Dennis Jay
Dennis Jay,
Executive Director, Coalition Against Insurance Fraud

November 18, 2016

As if insurers need more reminders of how fraud drains their coffers and harms honest policyholders, consider two news items.

First … this week heralds a global effort to build awareness of identity theft — a crime that steals from property-casualty insurers as well as health carriers.

Next … word from a new study: Insurers warn that insurance fraud in general is rising. Skilled technology is paying big dividends in detecting and unraveling often-complex scams.

The Coalition Against Insurance Fraud’s just-finished “State of Insurance Fraud Technology” study provides a window into the fraud threat level. It also reveals how insurers combat schemes such as identity heists. The study sheds light from nearly 90 insurers. Below are some results.

  • Fraud is growing.
  • More insurers use tech to thwart cyber threats and automobile premium-evaders.
  • Most insurers automate the detection of bogus claims.
  • SIUs feel less need to justify the expense of technology internally — they’ve done a good job of building the business case for adoption.

The study’s timing is right for any discussion of identity theft — and of creating illegal synthetic identities from scratch. While medical identity theft is the customary definition of insurance-based identity fraud crimes, property-casualty insurers also are targeted. Staged-crash rings might use false identities for bogus crash “victims” who lodge inflated claims for nonexistent whiplash. Additionally, agents have stolen the identities of clients as well as fellow agents on both auto and life policies. They manufacture clients so the agents can illicitly reap commissions.

Synthetic IDs are part and parcel. Medical clinics in league with the crash rings seem to be owned by doctors. In fact the doctors are mere props, illegally hired by ringleaders to dodge state laws requiring licensed doctors to own the outfits.

Auto premium evaders invent synthetic identities for where they live. Drivers in high-premium states like New York register their vehicles in lower-premium states like North Carolina, thus illegally saving hundreds of dollars a year.

Fortunately, the Coalition has found that tech is an increasingly valued strategic anti-fraud tool for insurers. Since the first study in 2012, SIUs have worked hard to build a business case for anti-fraud technology. And the Coalition has also determined that they need to justify the budget expenses less and less. That’s good news since the anonymity of growing online sales is creating more opportunities to use stolen and synthetic IDs in a full range of insurance transactions.

Insurance fraud of all kinds will rapidly evolve. The vast networks of sensors connecting people, devices and organizations in the so-called Internet of Things could create major openings to steal and abuse the smallest details of people’s lives. Much of that data might be repackaged as insurance crime.

The smarter tech can evolve as such threats evolve, which gains IQ and detection power as it gains information. Vast unstructured field data will provide rich clue troves that analytics can help decipher and solve.

I emphasize the word “help.” Investigators, analysts and other committed professionals will remain the lynchpins of fraud fighting. Tech is an irreplaceable helper. Yet nothing matches the keen instincts and 360-degree grasp of a crime that trained fraud fighters bring to bear. High-IQ  analytics in the hands of fraud fighters will impose pressure that flips a customary question on its head.

Observers keep saying, “Can fraud fighters keep pace with criminals?” The real question should be: “Can swindlers keep up with fraud fighters?”