National Council of Self Insurers Annual Meeting, May 24, 2010

Clearwater Beach, Florida

Agenda for the sessionIntroduction of Speakers and the purpose of

the sessionDefine the scope of the business issues

concerning cost explosion and the role of data mastery

Discuss the Fraud mentality, its roots and steps to combat it

Under-utilized Fraud/Abuse compliance and Performance Audits

Organization for data mastery and analytics2

Use of Insurance statistics for NCSIThe same general business issues concern Self-

Insurers and Insurance CompaniesSelf-Insurers tend to be more advanced than

Insurance companies at identifying and controlling risk events

Consequences of missed opportunities and increasing costs are more severe for self-insurers

Self-insurers are more likely to use specialty vendors to provide critical services normally provided by insurance companies

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Use of relevant, accurate data is key

“In the next five years, there will be big winners and big losers in the insurance filed based on the data battle. Early movers will be the winners, they are winning now and if you are not there, you’re losing ground now”. Tom Johnson, Hartford Chief Actuary, 2006

The essence of a successful strategy is being better prepared to understand what has and will happen.

This need leads to constant demands for additional granularity and agility of data systems

Winning at this game requires good business instincts. Excelling over time requires those instincts to be informed and challenged by intelligent, accurate information

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Critically Important Business QuestionsWhere should I focus my management attention?Where can my team’s efforts produce the greatest

amount of positive change in the organization?How do I benchmark my performance against

expectations or my peers?How do I assess the validity of my past decisions

and what do I need to change?Can I get all the information I need to

perform this assessment on any issue or opportunity?

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Why use Fraud Data?Most self-insurers have initiated cost-containment policies

affecting processes that are known and customary, but fraud is harder to identify and measure.

In a broad sense, fraud is an intentional deception made for personal gain or diminish another person or organization. The chief motive in insurance fraud is financial profit.

For the purposes of this session, we will use these definitions:“Hard Fraud”: Intentional deception to convince someone

that an event or consequence happened when it, in fact, did not.

“Soft Fraud”: Attempt to deceive someone of the extent of the damage or injury arising out of event that actually did happen through exaggeration or lying.

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Soft Fraud is the Nexus of Cost ExplosionThe principal activity of soft fraud is “build-up”

(i.e. less treatment than actually given, more disability or pain than actually experienced, etc).

The FBI estimates that US insurance fraud accounts for more than $40 billion a year or between $440-700 per U. S. family

They also estimate that $6 billion of the $80 billion appropriated for rebuilding after Hurricane Katrina was the result of fraud.

Abusive “build-up” in US auto-injury claims added $4.8 billion to $6.8 Billion (13% to 18% of the total) in excess payments in 2007 (Insurance Research Council, Nov. 2008)

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Additional Fraud DataInsurance Fraud is second only to tax evasion

as the most costly white-collar crime, costing $30 billion a year (National Insurance Crime Bureau)

Over 1/3 of people injured in auto accidents exaggerate their injuries, costing $13-$18 billion a year (Rand Institute for Civil Justice)

WC Fraud costs $5 billion a year (National Insurance Crime Bureau)

Healthcare Fraud alone costs $54 billion a year (Coalition Against Insurance Fraud)

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So What can Self-Insurers do?Present and exercise a strong corporate anti-fraud

philosophy that is preached by and lived up to by management.

Identify the behaviors that indicate costly or fraudulent behaviors

React publicly to the activities that contribute to those behaviors

Determine measurement criteria and metrics that provide insight into where and when these activities are prevalent.

Determine the data needed to support the metrics and build a database

Secure feeds from all sources (internal and external) to support the analysis (more later in the presentation)

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Why do so many data store projects fail?The sequence of activity is incorrect.

Data is extracted and stored from accessible sourcesIt is stored in hierarchal indexed database that may

not be optimized for reportingThen information and reporting requirements are

developed and handed to IT for developmentThe correct sequence is:

Develop the information and reporting requirementsIdentify the data and the level of grain neededIdentify a DB structure that optimizes reportingBuild it, either internally or use an outside product

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MG (R) Evo Riguzzi

Attitudes toward FraudNearly one in four Americans say it’s ok to defraud

insurers (Accenture, 2003). About 8% said it is “quite acceptable to bilk insurers”. Two out five people are “not very likely” to report someone who defrauded an insurer.

Nearly 10% of Americans would commit insurance fraud if they knew they could get away with it. (Progressive Insurance, 2001)

40% of Americans said it was OK to pad a claim to make up for premiums already paid (Insurance Research Council, 2000)

20% of employed workers say they are aware of fraud in their workplace (Insurance Research Council, 1999)

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What triggers this attitudeReciprocity: They’re stiffing us, so I am

stiffing themAnonymity: Everyone is doing it so I am not

likely to get caughtFear of Consequences: or rather, the lack

thereof. Most insurance fraud is not severely punished, little or no serious jail time.

Everyone gets off easy: Employers want to take criminal action; prosecutors are less willing to take them on and civil actions are too expensive.

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Additional TriggersOrganized Crime Activity.

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Fraud and Build-Up ConsequencesCompany ConsequencesPublic Consequences

This is an education process for all, employees and management.

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Michael Koss

TPA/Self-Administered ComplianceAssess Adjudication ProcessConfirm proper provisions are being administeredAssess timeliness and accuracy of benefit

payments/denials (including medical)Assess internal controls of approval, data integrityConfirm that claims are documented for priorsVerify recorded statements and transcriptions for

witnessesAssess process used for all categories of recoveriesAssess use of outside investigations

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Operational ReviewsEvaluate internal administration procedures

and controlsAssess records management and retention

policies and practicesAssess records management and retention

policies and practicesAssess disaster recovery plansReview internal standards and self-reported

performance metrics

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Ancillary Service Vendor Focus ReviewsFacility re-pricing functionsPre-authorization processPeer ReviewsCase ManagementLegal Services Investigation ServicesBroker Considerations

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Audit Follow-Up RecommendationsCollect/Analyze data for BenchmarkingIdentify best practices for service levelsReview contract deliverables for financial

penalties for non-compliance with key performance criteria

Specifically address strategies to reduce fraud and associated costs in your risk management plan

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Robert LynchMichael Koss

Evo Riguzzi

What is Data Mastery?Celent describes the term as “any initiative to

extract useful business information from raw data through data consolidation and analysis, utilizing technologies like data warehouses, unified presentation layers, business intelligence and some elements of CRM”.

Information Builders says that data mastery is much more than the organized gathering of information. “Business users at every level have the need to analyze consistent, conformed data along every relevant dimension to gain insight into success factors at the point of decision.”

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How does Data Mastery work?“ Most companies have implemented executive

dashboards, frequently deployed down to middle management and even individual employees to monitor business performance. But these analytical applications should be aligned with business processes to achieve a complementary result”(Pat Saporito, Best’s Review, May 2010)

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The Haddon MatrixAn example of the type of versatility and complexity for

which self-insured entities are looking is the Haddon Matrix.

The Haddon Matrix is an established methodology for cataloging data concerning accident circumstances and resultant injuries. It is relevant to all organizations and can be used to organize risk factors, exposure factors, loss causes and preventive measures.

The matrix looks at the event in three phases:Pre-Event: contributing to the likelihood that a

damaging event will occurEvent: influencing the chance of injury/damage occursPost-Event: influencing the chance of mitigation or

complete recovery

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Human Equipment Physical Environment

Cultural Environment

Pre-Event

Operator training,experience, fatigue,age, medical conditions

Maintenance, age,protective devices,design issues

Weather, time of dayvisibility, wind,Temperature, surfaceConditions, etc

Staff levels, safetyTolerance, schedulePressures etc

Event Use of protective equip,Enough co-workers

Equip failure, defects

Traffic, stalledTrains, tunnel closure,signals, etc

Inadequate/unsafeSupervision

Post Event

Prior injuries, preexistingmedicalconditions, adherenceto medical direction

Communications,Post accidentEquip failures

Medical response,Police response,Fire/smoke, etc

Managerial care &response, medicalCare, etc.

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Use of Strategy Map

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How does the strategy map help?It links goals and objectives from the

strategic level to the lowest operational level.It links business processes with associated

business rules to achieve consistent evaluation and increase business agility

It coordinates business process management with good business intelligence as a component of process design

You can now determine what data and dimensions are needed to evaluate, track and react to changing business environments

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All participants

Key Activities to considerCorporate public positions on fraudulent

activities have to be backed up by real-life activities and, if needed, prompt action.

An involved, caring management who lives up to the public principles of the organization can go a long way to resolving issues of fraud

Policies and procedures that actually support proper conduct by employees or prompt reporting and provide positive reinforcement

Continuous operational and claims audits

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Don’t Rely just on good faith:Create a data environment to check on those

issues that you care or worry about:Define your issues first. Break them down into

activities that can be measured with data you own

Determine what metrics or measures will best analyze the issue and define the problem

Determine how many people will see the metric and standardize/define the measures

THEN, after that is done, design you data warehouse or Operational Data Store (ODS)

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Thank you! What are your questions?Robert T. Lynch, Solution Manager, IBI

Phone: 516-659-9851 E-Mail: Robert_Lynch@ibi.com

Michael Koss, Solution Manager, IBIPhone: 631-942-1837E-Mail: Mike_Koss@ibi.com

Evo Riguzzi, Principal, Optima InvestigationsPhone: 1-800-355-3225E-Mail: eriguzzi@optma-security.com

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