Insurance Fraud Investigations

Overview

• Objective• Definition of Fraud• Scope of Fraud• How Fraud Works• Working Together in:

– Detection– Analysis– Investigation– Resistance

Definition of Insurance Fraud

“Any deliberate deception perpetrated against or by aninsurance company or agent forthe purpose of unwarrantedfinancial gain.”

Source: Coalition Against Insurance Fraud

The Scope and Nature of Fraud

By their very nature, fraudulent claims are designed to appearlegitimate.

Fraud…… the “Iceberg “ Crime

87% of the Iceberg isInvisibleFrom the Surface

Fraud…… the “Iceberg “ Crime

Only a small percentage of fraudis Detected. An evensmaller percentage is Reported/Resisted

Fraud.. The Scope

• “33% of Property and Casualty Claims have some element(s) of Fraud.

• Approximately 3% of Claims are Totally Fraudulent.

• P&C Fraud costs Americans between $24 and $30 Billion each year. Approximately $200-$300 per average household.

Sources: Coalition Against Ins. Fraud/ Ins. Info Institute

Why is Claim Fraud So Prevalent?

Infamous New York Bank RobberWillie Sutton (1920’s) Was onceasked “Why do you rob banks?”

Why is Claim Fraud So Prevalent?

Infamous New York Bank RobberWillie Sutton (1920’s) Was onceasked “Why do you rob banks?”

He replied, “Because that’s wherethe money is.”

Why is Claim Fraud So Prevalent?

It’s PROFITABLE

Very little investmentrequired.

Why is Claim Fraud So Prevalent?

It’s PROFITABLE

Very little investmentrequired.

It’s SAFEPolice shoot at robbersand burglars...

Why is Claim Fraud so Prevalent?

And of course,

Why is Claim Fraud So Prevalent?

Unfortunately,there’s very littlerisk of Punishment.

Why is Claim Fraud so Prevalent?

“Insurance Companies don’t makegood victims.”

Why is Claim Fraud so Prevalent?

“Insurance Companies don’t makegood victims.”

Law Enforcement is focused on crimes of violence.

Why is Claim Fraud so Prevalent?

“Insurance Companies don’t makegood victims.”

Law Enforcement is focused on crimes of violence.

If Insurance Companies don’t look out for themselves, nobody else will.

Why is Claim Fraud so Prevalent?

Insurance Companies often makeClaim Fraud attractive by payingpeople to “go away.”

The Challenges

• Recognition• Reporting• Analysis• Investigation• Resistance

Recognition…… the biggest Challenge

If we only recognize blatant fraud,we’re missing a lot of fraud.

Without Aggressive Recognition and Reporting, Investigation and Resistance to Fraud suffers.

Recognition….. The Biggest Challenge

When you get a reputation forpaying everyone that comes to your door…….

When you get a reputation forpaying everyone that comes to your door…….

You soon have a lot of peoplecoming to your door.

HOW FRAUD WORKS…

• Who are the fraudsters?• How do they think?• How do fraudsters plan their frauds?• How do fraudsters conceal their

crimes?• What are fraudsters counting on?

Who are the fraudsters?

• Anyone can commit fraud.

• Only a small percentage of claimants/insureds are “professional” crooks.

Who are the fraudsters?

• Fraudsters will want to appear honest and deserving…..

Who are the fraudsters?

• Their real motives may be far less virtuous…..

• In reality, fraudsters are generally driven by greed and/or desperation….

How do fraudsters think??

From:

To:

But, they have one thing in common..

How do fraudsters think?

They all want easy money. andThey’re limitedonly by their imagination.

How do fraudsters Plan their Claims??

How do fraudsters plan their claims?

• Fraudsters learn from:– Prior legitimate

claims– Other Fraudsters– Professional Crooks

• Cappers• Dishonest Attorneys• Dishonest Medical

Providers• Dishonest Body Shop

Owners

How do fraudsters plan their frauds?

Fraudsterstalk to eachother!!

How do fraudsters plan their frauds?• Fraudsters learn from

each others’ experiences.

• Fraudsters know the reputations of different companies.

• Professional fraudsters may even know individual adjusters’ names, reputations and authority limits.

How do fraudsters plan their frauds?

• Insurance companies unwittingly “teach” fraudsters how to file successful fraudulent claims.

• Fraudsters learn all the elements of successful claims, and go to great lengths to ensure that all necessary elements are present…….. This is called……...

“Backing Into” Coverage…….

“Backing into Coverage”

• Fraudsters have the ability to control all the circumstances surrounding a fraudulent claim:– Time– Place– Persons Present– Hazard– Notice of Hazard

“Backing Into Coverage”… cont’d

– Type of loss– Severity of alleged damages– Ability to circumvent security/safety

controls

“Backing into coverage”

• Fraudsters will almost always seek to engineer each facet of the circumstances to their best advantage.

• Fraudsters will almost always seek to maximize their damages to maximize their profit.

• This ability to control the circumstances is both their main strength and their main weakness.

What are Fraudsters Counting On?

• That their claim will appear legitimate and they will be paid.

• That if questioned, the investigation will be cursory.

• Regardless of the outcome of the investigation, the insurance company will pay them something .. Just to go away. (“Nuisance value”).

What are fraudsters counting on?

• Even if the company denies the claim, they will have learned something which will help them on their “next” claim…

• If denied, that there will be no referral to law enforcement.

• If referred to law enforcement, that there will be no prosecution.

What are fraudsters counting on?

• If prosecuted, they can flee the area.• If apprehended and prosecuted, they

can hire lawyers to “beat the rap.”• If convicted….the punishment will be

very light.

How do FraudstersConceal their Crimes?

How do fraudsters conceal their crimes?

Fraudsters will often change their Identity and Address

Background Checks

• Uncover Aliases• Address Histories• Identify SSN’s • Persons Related to

Claimant/Insured• Assets• Financial Profile• Litigation/Criminal

History

Cronin’s Law #1

“If you’re not who you say you are, you don’t have aclaim!!”

Alias Identification

• Start with known identity. • Check databasesby name, SSN, & address• Three key elements:

ParallelsDisconnectsOverlaps

Alias Identification• Look for overlaps• Vector off overlap

and expand search• Develop new

addresses, SSN’s and Names

• Cross-referencing is the key to alias identification

Address Histories

You need to know what addresses your subject has used in order to know where to look for records.

Address Histories cont’d

• Once you know addresses your subject has used…

• Determine what county these addresses are in.

• Remember that a city/zip code can fall into more than one county!

• Once you know the count(ies) you know where to look for records.

Litigation Histories

• These are very important. • Superior Courts:

– Civil, Criminal, Domestic, Probate, Juvenile, Judgment,

• Federal Courts:– Bankruptcies, Civil & Criminal Filings

• Small Claims Courts

Uses of Litigation Histories:

• Confirm identities• Identify aliases• Address History• Financial Profile• Character &

credibility• Earnings Potential• Assets

• Persons knowledgeable of subject

• Prior injuries– Many injury suits

relate to matters not found in ISO database

ISO Claimsearch

• The ISO database is one of the most powerful tools for insurance fraud investigation.

• Millions of claims, searchable by name, address, SSN, telephone number, & VIN.

Leveraging Information

By uncovering aliases, felony criminal histories, and undisclosed tort incidents , many questionable orfraudulent claims will “go away”or can be significantly mitigated.

Recognizing, Reporting,Analyzing, Investigating

and Resisting Fraud

Recognizing fraud

• This is the greatest challenge for insurance companies.

• If they don’t recognize & report fraud, the rest of the claims process is moot.

Recognizing Fraud

• What is the most powerful weapon in our arsenal against fraud?

• Is it a Cray SuperComputer?

• NO!!!

Recognizing Fraud

The most effective weapon inrecognizing fraud is the dedicated claimsrepresentative.

Recognizing Fraud• What about existing

automated controls in the system? Don’t they deter and detect fraud?

• Existing controls catch only the “dumb” crooks.

• Fraudsters know the system and many know how to circumvent controls.

Recognizing Fraud

What are the best Indicators of possibleFraud?

Cronin’s Law #2:

An active claims history is the single best objective indicator of probable claims fraud.

Translated: “If they’re scammingyou now, chances are they’ve done it before.”

Recognizing Fraud

• Another excellent indicator is your intuition. – “I just have a bad feeling about this

claim…..” – “There’s probably nothing you can do , but

can you take a look at this claim……”– “ I can’t put my finger on it, but there’s

something that’s not right here…”

Recognizing Fraud

• You don’t have to be a fish expert to know you’ve got a dead mackerel in your drawer…

• If it doesn’t pass the “smell test,” There’s probably something fishy going on…

Recognizing Fraud…. Indicators cont’d

• Lack of verifiable source of income.– People with “real” jobs rarely are

professional claimants. • Overly knowledgeable of

insurance.• “Stretches of the imagination.”

Fraud Indictors…. “Stretches”

“Stretches” are difficult to believefabrications created by fraudstersto allow them to “Back IntoCoverage” by tailoring their version of the events surroundingthe alleged loss to best serve theirinterests.

Not every unusual circumstanceis indicative of fraud, but whenconsidered in the totality of a claim, “stretches” can helpalert us to questionable claims.

Fraud Recognition….”Stretches”

How do we analyze a claim to determine if possible fraudis present?

One segment at a time…….The Pole Vault Method

Analyzing the Claim…. Pole Vault Method

Each claim is made up of segments, like short pieces of the pole.

Analyzing the Claim… Pole Vault Method

The vaulter needsa “full pole” to “clear the bar”(get their claim paid.)

Analyzing the Claim….The Pole Vault Method

If any segmentof the “pole” is weak or missing,it may not be possible to clearthe “bar.”

Segments of a Claim

• That there is a insured/claimant who is whom he/she says they are.

• That there was a policy of insurance in effect…

• at the time of the loss.

Claim Segments cont’d

• That the object damaged was of the condition and value alleged before the loss..

• That there were damages…

• which were caused by the occurrence

Claim segments….. Cont’d

• Which are of the extent and value being claimed

• That the insured/claimant did not cause the loss.

• That the insured/claimant have been truthful regarding the loss..

Claim Segments Cont’d

• That the insured was truthful during the application and underwriting process.

• Regarding loss history, value/condition and ownership of property

Claim Segments…….

• That the insured has performed all duties required in case of loss:– Notice to company– Report to police– Cooperation– Mitigate Damages– Examination under

Oath– Proof of Loss

Examining each segment of a claim can help us identify questionable areas and can helpus focus our investigations.

The “logic path” will help usfurther focus our investigation.

“Logic Path”

• What do I know about this claim?

• What do I suspect? (Which segments of the claim are in question?)

• What issue(s) am I trying to resolve?

• What information would help resolve the issue(s) in question?

• Where can I get this information?

Analyzing the claim

• Look for the LIE. • Focus on the

segment associated with it.

“Stretches” will often found to be “lies” in a fraudulent claim

Stretches make the “pole’ (claim) weak.

“Stretches” are

Exponential! The more stretches

there are, the weaker the “pole”/claim.

• The answer to your questions may already be in your file.

• Periodic reality checks are important.

Analyzing the claimand the claimant…..

Analyzing the claim and the claimant..

• How much planning went into the preparation of this claim?

• How much scrutiny did the insured/claimant expect this claim to receive?

• How much scrutiny is the insured/claimant prepared to withstand?

Analyzing the claim and the claimant..

• How has the insured/claimant pursued claims in the past? Litigious?

• What motivated the insured/claimant to make the claim? – Desperation?– Greed?– Legitimate claim?

• Build-Up?

Analyzing the claim and the claimant...

• Are we seeing all the players?

• Is this a “set up” for a bad faith claim?

Investigating the Questioned Claim

Planning the Investigation

Consider the issues which needto be addressed, what informationis already known, and the toolsavailable to find needed info.

Each “tool” in our toolbox is different. Know what tools areavailable, how to use them, andwhich ones to use when.

Conducting the Investigation… Tools

• Insured/claimant Interviews .

• Cross-referencing and verifying data.

• Examinations under oath.

• Scene investigations.

• Witness interviews.• Public records

checks• Database checks• Claims histories.• Surveillance• Neighborhood

Canvasses

Investigation Tools cont’d

• Use of specialized experts– Origin & Cause– Laboratory– Handwriting Experts– Accountants– Medical Experts

• Legal coordination• Professional

contacts.

Professional Affiliations

The most effectiveInvestigators have

Extensive ProfessionalContacts

Benefits of Using Private Investigators

• Knowledgeable of local area• Knowledgeable of state laws• Work closely with defense counsel• Face to Face contact• Special expertise in interviewing• Special expertise in fraud investigation.• Cognizant of good faith, coverage,

liability issues.

“Dirty Doctors” and Atty’s

Private Investigators can help Adjusters be more effective in managing their workload.

Claim Rep

Future Expectations??

ECONOMYIf the…...

Partners in Claims Investigation

Seattle Insurance and Legal Investigations

(206) 992-1555 www.seattle-investigations.com