New Ways To Fight Fraud
Today’s insurance fraud schemes may surprise you. They evolve rapidly, keeping pace with the rise of new technologies and risks. For example, after a data breach at a large business, a criminal can gain access to employees’ and customers’ personal information. If the criminal is able to access personal information from stolen documents, he may be able to use the stolen identity to cash in on policyholders’ insurance benefits. Identity theft is on the rise, and is now being used to target insurance companies. Fighting fraud in the digital age requires new solutions. AIG has developed a cutting-edge, holistic approach to combat the crime.
“We have a moral obligation to the community to be tough on fraud,” says Tim Gladura, AIG’s Head of Global Claims Services. Fraud costs the insurance industry tens of billions of dollars each year, and this cost affects clients’ premiums. For the average family in the U.S., the cost of insurance fraud is hundreds of dollars annually.i “It’s in everybody’s best interest to be diligent and combat fraud,” emphasizes Gladura, whose Claims Services organization partners with Claims and Underwriting teams across AIG to help prevent and address insurance fraud. This year, in a new, holistic initiative to address fraud, AIG is participating in International Fraud Awareness Week, launched by the Association of Certified Fraud Examiners to promote anti-fraud awareness and education. The event will address all types of fraud to include insurance and financial frauds, and is a joint effort led by Global Claims Services, Global Legal Compliance and Regulatory, Operational Risk, and Communications. Through live and virtual training events around the world, as well as keynote addresses by speakers in New York, the UK and Europe, and Tokyo, AIG will showcase its ability to pinpoint new trends in fraud and share effective methods to help prevent fraudulent activities.
Fraudsters, from simple opportunists to members of organized crime rings, impact the insurance industry and our clients through a broad spectrum of duplicitous acts. In claims fraud, one of the most common forms of insurance fraud, fraudsters misrepresent their losses. For example, a fraudster might claim that his property was stolen when it was not. Or, after a legitimate theft, the fraudster might wrongfully claim the stolen property to be extremely valuable. Fraudsters may also commit application fraud, misrepresenting facts on insurance applications in order to mislead the underwriter about the nature of or extent of the risk. For example, a fraudster might lie about his health when he takes out a life insurance policy. In premium fraud, a fraudster may misrepresent his workforce in order to obtain a lower premium—for example, claiming that he employs only administrative staff, when in fact he leads a team of construction workers, so as to save money on workers’ compensation insurance.
Research suggests that insurance fraud may be rising. In mid-2016, of the 86 insurers surveyed by the Coalition Against Insurance Fraud, 61% stated that suspected frauds had increased since 2014.ii Yet despite the proliferation of fraudulent activities and their heavy cost, many in society still believe insurance fraud to be a victimless crime. A study by the National Insurance Crime Bureau, the International Association of Special Investigation Units, and the Coalition Against Insurance Fraud found that tolerance of insurance fraud by honest members of the public represents one reason why the crime persists.iii Increasing public awareness of insurance fraud may therefore help to deter fraudsters and to keep everyone’s premium costs down.
Today, insurers such as AIG are at the forefront of fighting fraud, as the growth of data science and advanced analytics enable ever more effective methods to help pinpoint and prevent fraudulent activity before it impacts our clients. AIG’s approach to fighting fraud begins with our client-facing forms, where ‘nudges’ designed by behavioral scientists subtly help to deter policyholders from committing fraud. To help identify sources of suspicious claims, AIG’s Global Investigative Services (GIS) uses proprietary Fraud Data Analytics that harness techniques such as machine learning and other sophisticated tools to quickly analyze industry trends, key fraud indicators, and historical claims experiences.
Meanwhile, working across the globe in 30 countries, GIS investigators apply insights gained from AIG’s Intelligence Unit, predictive models, fraud-detecting technologies, and rules-based systems to work with Claims and Underwriting to skillfully pursue and stop fraudsters. These blended investigative teams include individuals with extensive backgrounds in insurance and in law enforcement, such as former members of the FBI. “Starting with the training of our teams, we are able to triage and identify suspected fraud and then investigate it efficiently,” says Gladura. In addition to uncovering clients’ vulnerabilities and implementing tactics to stop fraudsters, AIG delivers hands-on training to clients and their employees to help improve awareness and the ability to combat fraud.
AIG’s three-pronged approach of data-driven technologies, insight-driven investigators, and close partnership with our clients empowers our business partners and clients to target suspicious activities and put valuable solutions in place. Our Client Risk Solutions (CRS) team is working to make analytics available to our clients to help reduce the cost of workers’ compensation claims. “The models indicate that 15-20% of workers’ compensation claims activity in certain industries is suspicious and requires further investigation,” says Stephen McKay, Global Head of Industry Services for CRS. “That doesn’t mean that 15-20% is actually fraudulent, but the models allow you to be much more efficient in how you investigate suspicious claims.” The analytics and subsequent fraud reduction can be an important contributor to how we work with clients to bend their overall loss curve. “The advantage of Client Risk Solutions is to bring those analytics to life and offer solutions to help reduce the risk,” says Anthony Lyons, Global Head of Analytic & Technical Services for CRS.
AIG’s approach to fighting fraud is constantly moving forward. The breadth and depth of big data has allowed fraud investigators to both “identify the larger patterns” and “pinpoint the nuances of potential fraud activity,” says Ed Tavares, Global Senior Manager, Intelligence and Analytics, for AIG’s GIS Intelligence Unit. Today, data and analytics “give us more perspective,” allowing our Special Investigations Unit “to work with laser pointer precision,” says Tavares. Yet now, the Unit’s intelligence approaches are moving even beyond state-of-the-art data mining. Today new approaches such as text mining can help identify specific terminology within claims, and social networking methods can help analyze the relationships among individuals, companies, vehicles, assets, and data. These are just a few techniques that AIG is exploring to help combat fraud. Furthermore, as the Internet of Things expands, there may be “opportunities for us to detect and deter fraud before it happens using technologies that are connected to the internet,” explains Tavares. Moving into the future, his organization seeks to automate the process of fraud detection to provide refined, holistic, real-time intelligence.
Fraudsters continue to create new schemes to match the explosion of digital transactions and communications. In addition to the rise of data-breach-related identity theft to steal policyholders’ life and retirement savings, another new form of fraud is “fake holiday sickness,” which has surged in the UK travel insurance industry since 2013.iv In “fake holiday sickness,” claim, companies that manage claims may use web and social media advertising to recruit travelers to retroactivity claim or exaggerate illness during their vacations. Claims firms may further encourage travelers to claim fake holiday sickness by instructing them on which evidence to submit when filing claims and by wrongfully stating that there is no penalty for claiming fake holiday sickness. Web-based insurance transactions, which may bypass face-to-face questions about policies, are also providing today’s fraudsters with new ways to test their underwriting scams. Sophisticated fraudsters may target websites that offer direct insurance to “test the system,” submitting multiple insurance applications online in order to pinpoint the specific characteristics that cause a policy to be flagged for review.v
Meanwhile, traditional types of fraud remain ever-prevalent. In a “swoop and squat,” a type of staged accident, a suspect vehicle swerves in front of a car, causing the driver to rear-end the vehicle. The passengers in the suspect vehicle pretend to have suffered painful injuries and file large collision and injury claims against the driver, although the collision occurred at low speed. In a “malingering” claim, workers pretend to be disabled when they are not, or pretend to remain disabled even after having healed from a legitimate injury, in order to receive workers’ compensation payments. Today, as social media increasingly publicizes information on individuals’ daily activities, fraud investigators have an even better view into which individuals are working or engaging in activities they would not have been able to, had they truly or actually been disabled. Whether the form of fraud is new or old, honest companies and consumers still pay the price—whether directly, to cover others’ fraudulent claims, or indirectly, through higher premiums in the insurance marketplace.
Helping fight insurance fraud is a society-wide effort. Learning more about these crimes and speaking up when you see fraudulent activities can help create a safer, more honest environment in your business and community. Ultimately “the battle against insurance fraud will be strengthened” when the public has “honest advice and information they trust,” emphasizes the Coalition Against Insurance Fraud.vi To learn more, visit The Coalition Against Insurance Fraud and the National Consumers League’s Fraud Center. If you suspect that insurance fraud involving AIG is occurring, has occurred, or will occur, we ask you to report the matter to AIG Global Investigative Services by emailing ReportFraud@aig.com, by calling 1-646-857-0438, or by filling out this online form. To the extent that tips and referrals are received, we take every possible measure to keep all emails and calls confidential. By offering your assistance, you play a crucial role in helping our industry work to protect clients and communities.
i “Insurance Fraud.” FBI. https://www.fbi.gov/stats-services/publications/insurance-fraud. Accessed 1 Nov. 2017.
ii “The State of Insurance Fraud Technology.” Coalition Against Insurance Fraud, Nov. 2016. http://www.insurancefraud.org/downloads/State_of_Insurance_Fraud_Technology2016.pdf. Accessed 1 Nov. 2017.
iii “What Is Insurance Fraud?” Utah Insurance Department, 20 Jul. 2017. https://insurance.utah.gov/consumer/fraud/what-is-fraud. Accessed 1 Nov. 2017.
iv Association of British Travel Agencies Press Team. “ABTA and travel industry partners launch ‘Stop Sickness Scams’ campaign.” Association of British Travel Agencies, 20 Jun. 2017. https://abta.com/about-us/press/abta-and-travel-industry-partners-launch-stop-sickness-scams-campaign. Accessed 9 Nov. 2017.
v “Background on: Insurance Fraud.” Insurance Information Institute, 22 Sept. 2017. https://www.iii.org/article/background-on-insurance-fraud. Accessed 1 Nov. 2017.
vi “Outreach materials.” Coalition Against Insurance Fraud. http://www.insurancefraud.org/outreach-materials-shop.htm. Accessed 1 Nov. 2017.