors were born in or at least
exacerbated by the Great Depression of the early 1930s. Another survey by the
CAIF in 2014 found the following.
- 20 percent of US adults say it is acceptable to defraud insurance
companies under certain circumstances.
- 10 percent of those agree it is okay to submit phony or exaggerated
claims.
- 40 percent say they are "not very likely" or "not likely
at all" to report someone who defrauded an insurer.
This last finding is what should really concern those who care about this
exposure. Why? Because the Association of Certified Fraud Examiners in their
2014 Report to the Nations on Occupational Fraud and Abuse shows
that "tips" are by far (43.3 percent) the most common way in which
fraud is detected. Unfortunately, other sources suggest that, even when
"tips" come in, they are often well after the fraud (some up to 18
months later), making recovery far less likely. This problem is cultural, both
in society and within organizations, and is simply a microcosm of overall
culture.
Why Commit Insurance Fraud?
The famous criminologist Donald Cressey put forth the theory of the
"fraud triangle" as to why people engage in fraudulent activities. It
is based on the following three key elements.
- Motivation
- Opportunity
- Rationalization
These correlate to three key questions that people pose as they consider
engaging in fraud. First, "Do I have a reason to commit fraud?" The
biggest driver is, not surprisingly, personal financial gain driven by greed
and life pressures both on and off the job. Second, "Can I get away with
it?" Success for the fraudster often requires weak internal controls and
collusion with others, even with a solid control environment and/or reckless
dishonesty, regardless of controls. As has been shown repeatedly when caught,
criminals often behave as if they have no brain. In other words, it's
amazing how stupidly criminals behave.
The third and final question is "Can I live with myself?" This
reflects the ability to persuade oneself that something wrong is really not.
Often, all internal restraints have been removed and an entitlement mentality
rules. The answers these culprits provide themselves include the following.
- "Everyone is doing it."
- "The company owes me."
- "I will replace the money soon."
- "No one will get hurt."
Of course, seldom are any of these self-delusional statements actually
true.
Insurance Fraud Red Flags
Every type of claim has "red flag indicators" that allow claim
professionals to know when to refer a claim to a special investigative unit for
more in-depth review by a properly trained and experienced fraud investigative
professional. This is important to achieving the efficiencies needed by claim
administrators where, like everywhere, limited resources need to be
appropriately allocated to where they can produce the best results. Fraud
experts suggest that two or more of these elements are good indicators of
likely fraud.
In the workers compensation world, there are common indicators of fraud. The
top 10 include the following.
- Monday morning first reports of injury
- Suspicious providers
- Conflicting accident descriptions
- Refusal of medical care
- Hard-to-reach injured workers
- Changes in employment
- Lack of witnesses to the accident
- A history of making insurance claims
- Late reporting of the accident facts
- Changes in doctor, address, phone numbers, etc.
The Influence of Social Media
If there is any doubt about the pervasive nature of social media, consider
the following facts.
- Facebook has nearly 1.2 billion users—23 percent check their account at
least 5 times a day.
- There are over 3 million company pages on LinkedIn and 238-plus million
users.
- On Twitter, 288 million monthly active users send 400 million tweets a
day.
- On YouTube, 100 hours of video are uploaded every single minute.
- Of social media users, 35 percent admit to posting something they later
regretted.
- Over 1.7 billion people are on Internet social networking sites.
Social networking sites have changed the way people interact and are used
daily by over 70 percent of the US population. They will continue to increase
the amount of information available to investigators as people love to share
and promote themselves, their own brand, and their popularity. Fear of being
left out and addiction are often cited as key drivers for the growth of social
media use.
With these facts in mind, it is clear that social media is both here to stay
and will be a growing source of information used for a variety of purposes,
including identifying and shutting down fraudulent insurance claims.
Detecting Insurance Fraud
So, now that we have a better understanding of what the predicates of fraud
are and why people do what they do, let’s move on to how we detect and address
it with an emphasis on how social media has become one of the biggest boosters
to successful fraud detection and prosecution. It used to be that proving claim
fraud meant hiding in the bushes to catch claimants doing things they said they
couldn’t. While sometimes successful, getting useable evidence was expensive
and sometimes dangerous. This is not to say that this method is no longer used
or useful; in fact, it is. But there are many other methods for dealing with
suspected fraud that are typically applied on a customized basis, depending on
the case facts and other circumstances.
One of those that has proven highly productive is social media
investigations. This is the method of having trained investigators dive into
the social networks of claimants (e.g., Facebook, Myspace, LinkedIn, etc.),
sifting through typically personal information looking for court-admissible
evidence that has the potential of stopping suspected fraudulent behavior and
terminating the related claims.
Fundamentally, social media investigation is applied to further develop the
basic investigative information generated by most every insurance claim,
including witnesses, claimant identification, claimant activity, evidence of
disability, appropriateness of medical care, etc. But, where social media is
particularly rich and often uniquely applied is in its ability to find and
leverage relationships tied to claimants that can point to and ideally validate
suspicions of exaggerated and/or illegal conduct. These often validate the “red
flags” and related proof of the suspected behaviors.
To use this tool most effectively, it is important to understand that
skilled expertise is required. As a result, it is not typical for the frontline
claim professional to attempt to leverage social network sources, as much as
many of them might want to and even feel qualified to do so. In fact, the
common rules of evidence suggest that delving into this source of information
should be done carefully and with specific and targeted intent. In other words,
beyond using properly trained and credentialed fraud professionals, knowing
where to go on the Web, how to get there, and which information and in what
form may be most useful require professional fraud expertise in the use of
social media. Nevertheless, certain limited prereferral to a special
investigation unit (SIU) activity can be done by the claim file handler to
validate the potential for a deeper dive into the world of social media on the
Web. This activity might take the form of the following.
- Gathering the basic facts
- Providing photographs of the claimant
- Identifying witnesses
- Identifying other stakeholders in the claim
- Identifying red flag indicators of potential fraud
- Securing Web addresses, emails, and other Internet-based information that
may assist the SIU
- Gathering other facts that may help narrow social media
investigation
Once completed, the key questions to be asked are the following.
- What am I missing?
- What do I think might be gained from a referral to the SIU for social
media investigation?
- What information may need verification or further validation?
- What "hunch" do I have that needs further development?
From these questions, the referral to the SIU can then be made, and the
appropriate tools can be selected to mine the Internet for answers. Among the
many tools that are commonly employed are the following.
- Algorithm-driven Web crawlers—both free and subscription-based
- Website change trackers, such as ChangeDetection.com
- Google alerts and advanced Google search
- Internet archives, such as the Wayback Machine
- License plate recognition technology
- Geofencing
Each of these has specific and narrow purposes, but all are part of the
social media investigative toolkit that allows access to more information to
support effective claim resolution more than ever before. Many experts opine
that these tools have provided unprecedented advances to the investigative
discipline so needed in a world of increasingly dubious motivations.
When the Law Steps in
It's important to understand that lawyers representing many claim
consumers have made understanding their clients' social network profile a
top priority. This should not be a surprise since they don't want to be
surprised downstream when Web-based evidence might come forth in a court of law
and be potentially dispositive to the legitimacy of a case. If they're
concerned, then we know the claim professional must take this new source of
intelligence seriously.
We should not forget to ensure we follow the law. And while there are not
many directly applicable laws that confine social network investigations, there
are privacy laws that are most applicable. Among them are the National
Association of Insurance Commissioners Insurance Information and Privacy
Protection Model Act (NAIC 670-1) that appropriately urges ethical behaviors
when engaged in data collection and use, regardless of the sources. They
loosely align with the model laws for professional conduct that are applicable
to behavioral expectations for lawyers.
Here are a few things to keep in mind relative to the use of Facebook and
similar competing social networking sites.
- Messages are never deleted, including chat and emails.
- Check-ins are never deleted.
- Only credit card and passwords are encrypted on most sites.
- Every "friend" request, even those you rejected, are stored
indefinitely.
- Pokes are never deleted.
- "Unfriends" either way are always in the database.
- The IP address used each and every time you've logged in is saved
indefinitely.
- Camera metadata, including time stamps and latitude/longitude of picture
location (geotagging), are also saved indefinitely.
Finally, there are two laws that investigators should pay particular
attention to when engaging in this work. First, the Stored Communications Act
of 1986 prevents "providers" of communication services from divulging
the content of private communications, such as electronic messages, to certain
entities and individuals. Second, the Electronic Communications Privacy Act of
1986 limits the legal authority of "a person or entity providing an
electronic communication service to the public" to disclose either the
contents of electronic communications (email or instant message) or subscriber
information. While not created specifically for the constraint of the social
media investigators, these laws are germane to this activity. For more on the
ethical questions and concerns around this type of investigative work, see the
white papers at the links at the references listed below.
Many courts have permitted the discovery of social media content. To be
useful, discovery demands must be narrowly tailored to produce relevant
information and be reasonably calculated to lead to the development of
admissible evidence. As a result, courts have upheld social media evidence in
various decisions as a valid evidentiary source, and claims have been
terminated as a direct result. Even without direct court adjudication, claims
have been successfully denied based on social media-sourced evidence in not
just workers compensation but auto and general liability claims as well.
Clearly, social media must be considered in cases where it may lead to a better
and/or quicker claim resolution and help motivate more integrity in the
presentation of insurance claims of the future.
References
- Mariam Adedoyin-Olowe, Mohamed Medhat Gaber, and Frederic Stahl,
A Survey
of Data Mining Techniques for Social Network Analysis, December 17,
2013.
- Yeslam Al-Saggaf and Md Zahidul Islam, "Privacy in Social Network Sites (SNS): The Threats from Data
Mining," International Journal of Communication
Ethics, January 2012.