| While insurance fraud schemes have evolved over | | | | from a nearby fishing vessel. In fact, the next |
| time to fit within the circumstances of modern | | | | morning the masts of the ship were still visible from |
| society, the foundation of them has been in place for | | | | the shoreline. In the end, the Captain was prosecuted |
| centuries…. | | | | for his actions and hanged. The shipowners however, |
| Insurance fraud is one of the real threats facing the | | | | were neither prosecuted nor fined. |
| industry. The growth of the claims culture, together | | | | The earliest recorded life insurance fraud a case of |
| with research shows consumers believe insurers are | | | | pretended death comes from England in the 1730's. A |
| ‘fair-game’, making for a dangerous | | | | father and daughter staged a succession of schemes |
| combination. The costs to manage these claims come | | | | in which the daughter appeared to convulse, with |
| with a risk factor; bad faith suits, medical expense, | | | | heart spasms then go limp in apparent death. While |
| investigation expense to name but a few. The | | | | the father stood by in convincing grief. These |
| utilization of third party providers to assist in | | | | schemes traveled from England to America and |
| managing these claims has opened the door to the | | | | eventually with the advent of automobiles that we |
| added risk of provider fraud. The cost to the | | | | began to see related injury claims. Today the same |
| industry is enormous and affects the way the public | | | | schemes exist, though the mediums have changed. In |
| view insurance companies and their service offerings. | | | | a nutshell resourceful individuals have been quick to |
| MetLife director of special investigations, John | | | | seize opportunities to steal money from insurers in |
| Sargent stated in an article “that eliminating | | | | just about every imaginable means. |
| fraud is an unachievable goal”. But that hasn't | | | | Insurance fraud comes in many different flavors, |
| stopped his company or other industry leaders from | | | | ranging from isolated crimes of opportunity to |
| trying. "Our goal is to pay what we owe, and not a | | | | sophisticated organized schemes. While it is unrealistic |
| penny more or a penny less," Sargent says. "The | | | | to expect insurers to eradicate fraud in its entirety, it |
| more efficient we are at identifying and preventing | | | | is however, realistic for insurers to reduce their |
| fraud, the better we can be at writing business at a | | | | exposure to this multi billion dollar a year industry |
| more competitive rate." | | | | Time for Change |
| Insurance fraud costs Canadian policyholders over $1 | | | | Fraud Investigations are being scaled down, on the |
| billion each year. To the average Canadian citizen, | | | | basis that it is reactive rather than proactive. Fraud |
| that means at least 10 percent of their total | | | | has to be beaten by a more strategic approach, |
| insurance premiums are used to cover the cost of | | | | involving consumers, employers and claims handlers. |
| fraud.http//: | | | | The fraud problem in insurance relies heavily in the |
| There is nothing new about fraudulent insurance | | | | skills and effort of the insurer and their agents to |
| claims or in the way they are adjudicated. The high | | | | uncover and manage fraud. |
| cost of insurance fraud is passed on to the consumer | | | | Lack-lustre investigations will not result in a dossier |
| and therefore, creates a situation where the industry | | | | that is effective as evidence in a court. To discharge |
| might fail to seek a better solution to combating it. | | | | the burden of proof in a criminal trial, insurers need to |
| We've seen insurance claims directors reduce the | | | | provide evidence to convince a magistrate or jury |
| numbers of claim handlers in order to 'contain costs', | | | | beyond all reasonable doubt of any guilt. In civil cases, |
| frustration amongst investigators when insurers | | | | the usual standard of proof is on a balance of |
| exhort them to reduce fee's, and then make a | | | | probabilities, in fraud cases there is a very high |
| "commercial decision" to pay unnecessary claims. | | | | degree of probability. The costs associated with |
| These cost cutting solutions are not and | | | | investigating fraud come with additional risks which |
| haven’t been effective, instead insurers need | | | | could lead to reputational damage and loss of public |
| to re-focus on reducing claims before they become | | | | confidence. This is an area of cost management that |
| costly and problematic. | | | | requires review and reconstruction. |
| The History of Insurance Fraud | | | | To help reduce claims related costs and reserves, |
| While insurance fraud schemes have evolved over | | | | insurers need to become more proactive than |
| time to fit within the circumstances of modern | | | | reactive, to unjust claims and provider fraud. Being |
| society, the foundation of them has been in place for | | | | proactive requires a good understanding of the root |
| centuries. For example, one of the earliest fraud | | | | cause. The root cause associated with fraudulent |
| schemes involved the purposeful sinking of ships, | | | | claims begins long before the claim is submitted and |
| otherwise known as “ship scuttling”. One | | | | can be traced to human behavioral traits. The lack of |
| of the first incidents of ship scuttling was recorded in | | | | understanding by employers or empathy by claims |
| ancient Greece. The problem became increasingly | | | | personnel coupled with a lack of good communication |
| worse, and by the early 1700's ship scuttling became | | | | between, H.R, claims and investigators can a create a |
| so prevalent that England passed one of the strictest | | | | GAP in process and provide a green light for the |
| insurance fraud statutes ever, providing for death by | | | | claimant to fabricate, inflate or exaggerate their |
| hanging as a penalty for conviction. | | | | claims. With GAP’s, like these, there’s |
| The sinking of the ship Adventure is typical. The | | | | little wonder why insurers are seeing a rise in their |
| Adventure was purposely sunk off the coast of | | | | claims portfolio. The answer is a lot simpler than it |
| Brighton, England in 1902. The ship owners, Easterby | | | | seems and corporate buy in is necessary. Proactive |
| and MacFarlane, purchased the Adventure at a | | | | methodologies and practices will assist a company |
| salvage auction (which like vehicle’s in modern | | | | identify the motivations of individuals who are most |
| day schemes, was where the most scuttled ships | | | | likely to direct an act of fraud towards the insurer or |
| were purchased). The ship was then repaired so that | | | | their employer. |
| it could earn the lowest passing grade of | | | | By being more proactive as apposed to reactive you |
| seaworthiness. The ship owners then, over-insured | | | | have a better chance of reducing your claims |
| the Adventure and told it’s Captain (Captain | | | | exposure, reduce reserves and better manage your |
| William J. Cotling)to sink it, so that they could collect | | | | service providers while reducing the potential for |
| the insurance. As with many schemes, the characters | | | | litigation, bad publicity and poor public perception and |
| committing the fraud were careless. | | | | at the same time ensuring compliance with your |
| To maintain structure within a company you need a | | | | companies vision. In the war on insurance fraud, |
| solid foundation. Insurium delivers practical solutions to | | | | chasing the carrot will no longer yield the desired |
| bridging the GAP of escalating insurance claim costs | | | | results. We need to stop looking at trying to remove |
| The Captain ordered an inexperienced mate to open | | | | the opportunity and focus more on the motive, thus |
| the scuttle so that the ship would sink. The ship, | | | | understanding the root cause and effectively set |
| however, was in shallow water and was sinking so | | | | about cost containment. |
| slowly that the Captain had to refuse assistance | | | | |