When every physical and mental resource is focused, one’s power to solve a problem multiplies tremendously.”
– Norman Vincent Peale
In order to significantly impact fraud, it is essential to formulate a solid, comprehensive approach. After all, you don’t bring a knife to a gun fight. If you’re smart, you bring a bigger gun and maybe a hand grenade. When it comes to fighting fraud, we really need all the weapons we can gather.
I have an approach called the 360-Degree Fraud Program.
Personally, I think it makes sense to attack fraud in three segments:
1) Fraud Prevention – preventing fraud before it even happens.
2) Fraud Detection – identifying fraud in an efficient manner.
3) Fraud Defense – fighting fraud once you have the proper evidence.
These three components are critical to eliminating, or at the least, significantly reducing fraud. Quite frankly, without addressing all three of these areas you are limiting your ability to successfully combat fraud. All three facets of this approach need to be solid in order to come full circle—full circle as in 360 degrees.
As we have already learned, fraud costs the insurance industry billions of dollars each year and it is simply not good enough to combat fraud without taking this three-pronged approach. The adage that you are only as strong as your weakest link certainly applies in this fight. This is how the 360-Degree Fraud Program works:
Phase 1 – Fraud Prevention – Identifying potential fraud before it happens can save insurance companies millions of dollars. Dare I say, with a Dr. Evil voice, “Even billions of dollars.” Industry studies indicate that premium fraud is more prevalent than claimant fraud. Taking this into consideration, it makes sense to start with your underwriting department to ensure that you are writing reliable and cost- effective policies. From a workers compensation standpoint, you should be verifying insured locations, ensuring each insured is utilizing correct employee classification codes, and identifying any potential underreporting of payroll. A thorough due diligence investigation can accomplish all of these things and much more.
From an employer’s or insured’s perspective, conducting thorough pre-employment screenings can significantly reduce fraud, yet many companies including Fortune 500s either don’t conduct such screenings or perform a very cursory search that is not beneficial in weeding out candidates who will ultimately rip them off. For example, the majority of people who engage in fraudulent workers compensation claims are recidivists, people who repeatedly commit the same offenses. Most of these people blatantly lie on their job applications when asked if they have filed prior workers compensation claims. In many states, a workers compensation search can be conducted on an applicant after they have been offered a job. If an employer discovers that the applicant lied on their application, they can rescind the job offer. There is a pretty standard profile of individuals who cheat insurance companies. Employers that are proactive in their hiring practices keep these people out of their workplace, thereby mitigating future risk. It’s like keeping the fox out of the hen house. Everybody except the fox is happy.
Fraud Prevention is often overlooked because of a limited money-centric attitude. Many companies want more business, brokers want more commission, and shareholders want more revenue. Obviously, this is a short-sighted approach that will ultimately end with negative long-term ramifications. As Benjamin Franklin once said, “An ounce of prevention is worth a pound of cure.” Therefore, the best way to eliminate fraud is to avoid planting a corrupt seed. As stated, the first step in combating fraud is fraud prevention. Arguably, it’s the most important.
Phase 2 – Fraud Detection – Detecting fraud in your organization is paramount. And the earlier you detect it, the better. It takes effort and expertise to ferret out suspicious claims. The key is to have a good system in place to identify critical red flags or fraud indicators that typically point to fraudulent claim activity. Having a team of adjusters and claims managers thoroughly trained in fraud detection techniques will significantly improve fraud detection awareness. By identifying fraudulent claims early in the claims process, you save time, money, and aggravation.
Phase 3 – Fraud Defense – Now that you have caught the fraudster red-handed and collected evidence to support your case, it’s time to send a message. The third phase in this approach requires compiling solid evidence-based fraud referrals and submitting them to the respective state fraud reporting agencies. If submitted properly, you will see a dramatic increase in the amount of fraud prosecutions. It’s a great feeling when the system works and people violating said system are punished accordingly.
An added benefit of companies displaying diligence in their pursuit against fraud is that they develop a reputation of taking fraud seriously. They will use whatever measures necessary to combat fraud. Trust me, the unscrupulous claimants who make a living submitting fraudulent claims are well aware of companies that take such an aggressive stance. Conversely, they also know the companies that are timid in the fraud fighting arena. Which companies do you think they target?
Beyond the above-referenced three phrases, it is recommended that you have some mechanism in place alerting you to potential fraud. Many insurance companies utilize predictive modeling software that can assist in identifying suspicious claims. Additionally, a good investigative vendor should provide you with a fraud alert report that will assist in the fraud referral process. Staying on top of these files and communicating effectively with the respective state fraud division is important in receiving a positive outcome. It’s also important to understand what truly constitutes fraud to make sure that you have ample evidence for a legitimate fraud referral.
In closing, having a well-rounded approach when dealing with fraudulent activity is absolutely essential. By attacking fraud from all angles – fraud prevention, fraud detection, and fraud defense – your company will definitely be a force to be reckoned with when it comes to dealing with fraudsters. You will see your fraud referrals/convictions increase exponentially, and even though every case will not be a fraud conviction, you will still be able to utilize critical investigative evidence to settle and close out many suspicious files.