AIC 30 Chapter 6

The insurer will conduct these activities to identify fraudulent claims

- Detect claims fraud through traditional fraud indicators and through mining social media data - Apply network analysis by examining links and suspicious connections - Apply cluster analysis to discover claims characteristics that might include fraud

Who plays a part in nationwide efforts to detect and deter fraud, as well as prosecute and punish those who commit it?

- Insurers - State and federal governments - Insurance industry organizations

What happens when fraudulent claims are not paid?

- Other insureds pay a lower premium - The insurer can better maintain its solvency

Examples of Exaggerated/Padded Claims:

- Overstated value of property - Overstated severity of injury - Overtreatment for injuries - Unnecessary Treatment for injuries

Cluster analysis

A model that determines previously unknown groupings of data

Internet of Things (IoT)

A network of objects that transmit data to and from each other without human interaction

Intentional Losses

Can be distinguished from exaggerated and false claims. An exaggerated claim is based on an actual loss, but the value of the loss in inflated

Data Mining

The analysis of large amounts of data to find new relationships and patterns that will assist in developing business solutions

Centroid

The center of a cluster

Insurance Fraud

The costliest white-collar crimes in the U.S., second to tax evasion

Two protections commonly found in the law for claim representatives

1.) Extended time limit within which the insured can investigation the claim and accept or deny liability. 2.) Protection to allow the insured not to disclose suspicion of fraud to the insured.

Motives for insurance fraud

1.) Individual financial gain or profit 2.) Sense of entitlement 3.) Participation in organized crime

Insurance Fraud

-Unwarranted financial gain -Often described as a victim less crime because it involves deception rather than violence and the victim is a company instead of an individual Any deliberate deception committed against an insurer or an insurance producer for the purpose of unwarranted financial gain.

Two costliest white-collar crimes in the United States

1.) Insurance Fraud 2.) Tax Evasion

Advantages of a pre-inspection program

1.) Reduce theft claims for non-existent vehicles 2.) Reduce damage incurred prior to the policy coverage being claimed as new damage 3.) Reduce inaccurate reporting of vehicle's garaging or driver

Fraud Indicators

1.) Vague or conflicting information 2.) known attorney or medical provider present 3.) database indicates multiple similar losses 4.) loss occurs soon after policy's inception 5.) uncooperative insured or claimant 6.) no police report exists for theft 7.) claimant threatens to hire an attorney unless settled quickly 8.) attorney letter received immediately after accident 9.) all parties have similar injuries and the same doctor 10.) only address for the claimant is a post office box or motel.

Questions a claims representative can ask when fraud is suspected

1.) What are reasonable or expected actions/responses of the affected party? 2.) Is part of that expected response missing? 3.) Has something been added to the reasonable response? 4.) Is there physical evidence to support the loss? 5.) Is the loss physically possible? 6.) Are records available from a 3rd party that can confirm or refute the claim? 7.) Is there a reliable witness? 8.) Is the fraud indicator based on conjecture or assumption? 9.) Is there a rational explanation for the fraud indicator?

False Representation Statute

A civil law used to protect the public (including insurers) from aggravated monetary loss when proving fraudulent intent is difficult

the government, the insurance industry, and the public

A claim representative's detection of fraud fits into a broader framework of efforts on the part of the following:

Concealment

An intentional failure to disclose a material fact.

Coalition Against Insurance Fraud (CAIF)

A diverse group that includes consumers, insurers, legislators, and regulators. It advocates measures to detect, prosecute, and deter fraud

Misrepresentation

A false statement of a material fact on which a party relies.

Unsupervised learning

A type of model creation, derived from the field of machine learning, that does not have a defined target variable.

SIUs use technology to help detect fraud. How?

Accumulate information about insurance fraud. - Additionally telematics and the Internet of Things offer insurers increasing amounts of data, some of which can be used to prevent fraud

Hard Fraud

Actions that are undertaken deliberately to defraud. - Hard fraud includes schemes to defraud insurers by filing false claims for losses that have not occurred or by intentionally creating losses.

Staged Accident

An accident deliberately caused by a person who intends to feign injury and collect on the ensuing claim.

Civil and Criminal Penalties

Anti-fraud efforts increasingly involve civil or administrative action to punish people who make fraudulent insurance claims

False Claim

Arise when an insured pursues a claim for property damages or injury that did not actually occur. Can also include misrepresentation, concealment or distortion of a material fact.

U.S. Mail Fraud Statute

Defines fraud as a scheme that uses the United States mail to obtain money or property by means of false or fraudulent representations

Soft Fraud (Opportunity Fraud)

Fraud that occurs when a legitimate claim is exaggerated. The perpetrators use the opportunity of a legitimate claim to obtain unwarranted personal gain.

International Association of Special Investigation Units (IASIU)

IASIU offers professional development regarding fraud for special investigators, who typically are employed by insurers, self-insurers, or third-party claim administrators. It organizes an annual education conference and administers the Certified Insurance Fraud Investigator (CIFI) certification.

Material Fact

In Insurance, a fact that would affect the insurer's decision to provide or maintain insurance or to settle a claim.

Data mining

Include network analysis and clustering -- are enabling insurers to more effectively identify patterns in the fraudulent claims activity

"Padding"

Inflating the amount of an otherwise legitimate claim by a small amount. Some "pad" to recovery their deductible amount or even their premium amount. The 2003 Insurance Research Council (IRC) survey found many were tolerant of these forms of fraud.

Edges

Lines

Immunity Laws

Most statutes grant immunity if an insurer reports information but it turns out there is no fraud, malice, or criminal intent

In terms of insurance, intentional losses are..

Not accidental or fortuitous

Motor vehicle Theft Law Enforcement Act of 1984

Passed to reduce the incidence of motor vehicle thefts and facilitate are tracking and recovery of stolen motor vehicle and parts of stolen vehicles

Pre Inspection Laws

Pre-inspection programs are effective in reducing theft claims for nonexistent or phantom vehicles Can deter inaccurate reporting of drivers and vehicle garaging locations

Thieves can adapt

Predictive modeling programs are often more accurate than other fraud detection methods, as they use diverse sources. However, what is one drawback with this software?

Use of computers in fraud prevention

Programs analyze vast amounts of data across different lines of insurance to identify claim patterns and other similarities that may indicate fraud. Insurance Services Office (ISO) offers electronic antifraud databases that enable access to claims related or public records that can be used to gather evidence of fraud.

National Insurance Crime Bureau (NICB)

Provides access to a database that assists in determining whether a vehicle has been reported stolen, but not recovered or has been reported as a salvage - Also provides the public with a hotline and possibly a reward for reporting suspected insurance fraud

Factors related to the insurer that may create an opportunity for fraud

Reduction in on-site inspections; Telephone adjusting; Hesitation to take on the costs of denying suspected fraudulent claims and defending the denial; accepting fraud as the cost of doing business

Anti-Fraud Efforts - State Government

Requiring insurers to form SIUs, develop anti-fraud plans, and place fraud warnings on all applications and claim forms

Elements that constitute a fraud

Someone intentionally makes an untrue representation regarding a material fact. The untrue statement is knowingly made with the intent to deceive. The victim relies and acts on the untrue representation causing them to suffer some detriment.

1.) Returning for treatment after an injury has healed. 2.) Describing a stolen auto as having greater value than it actually did.

The 2003 Insurance Research Council (IRC) survey on the public's attitude toward insurance fraud found respondents less tolerant toward these two areas of insurance fraud.

Network Analysis

The study of the nodes (verticles) and edges (lines) in a network

Telematics

The use of technological devices in vehicles with wireless communication and GPS tracking

Anti Car Theft Act of 1992

This act built on the Motor Vehicle Theft Law Enforcement Act in several ways Including increasing the number of vehicle lines covered by the acts and making dealing with stolen marked parts a federal crime

Public attitude towards Insurance Fraud

Vary with age, gender, and other factors -Public awareness can reduce tolerance of fraud, which in turn helps insurers detect and deter it

The possibility the claim is legitimate

What must claims representatives balance with their suspicion of fraud in their investigation of a suspicious claim?

K-means

an algorithm in which "k" indicates the number of clusters and "means" represents the clusters' centroids

False Claims

arise when an insured pursues a claim for property damage or injury that has not actually occurred.

Nodes

vertices