Thwarting COVID-19 Claims Fraud

History has proven that times of economic crisis see a huge increase in insurance fraud across most lines of business. We want to make sure you're armed with a few best practices and examples to look out for. We'll also discuss how a time like this can be your time to shine, by differentiating yourself from the competition in the way you handle claims and new policy applications.

How are insurers responding to the potential for fraud in personal lines’ claims, some of which are a result of a changing dynamic as entire families are now homebound for work and school, creating exposures the actuaries may not have anticipated?

Expect opportunistic fraud

Claims fraud will typically occur anywhere there is an open opportunity, especially during economic downturns. There will be increased fraud wherever human interaction is reduced, which is quickly becoming the norm in 2020. Some examples seen and documented include:

• An increase in staged accidents and vehicle thefts

• Procedure billing for phantom services (including telehealth)

• Fake accidents occurring at homes

Many of these scams create an easy way to protect income in an uncertain economy. These and more will resurface as unemployment rates skyrocket. When the country becomes economically stressed, so do people. The lines between right and wrong are easily blurred. Owners of businesses forced to close and employees whose hours were cut all need income to survive.

During the great recession in 2009, home contracting became a very stressed industry. In one example, a video came into the claims office of an individual going up on an insured customer’s roof with a golf ball and a sock and creating manufactured hail damage. This video went circulated around the office, the SIU department got involved, and so did the authorities. In a recorded statement, the individual simply stated “I had to do what I had to do.”

As we all navigate the current economic uncertainty – stock market fluctuations and business shutdowns both temporary and permanent – we can’t help but think that people are going to start “doing what they have to do.”

Fraud schemes ebb and adapt

During periods when auto claims are reduced due to fewer vehicles on the road, for example, organized fraudsters who rely upon this fraud for income – often to fund other criminal activity – will look at alternative opportunities to make money from insurance carriers. They know when your guard is down.

Fraud typically moves where it needs to. For example, when the Insurance Fraud Bureau in the UK became highly proficient at detecting and thwarting “crash for cash” staged accident claims, the numbers went down. But fraudsters didn’t just disappear. Instead, they shifted to fake food poisoning claims and claiming against their travel insurance and holiday companies.

With the right AI and machine learning in place, alongside strategically built business rules based upon a global understanding of these types of situation, you can continue to run your business at critical times without worrying about the risk of similar organized fraud occurring elsewhere in the business. The right technology can see things you can’t with your own eyes.

This is exactly where analytics helps, identifying perpetrators through advanced methods including:

• Entity resolution, including detecting altered identities

• Network analytics

• External data sources

• Simply looking at prior claims history

Claim volume volatility

High claim volumes are seen most now in business income losses. Most businesses have shut down or reduced services to comply with government orders. As with all insurance policies there is language that either provides or denies coverage. It all depends on the details of the claim.

Denied claims don’t necessarily mean that the business owner is done with the insurance process, that is, they still need to provide a means to stay in business. This is an area we are aware of and carefully watching. A business interruption claim may come in one day and the next a certain business may have a water or fire claim, or some other type of loss that is covered by their policy.

Look both ways

When people desperately need money the means to get it become very creative. Carriers now see a simultaneous increase in BI claims and a drastic drop in casualty auto claims. If the fraudulent claim door is closed in one area it may be open in another.

This article is based on a recent conversation with West Bend Mutual Insurance’s Director of Claims, Tom Hawkins, and Insurance Expert Dan Gumpright.