It was like something out of a Hollywood crime drama. The gang’s operations were meticulously planned and ran like clockwork. The cartel was managed by a team of shady Russian characters. Money flowed like a river.
But it wasn’t drug money. And it wasn’t from gun running or human trafficking. It was the spoils of ill-gotten insurance money from staged car crashes throughout New York City.
In 2013, an extended sting operation — involving the NYPD, the FBI, and the National Insurance Crime Bureau (NICB) — uncovered more than $400 million in fake injury claims from both real and set-up crashes in NYC.
The sting revealed dozens of key players, including doctors and lawyers on the take, a supporting cast of thousands of fake patients and patient recruiters, 100 phony medical clinics, and numerous crooked testing labs, medical-supply firms, and billing firms.
While most organized crime rings aren’t quite as ambitious as this one, they’re typically just as complex and also just as lucrative for the players involved.
Sophisticated professional fraud rings are actively bilking insurance companies of billions in no-fault auto/PIP, health care coverage, and workers’ comp claims fraud. Most operate using multiple false identities, targeting multiple organizations. They often recruit or “groom” insiders to assist in their schemes.
“These large rings, they’re highly adaptive,” said Tom Mulvey, assistant vice president, claim and SIU services, for ISO, an operating unit of Verisk. “It’s aggressive and it’s well camouflaged. These are dedicated perpetrators. They cross state lines and they spread their habit across a multitude of carriers. They’re not one-stop shopping — they make sure that everyone’s in play.
“Some of the camouflage they use is using numerous business names and locations,” he continued.
“They really work to cover their tracks; they artificially disburse their identities, they segment their volume. So rather than doing business with a carrier as a B2B, they [manipulate] their profile by operating as multiple businesses behind many identities.”
They’re also incredibly expensive to fight. But the cost of ignoring them is even higher.
According to information compiled by organizations such as the Insurance Information Institute (III) and the Coalition Against Insurance Fraud, property and casualty insurance fraud costs insurers approximately $33 billion a year — at least 10 percent of all losses, according to NICB.
But other organizations, including the FBI, place that number even higher, upwards of $40 billion.
Far from being a victimless crime, every policyholder foots the bill for this robust criminal activity, which continues to grow. NICB reports that the number of questionable insurance claims rose by 16 percent from 2011 to 2012.
The old wisdom was that a certain amount of fraud was simply a cost of doing business, and many insurers felt that a more proactive approach ran the risk of alienating good policyholders by investigating and delaying legitimate claims.
That strategy backfired, and fraudsters grew bolder and greedier. At some point, though, the costs rose so high that insurers realized they had to fight back.
Most insurance companies now employ special investigative units (SIUs), which utilize a variety of strategies and tools to detect and prevent fraud, with technology at the core of those tools.
A 2012 survey by the Coalition Against Insurance Fraud indicated that 95 percent of insurance companies are now using some form of anti-fraud technology. But this development is still fairly new — only half of survey respondents said they have been using this technology for more than five years, many had only been using it for two years at the time of the survey.
As insurers work to establish and improve their anti-fraud programs, they face questions about which technologies to invest in. There’s no single magic-bullet tool that will cover every base.
Experts say that a multi-layered program must be in place in order to make any kind of substantive difference.
The most common form of anti-fraud technology involves the use of business rules, or red flags. These systems test each transaction against a predefined set of algorithms or business rules to detect known types of fraud based on specific patterns of activity.
A rule might flag a claim for further investigation if it exceeds a certain dollar amount, occurs too soon after a policy is written, involves no witnesses, or if the claimant has submitted a high number of claims in the past year, for example.
The downside is that professional fraudsters are well aware of the various rules and thresholds typically used, and are skilled at flying just below the radar. They also know that flagged claims are likely to be subject to a database search such as ISO’s ClaimSearch, so they’ve even developed strategies to hoodwink the search engines.
“For every new technology, the thieves or fraudsters are going to be enthusiastically looking for ways to defeat the technologies,” said Jim Schweitzer, senior vice president and COO of NICB.
“The key is to find out who they are and what they’re doing before they get really good and begin to cause real harm to the industry and the general public.” — Tom Mulvey, assistant vice president, claim and SIU services, ISO
One attempt to get ahead of the thieves involves new software solutions called link analysis systems. These systems allow for a broader view than a straight database search, and can help identify the connections between players in a fraud ring, even when efforts have been made to blur those connections.
“Let’s say two vehicles have an accident,” said Stuart Rose, global insurance marketing director for SAS, a technology company involved in this area.
“You may have three or four different passengers involved. Two get injured and they go off to one medical provider. In six months’ time another accident occurs.
“It’s completely separate when looked at in isolation, but when you start to look at them combined, you start to see that the same insured was involved in both accidents. It may have been different vehicles.
“He may have been a passenger in both of them. But he’s going to the same medical provider. Another six months and the same thing happens.”
You start to see the same key person involved in all of these claims, said Rose.
“It’s a little like how LinkedIn or Facebook works. You start seeing all of those connections and how many degrees of separation there are from the insured.”
There are several key advantages to link analysis software. It can spot easily missed connections, such as multiple claim payments going to the same bank account, even when they’re all under different names. It can also catch the minor detail variations that fraud rings use to avoid detection.
“The payee, instead of Stuart Rose, may be Stuart Ross, or maybe even Steve Rose. They manipulate the ID just a little bit,” Rose said.
The Power of Volume
The more data that could be shared across the industry, the easier it would be for insurers to connect the dots. But insurers have been resistant to engage in any type of substantive data sharing due to privacy concerns.
Emerging tools on the market are a step in the right direction. ISO has been developing ClaimSearch DNA, an advanced link analysis program that works in conjunction with its existing ClaimSearch database. That allows users the benefits of link analysis beyond their own organizations’ data.
“It’s been built to uncover the camouflage and graphically demonstrate connections of entities through an ISO visual analysis tool called NetMap,” said ISO’s Mulvey. “It really unravels the cover-up that conspirators work so hard to develop.”
The DNA system works on top of the ClaimSearch database, which contains nearly a billion loss records. It is designed to search constantly for anomalies and associations in the database.
“The proactive nature of this approach really lends itself to operate as an early warning system using the broad scale of industry loss data,” said Mulvey. “So rather than waiting for an individual carrier to recognize suspicious activity, this will speed things up and recognize the emerging group very early in its development. That time to detection is very important.”
“Once you put those safeguards in place, it’s amazing how quickly those fraudsters disappear. It’s not always about catching them,” said Rose. “It’s more about deterring them or deflecting them.” — Stuart Rose, global insurance marketing director, SAS
Professional fraud rings are a lot like any other business, in that they need to go through a development stage, getting the right people and resources in place. In the meantime, these startup rings will be orchestrating claims to produce cash flow.
“The key is to find out who they are and what they’re doing before they get really good and begin to cause real harm to the industry and the general public,” said Mulvey.
To that end, some insurers have begun using predictive modeling to shorten that time to detection. Chubb reports a high degree of success using predictive models on its casualty claims for the past eight years.
Chubb’s Don Siegrist, vice president, home office SIU and recovery manager, said that the company has built models based on the attributes of its successfully closed SIU cases.
The models have yielded a high success rate in identifying the claims that should be referred to the SIU, and are able to do so weeks or sometimes months before adjusters might have been able to flag them — sometimes in a matter of days.
“What it does is, it changes the tone of the investigation,” said Siegrist.
“The evidence is fresher. People’s minds are fresher; they still remember what occurred in the incident. The evidence that’s there is more available and nothing’s been changed. It makes for a much more powerful investigation.”
Text mining is another technology that should be a key part of a fraud-fighting program. Much of what fraud investigators have to work with is unstructured data — the information that doesn’t fit into neat little boxes on a form or in a database field, such as doctors’ notes, police reports or adjusters’ notes.
“You’ll start to see things like maybe the same phrase is being used by multiple different claimants,” said Rose of SAS.
“That’s because they’ve been taught by these fraud rings to know exactly what to say to the insurance companies.”
“For every new technology, the thieves or fraudsters are going to be enthusiastically looking for ways to defeat the technologies,” — Jim Schweitzer, senior vice president and COO, NICB.
Social media analysis is sometimes part of the mix, although its use may be more limited in its effectiveness against professional fraud. Still, in a case like the NYC ring with thousands of minor players, it could have been used to investigate the many “patients” involved, some of whom undoubtedly failed to keep up the pretense of their injuries. Some may have even boasted about the scam.
“It’s amazing what people are willing to brag about,” said NICB’s Schweitzer.
“Law enforcement every day are solving cases where the individuals involved talked about [their crimes] with friends on Facebook or Twitter or some other social media. There is that human need for attention … letting people know, ‘Hey, I got away with this.’ It’s crazy but it’s true.”
Of course, none of these tools can wholly prevent fraud, Rose cautioned. But they can help insurers spot trends sooner, develop strategies based on those trends and get critical information to adjusters early on.
“Once you put those safeguards in place, it’s amazing how quickly those fraudsters disappear. It’s not always about catching them,” said Rose. “It’s more about deterring them or deflecting them.”
Top 6 Risks of U.S. Companies Working Globally
2015 General Liability Renewal Outlook
There was a time, not too long ago, when prices for general liability (GL) insurance would fluctuate significantly.
Prices would decrease as new markets offered additional capacity and wanted to gain a foothold by winning business with attractive rates. Conversely, prices could be driven higher by decreases in capacity — caused by either significant losses or departing markets.
This “insurance cycle” was driven mostly by market forces of supply and demand instead of the underlying cost of the risk. The result was unstable markets — challenging buyers, brokers and carriers.
However, as risk managers and their brokers work on 2015 renewals, they’ll undoubtedly recognize that prices are relatively stable. In fact, prices have been stable for the last several years in spite of many events and developments that might have caused fluctuations in the past.
Mark Moitoso discusses general liability pricing and the flattening of the insurance cycle.
Flattening the GL insurance cycle
Any discussion of today’s stable GL market has to start with data and analytics.
These powerful new capabilities offer deeper insight into trends and uncover new information about risks. As a result, buyers, brokers and insurers are increasingly mining data, monitoring trends and building in-house analytical staff.
“The increased focus on analytics is what’s kept pricing fairly stable in the casualty world,” said Mark Moitoso, executive vice president and general manager, National Accounts Casualty at Liberty Mutual Insurance.
With the increased use of analytics, all parties have a better understanding of trends and cost drivers. It’s made buyers, brokers and carriers much more sophisticated and helped pricing reflect actual risk and costs, rather than market cycle.
The stability of the GL market also reflects many new sources of capital that have entered the market over the past few years. In fact, today, there are roughly three times as many insurers competing for a GL risk than three years ago.
Unlike past fluctuations in capacity, this appears to be a fundamental shift in the competitive landscape.
“The current risk environment underscores the value of the insurer, broker and buyer getting together to figure out the exposures they have, and the best ways to manage them, through risk control, claims management and a strategic risk management program.”
— David Perez, executive vice president and general manager, Commercial Insurance Specialty, Liberty Mutual
Dynamic risks lurking
The proliferation of new insurance companies has not been matched by an influx of new underwriting talent.
The result is the potential dilution of existing talent, creating an opportunity for insurers and brokers with talent and expertise to add even greater value to buyers by helping them understand the new and continuing risks impacting GL.
And today’s business environment presents many of these risks:
- Mass torts and class-action lawsuits: Understanding complex cases, exhausting subrogation opportunities, and wrangling with multiple plaintiffs to settle a case requires significant expertise and skill.
- Medical cost inflation: A 2014 PricewaterhouseCoopers report predicts a medical cost inflation rate of 6.8 percent. That’s had an immediate impact in increasing loss costs per commercial auto claim and it will eventually extend to longer-tail casualty businesses like GL.
- Legal costs: Hourly rates as well as award and settlement costs are all increasing.
- Industry and geographic factors: A few examples include the energy sector struggling with growing auto losses and construction companies working in New York state contending with the antiquated New York Labor Law
David Perez outlines the risks general liability buyers and brokers currently face.
Managing GL costs in a flat market
While the flattening of the GL insurance cycle removes a key source of expense volatility for risk managers, emerging risks present many challenges.
With the stable market creating general price parity among insurers, it’s more important than ever to select underwriting partners based on their expertise, experience and claims handling record – in short, their ability to help better manage the total cost of GL.
And the key word is indeed “partners.”
“The current risk environment underscores the value of the insurer, broker and buyer getting together to figure out the exposures they have, and the best ways to manage them — through risk control, claims management and a strategic risk management program,” said David Perez, executive vice president and general manager, Commercial Insurance Specialty at Liberty Mutual.
While analytics and data are key drivers to the underwriting process, the complete picture of a company’s risk profile is never fully painted by numbers alone. This perspective is not universally understood and is a key differentiator between an experienced underwriter and a simple analyst.
“We have the ability to influence underwriting decisions based on experience with the customer, knowledge of that customer, and knowledge of how they handle their own risks — things that aren’t necessarily captured in the analytical environment,” said Moitoso.
Mark Moitoso suggests looking at GL spend like one would look at total cost of risk.
Several other factors are critical in choosing an insurance partner that can help manage the total cost of your GL program:
Clear, concise contracts: The policy contract language often determines the outcome of a GL case. Investing time up-front to strategically address risk transfer through contractual language can control GL claim costs.
“A lot of the efficacy we find in claims is driven by the clear intent that’s delivered by the policy,” said Perez.
Legal cost management: Two other key drivers of GL claim outcomes are settlement and trial. The best GL programs include sophisticated legal management approaches that aggressively contain legal costs while also maximizing success factors.
“Buyers and brokers must understand the value an insurer can provide in managing legal outcomes and spending,” noted Perez. “Explore if and how the insurer evaluates potential providers in light of the specific jurisdiction and injury; reviews legal bills; and offers data-driven tools that help negotiations by tracking the range of settlements for similar cases.”
David Perez on managing legal costs.
Specialized claims approach: Resolving claims quickly and fairly is best accomplished by knowledgeable professionals. Working with an insurer whose claims organization is comprised of professionals with deep expertise in specific industries or risk categories is vital.
“We have the ability to influence underwriting decisions based on experience with the customer, knowledge of that customer, and knowledge of how they handle their own risks, things that aren’t necessarily captured in the analytical environment.”
— Mark Moitoso, executive vice president and general manager, National Accounts Casualty, Liberty Mutual
“When a claim comes in the door, we assess the situation and determine whether it can be handled as a general claim, or whether it’s a complex case,” said Moitoso. “If it’s a complex case, we make sure it goes to the right professional who understands the industry segment and territory. Having that depth and ability to access so many points of expertise and institutional knowledge is a big differentiator for us.”
While the GL insurance market cycle appears to be flattening, basic risk management continues to be essential in managing total GL costs. Close partnership between buyer, broker and insurer is critical to identifying all the GL risks faced by a company and developing a strategic risk management program to effectively mitigate and manage them.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Liberty Mutual Insurance. The editorial staff of Risk & Insurance had no role in its preparation.