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Using Technology in the Crusade Against Fraud
December 2006Property and casualty insurance fraud cost carriers about $29 billion last year, according to the New York-based Insurance Information Institute. The trouble is that's just part of the picture. It's safe to say the number would increase when you count fraud from life and health.
It's also safe to say insurance fraud has been with us for a long, long time. Has detection improved? Does detection even matter if the perpetrators aren't prosecuted? Are insurers benefiting from fraud detection and prevention? And, how are they going about it?
According to the Insurance Information Institute, in the mid-1980s the rising price of insurance, particularly auto and health insurance, combined with the growth in fraud committed by organized criminals, prompted insurers to reexamine the issue. Gradually, insurers began to see the benefits of strengthening anti-fraud laws and imposing more stringent enforcement as a means of controlling escalating costs. They found ready allies among those who had been adversely affected by fraud.
Now, special investigative units (SIU) operate within insurance companies. And, according to the Insurance Information Institute, heightened anti-fraud activity, along with growth in funding for fraud-fighting personnel, has resulted in more prosecutions.
Anti-fraud efforts encompass all lines-property/casualty, workers' compensation and health/life. While criminals can commit insurance fraud at many points in an insurance transaction, a surefire way for insurers to lose out is to pay the claim before discovering the fraud, setting up a "pay and chase" situation, says Tom Brennan, director of the SIU of Pittsburgh-based Highmark Inc. "Once the money goes out the door," he says, "you are only going to recoup 20% to 30% of your losses, simply because the individual who has taken advantage of the system don't have the assets.
HOME-GROWN SOLUTION
Though many of the software tools on the market help detect fraud early, Highmark created its own, using Enterprise Miner from Cary, N.C.-based SAS Institute Inc.
Highmark's SIU works closely with its healthcare informatics group, which supports an SAS-based, Highmark-created sleuthing application dubbed FIRST (Financial Investigation Reporting System for Tomorrow).
The informatics group at Highmark builds sophisticated models based on huge stores of claims as well as on customer and provider data. The tool helps investigators uncover and prevent costly crimes, saving the company $11.5 million in 2005, both in claims recovery and cost avoidance, according to Brennan.
Before FIRST, the informatics group manually assembled queries for the SIU by bringing together data into reports they could then use in their investigations. "The idea with FIRST was to establish an application to empower the SIU staff to submit queries on their own. So we used Enterprise Miner and integrated that into a Web-based interface," says Shawn McNelis, vice president of health care informatics, research and analysis at Highmark. "They define and then launch these queries that are assembled behind the scenes, and it's an easy-to-use Web-based interface. So, his folks don't have to know SQL's impact or how to join tables."
By using FIRST, Highmark hopes to move away from having only historical data in the fraud-detection system. Instead, the company plans to use active data warehouse technology for real-time or near-real-time analysis. Highmark would then use the data to build predictive models that can anticipate fraud, essentially stopping crime before it occurs.
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