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DWF 3Sixty Blog

Strategic and tactical fraud busting

Posted by Tristan L Dorman on Feb 12, 2016 3:42:09 PM


In recent independent research commissioned by 3sixty Systems, Insurance Managers in Councils and Housing Associations were surveyed about the issues they are facing.

One of the less surprising themes that emerged was the pressure that all departments were facing on resources.

An increase in handling fraudulent claims was identified as one of the main reasons for the growing strain on claims departments (download the full whitepaper here).

How do you define fraud?

While there is no one widely-accepted definition of fraud, it can be generally defined as a misrepresentation to the detriment of an individual or to the unfair advantage of the fraudster.

The UK Fraud Act (2006) states that a person can be guilty of fraud by means of false representation; failing to disclose information; or abuse of position.

Detecting Fraud

So how do you keep fraud to a minimum? Well, this can be split into two:

  1. Strategic Fraud Detection
  2. Tactical Fraud Detection (35 tactics to spot fraud)

Strategic Fraud Detection

KPMG wrote an excellent paper on this subject ‘Fraud Risk Management – developing a strategy for prevention, detection and response’. Although it was written back in 2014 the principals still hold true:

Key Objectives of Fraud Prevention

There are three pillars to Fraud Prevention Strategy

  1. Prevent instances of fraud and misconduct from occurring in the first place
  2. Detect instances of fraud and misconduct when they do occur
  3. Respond appropriately and take corrective action when integrity breakdowns arise

Pulling it all together

The challenge for any organisation is to develop a comprehensive strategy that helps them:

  • Understand the various regulatory and evaluative frameworks that apply to them
  • Ensure that controls such as risk assessments, codes of conduct, and whistleblower mechanisms are in place and supported by management and
  • Create a broad ranging ethics and compliance program that manages and integrates fraud prevention, detection and response efforts.

An ongoing process

An effective fraud strategy provides organisations with tools to manage risk in a manner consistent with both legal and regulatory requirements as well as the entity’s business needs and marketplace expectations. Such an approach typically has four phases:

  1. Assessment of organisational needs based upon the nature of fraud risks and existing antifraud programs and control.
  2. Design of programs and controls in a manner consistent with legal and regulatory criteria as well as industry practices that companies and other organisations have generally found to be effective.
  3. Implementation of programs and controls through the assignment of roles, building of internal competencies and deployment of resources both human and techological.
  4. Evaluation of program and control design, implementation and operational effectiveness

5 Practical Fraud Strategies

Although the above is an excellent way to approach your fraud strategy, this level of planning and implementation takes time. Below we have listed five practical strategies you can employ straight away. Point two is perhaps the most important of them all.

  1. Invest in fraud specialists: Either via training up existing members or hiring fraud talent.
  2. Implement continuous improvement: Fraud is a highly dynamic topic. The often highly professional fraudsters quickly adjust to the behaviour of claims investigators
  3. Check lists and/or fraud manuals to ensure best practice is followed
  4. Introduce a triage function to flag suspicious claims up-front
  5. Use cognitive interview techniques - analysing the consistency of replies to varying or repeated questions on identical points. The evaluation also includes memory of details and the liveliness of the description.

Tactical Fraud Detection

The second element of minimising fraud is the physical act of detecting it. In total we have compiled a comprehensive list of 35 tactics that can help you detect fraud.

We know that you can’t replicate the ‘gut instinct’ of an experienced claims manager, but these pointers can help ensure nothing is missed.

Generic Fraud Tactics

  1. Analyse Claims History: A history of losses and prior claims may indicate an issue
  2. Use Private investigators: If budget allows & the suspected fraud is significant
  3. Geographical claims: Be aware of clusters of claims in the same area
  4. Use software to identify trends: The right Claims software can highlight trends indicating potential fraud hotspots, repeat claims or suspicious activity
  5. Inflated claims: Does the invoice seem unusually high given the work completed?
  6. Use Forensic accounting: Check claimant’s credit history, is the claimant in debt? Living above their means? Unemployed?
  7. Social Media: Amazing how much you can find out on social media
  8. Solicit Assistance from General Public: public requests for information can be very useful
  9. Perform Cross-Checks: Make sure incident accounts are consistent between claimant and supporting witnesses
  10. Is there a lack of police reports?
  11. Damage or theft of old, obsolete items or inventory, or of multiple family heirlooms for which it's difficult or impossible to establish accurate value.
  12. Be wary of a claimant who is unusually calm after a major loss.
  13. Suspicious-looking or handwritten receipts for repairs or replacement of property.
  14. Value of the claim seems unlikely given the claimants income
  15. Documents omit key/important information

Although these ‘red flags’ can trigger a closer examination, they don't prove fraud. There could be a perfectly plausible explanation for any of the above. That said, they are a means of indicating that something needs to be checked out.

Our customers find that the fraud check list and reporting functions of EvoClaim, are invaluable. If you’d like to know more click here and we’ll give you a call.

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Airmic's 8 Components of Claims Handling Excellence

7 most bizarre insurance claims of 2015

3 Common Claims Software Problems


Topics: Fraud, insurance fraud, insurance