Property and Casualty Insurance Research

Part
01
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Part
01

Property and Casualty Insurance Best Practices


Some of the best practices used by P&C insurance companies when detecting and handling potentially fraudulent claims include designing an enhanced fraud-fighting strategy, leveraging the latest technology, and conducting pre-insurance inspections.

Best Practices on Detecting Fraudulent Claims

Enhanced Fraud-Fighting Operating Strategy

  • According to Deloitte, one of the best practices for combating fraud in the property and casualty insurance industry is by establishing clear fraud management goals and performance objectives across the national and global enterprise.
  • This includes detailing the objectives that need to be achieved and the way success will be defined. It also includes detailing the performance metrics to be tracked and targeted outcomes.
  • An important aspect of achieving the goal is to "recruit professionals with the core skills in fraud investigation and provide training to continue to develop the skills of existing professionals, both SIU staff and other claims professionals."
  • Staff training can be done using resources provided by the "national fraud academy, a joint initiative of the Property Casualty Insurers Association of America, the FBI, the NICB and the International Association of Special Investigating Units, it is designed to fight insurance claims fraud by educating and training fraud investigators. It offers online classes under the leadership of the NICB."
  • This should also incorporate "early-warning systems that identify fraudulent or suspicious claims by locations, channels, and products." There should also be consistent processes and procedures on how to handle suspected fraud cases that take into account the fact that there can be false positives.
  • The fraud detecting unit should also be integral to all aspects of the company's development. In fact, a study found that 50% of property-casualty insurance companies won’t introduce a new product to the street until the SIU analyzes the fraud-risk exposures.
  • The company has to assess and determine the high priority areas and activities that account for the majority of the company’s fraudulent or suspicious claims and how aggressive they want to be in pursuing fraudulent claims.
  • The company will also need to assess if a centralized anti-fraud unit or decentralized anti-fraud unit, or a mixture of both would best serve its purpose.

Use of Technology

  • The use of technology to detect fraudulent claims is one of the best practices in the property and casualty insurance industry. About 90% of surveyed insurance companies state that they use technology primarily to detect claims fraud.
  • Insurance companies are also investing in technologies such as automated red flags detectors, predictive modeling, data exploration, and link or social network analysis.
  • Companies are also "leveraging advanced modeling techniques such as neural networks, random forests, and regression to uncover subtle fraud patterns and sing geographic coordinates to identify spatial patterns and anomalies."
  • Companies are also using technology to identify trends, circumstantial anomalies, and outliers through exploratory data analysis.
  • The benefit of technology is not just to detect fraudulent claims, but to improve the quality of referrals thereby preventing fraud at the root.

Pre-insurance Inspections


Part
02
of three
Part
02

Property and Casualty Insurance Fraud Teams

The role of anti-fraud Units in a property and casualty (P&C) insurance company is to investigate and identify suspicious claims, as well as to train claim agents on how to identify suspicious claims. The team is either centralized, decentralized, or operated as a mixture of both depending on the company. Although practically all P&C companies have an in-house anti-fraud team, they almost all also outsource some part of their anti-fraud efforts.

The Role of the Anti Fraud Team

  • The role of anti-fraud Units in a property and casualty insurance company is to works diligently to protect the company and policyholders by working to uncover and investigate suspicious claims, and to collaborate with law enforcement agencies in investigations leading to the arrest and conviction of guilty parties.
  • The fraud teams in property and casualty insurance companies are generally called special investigation units (SIUs) and are also in charge of training other members of the workforce and new members of the SIU on how to detect and mitigate fraud. They train "claim representatives to deal with the more routine kinds of fraud cases."
  • Fraud is estimated to account for 10% of the total loss incurred in the property and casualty insurance industry. About $34 billion is estimated to be lost to fraud in the property and casualty industry. The role of the SIU is to help combat fraud and mitigate these losses.
  • The anti-fraud team range from "small teams, 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."
  • The team are also trained to turn over 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), which has special expertise in preparing fraud cases for trial and serves as a liaison between the insurance industry and law enforcement agencies."

How Members Are Trained

  • A high school diploma or equivalent is generally required for a person to work as an SIU specialist, according to the US Bureau of Labor Statistics. However, companies also prefer those with relevant experience in the industry.
  • Having a bachelor's degree is favored by some employers and some require a license. The bachelor's degree required varies. "For example, an engineering degree is useful for investigating claims in factories, while an accounting degree equips you to investigate business fraud. A bachelor's degree in criminal justice is another path to the job of an insurance investigator."
  • Some SIU specialists are also former law enforcement officers, attorneys, accountants, and claim experts.
  • "Insurers have also created a national fraud academy. A joint initiative of the Property Casualty Insurers Association of America, the FBI, the NICB and the International Association of Special Investigating Units, it is designed to fight insurance claims fraud by educating and training fraud investigators. It offers online classes under the leadership of the NICB."
  • All property and casualty insurers surveyed in a study stated that the SIU provided training for their unit and to the claims department.

Outsourcing and In-House Fraud Team

  • Although practically all property and casualty insurance companies in the US have internal fraud units, almost all insurers surveyed reported that they outsourced at least some anti-fraud work.
  • The most common anti-fraud work outsourced is surveillance and special services such as fire origin and cause, and investigation.
  • About 93% (100 — 7%) use their in-house team for case management, with only 7% reporting that they outsource case management.
  • The study also found that only 2% of surveyed companies outsource IT and regulatory compliance related to fraud, which means that 98% (100 — 2%) handle such issues with their in-house fraud units
  • Most companies also use in-house fraud units for anti-fraud training, especially regional companies where only 10% outsource training. About 38% of national companies outsource anti-fraud training.
  • Apart from investigating claims and providing anti-fraud training, anti-fraud units in some companies also oversee claims settlements, claim origin and cause investigation, data analysis, fraud-vulnerability assessments, and medical-provider investigations.
  • In terms of the operational structure of fraud teams, a study found that "many are centralized within the company (42%), some are decentralized (28%) and the same number report a combination (28%). Small- and mid-sized carriers were more likely to centralize than were larger carriers. Also, regional carriers were more likely to centralize than national carriers."

Part
03
of three
Part
03

Property and Casualty Insurance: SIUs

Almost all P&C insurers have special investigation units for fraud in the US and about 90% of all P&C insurers in the US employ technology primarily to fight fraudulent claims. The percentage of P&C insurers that have special investigation units for fraud globally is over 60%.

Role of Special Investigation Units

  • The role of Special Investigation Units in a property and casualty insurance company is to works diligently to protect the company and policyholders by working to uncover and investigate suspicious claims, and to collaborate with law enforcement agencies in investigations leading to the arrest and conviction of guilty parties.
  • SIUs are also in charge of training other members of the workforce and new members of the SIU on how to detect and mitigate fraud. They train "claim representatives to deal with the more routine kinds of fraud cases."
  • Fraud is estimated to account for 10% of the total loss incurred in the property and casualty insurance industry. About $34 billion is estimated to be lost to fraud in the property and casualty industry. The role of the SIU is to help combat fraud and mitigate these losses.

Overview of Qualification and Training

  • A high school diploma or equivalent is generally required for a person to work as an SIU specialist, according to the US Bureau of Labor Statistics. However, companies also prefer those with relevant experience in the industry.
  • Having a bachelor's degree is favored by some employers and some require a license. The bachelor's degree required varies. "For example, an engineering degree is useful for investigating claims in factories, while an accounting degree equips you to investigate business fraud. A bachelor's degree in criminal justice is another path to the job of an insurance investigator."
  • Some SIU specialists are also former law enforcement officers, attorneys, accountants, and claim experts.

Property and Casualty Insurers with SIU

  • As of 2001, 85% of property and casualty insurance companies already had a special investigation unit for fraud.
  • While we couldn't find an exact data on the percentage of property and casualty insurance companies with SIU, it is believed that practically all property and casualty insurance companies have a special investigation unit for fraud today in the US and 90% employ technology primarily to detect claims fraud.
  • Globally, more than 60% of property and casualty insurance companies have a special investigative unit and about 72% have a fraud-fighting culture.
  • The property and casualty insurance industry is ahead of the life insurance industry where 85% currently have a special investigation unit for fraud.

Amount Saved By Insurance Companies

  • According to a recent article by the Insurance Information Institute, "in the 1990s insurers said that for every dollar they invested in antifraud efforts, including in SIUs, they got up to $27 back, but these returns have become harder to achieve as many easy to root out cases of fraud have been eliminated and fraud schemes have become more sophisticated."
  • While more recent data on the amount insurance companies save for every $1 spent on anti-fraud efforts was unavailable, research revealed that in the vehicle insurance industry, "for every dollar invested in reinsurance inspections, $34 in false claims payouts were avoided."
Sources
Sources