Detect Insurance Fraud: A Guide for Claims Managers

With insurance fraud becoming more advanced every day, understanding the complexities is important for effective claims management. Tackling this problem requires a combination of innovative technology, thorough investigations, and collaborative efforts between claims adjusters and investigative teams.

In this guide, we explore actionable strategies to detect and prevent fraud, ensuring the integrity of the claims process.

What is Insurance Fraud?

Insurance fraud involves any act committed with the intent to defraud an insurance process to gain something of value. It can manifest in various forms, including falsified claims, inflated claims, or deliberate concealment of information. According to the Coalition Against Insurance Fraud, insurance fraud costs consumers and businesses approximately $308 billion annually in the United States alone.

At a glance:

• Fraud occurs in about 10% of property-casualty insurance losses (Coalition Against Insurance Fraud).
• Health care fraud, including Medicaid and Medicare fraud, costs consumers an estimated $105 billion each year and ranks as the most expensive form of insurance fraud (Forbes).
• Staged auto accidents cost the insurance industry around $20 billion a year (NIBC).
• A study by the National Council on Compensation Insurance (NCCI) found that around 1 in 10 Workers’ Compensation claims are fraudulent.

Why is Insurance Fraud So Common?

Insurance fraud is common for several reasons, mostly due to the perceived “easy money” involved. Fraudsters view it as a little effort, big reward, scenario by using tactics like staged accidents, exaggerated injury claims, or inflated repair costs.

Many people look at insurance fraud as a “victimless” crime, believing insurance companies can absorb the losses. However, these fraudulent activities ultimately cause higher premiums for everyone.

Additionally, with the rise of artificial intelligence (AI), it’s no longer tech-savvy individuals who can manipulate media, it’s anyone with internet access. For example, fraudsters can easily create fake documents or videos that look real, making it harder for claims adjusters to spot fraud. With this tech available, criminals are finding new ways to exploit weaknesses in the system, highlighting the need for stronger detection and insurance fraud prevention tools.

Strategies to Detect and Prevent Insurance Fraud

Thorough Claim Review

A detailed review of claim documentation is a critical first step in identifying potential fraud.

Fraudsters often provide:

• Vague details
• Missing records
• Delayed reporting to conceal their intent

For example, in cases of staged auto accidents, the claimant might fail to provide complete information on the other parties involved or offer conflicting accounts of how the accident occurred.

Red flags to watch for:

• Discrepancies in witness statements
• Inconsistencies in injury descriptions
• Vague explanations for loss or damage

Data Analytics & AI

Data analytics and AI are transforming the way fraudulent claims are detected. Advanced algorithms can analyze vast amounts of data in seconds, flagging claims that exhibit patterns similar to previous fraud cases. The FBI notes that AI-driven fraud detection systems can reduce false positives by up to 30%, making the process more efficient.

Key advantage: AI helps identify patterns like frequent small claims or unusual claim timing, which human investigators might miss.

Media Analysis: Advanced algorithms can analyze inconsistencies in digital footage, such as subtle errors in lighting, shadows, or unnatural facial movements.

Surveillance & Field Investigations

Surveillance is a powerful tool when there’s suspicion of exaggerated or false claims. Investigators use covert methods to observe the claimant’s activities and assess whether they align with the injury or damage reported. According to the Insurance Information Institute (III), surveillance helps detect up to 30% of fraudulent personal injury claims.

Example: A claimant receiving disability payments might be seen performing physical activities that contradict their reported injuries.

Additional tools: Unmanned surveillance and neighborhood canvassing can help enhance evidence collection.

Background Checks

Thorough background checks can reveal a history of fraudulent activity. A claimant’s past can sometimes expose patterns of repeated or suspicious claims, making it easier to identify potential fraud. According to the National Insurance Crime Bureau (NICB), approximately 10% of property and casualty claims are fraudulent.

Methods: Search criminal records, claims history, and financial background to identify red flags.

Red flags: Multiple claims from the same individual or a claimant with a criminal history related to fraud.

Medical Management Collaboration

Collaborating with medical experts to review injury claims is essential, especially for bodily injury cases. According to the National Health Care Anti-Fraud Association (NHCAA), healthcare-related insurance fraud costs the U.S. about $68 billion annually.

Benefit: Independent Medical Exams can spot exaggerated or staged injuries that others may miss.

Tactic: Peer reviews of treatment histories ensure that injuries and treatment align with medical standards.

Social Media & Digital Investigations

Social media offers a treasure trove of information about claimants. Many fraudsters inadvertently incriminate themselves by posting content that contradicts their claims. The III reports that digital investigations, including social media monitoring, have helped insurers detect fraudulent claims more quickly and effectively.

Example: A claimant who files a disability claim but posts photos of themselves participating in strenuous activities can raise suspicions.

Tactic: Monitoring a claimant’s online behavior, including public profiles and geotagging, can reveal inconsistencies.

What is geotagging?

Geotagging is when the coordinates or location of a picture are connected to the image. Your iPhone uses this technology to show you where your pictures were taken. Social media apps like Facebook, Instagram and Tik Tok use this too.

Drone & Technology Use

For property damage claims, drones and geospatial analysis provide real-time, accurate assessments. The FAA reports that drones have been instrumental in reducing investigation time by as much as 30% while improving the accuracy of damage assessments.

Benefit: Drones can quickly survey areas that would otherwise take hours or days to inspect, offering both time and cost savings.

Example: Verifying storm damage claims by comparing drone footage with weather data and property conditions.

The use of AI technology, surveillance, and medical management has largely aided insurers in the fight against insurance fraud. In fact, variations of the phrase “Is insurance fraud a felony?” are searched over 700 times every month in the U.S.

Keeping claims managers and SIU teams informed about the latest fraud prevention methods is crucial to staying ahead in the fight against fraudulent claims. Read more on how to detect fraud in our learning center! If you’d like your team briefed on these strategies, contact our claims investigation experts today.

References:

Coalition Against Insurance Fraud, “Fraud Stats,” https://www.insurancefraud.org.

FBI, “Insurance Fraud and Artificial Intelligence,” https://www.fbi.gov.

Insurance Information Institute (III), “Combating Insurance Fraud,” https://www.iii.org.

National Insurance Crime Bureau (NICB), “Fraud by the Numbers,” https://www.nicb.org.

National Health Care Anti-Fraud Association (NHCAA), “The Challenge of Healthcare Fraud,” https://www.nhcaa.org.

FAA, “Drone Usage in Insurance Fraud Investigations,” https://www.faa.gov.