The detection of insurance fraud generally occurs in two steps. The first step is to identify suspicious claims that have a higher possibility of being fraudulent. This can be done by computerized statistical analysis or by referrals from claims adjusters or insurance agents. Additionally, the public can provide tips to insurance companies, law enforcement and other organizations regarding suspected, observed, or admitted insurance fraud perpetrated by other individuals. Regardless of the source, the next step is to refer these claims to investigators for further analysis.
Due to the sheer number of claims submitted each day, it would be far too expensive for insurance companies to have employees check each claim for symptoms of fraud.Instead, many companies use computers and statistical analysis to identify suspicious claims for further investigation. There are two main types of statistical analysis tools used: supervised and unsupervised. In both cases, suspicious claims are identified by comparing data about the claim to expected values. The main difference between the two methods is how the expected values are derived.
In a supervised method, expected values are obtained by analyzing records of both fraudulent and non-fraudulent claims. According to Richard J. Bolton and David B. Hand, both of Imperial College in London, this method has some drawbacks as it requires absolutely certainty that those claims analyzed are actually either fraudulent or non-fraudulent, and because it can only be used to detect types of fraud that have been committed and identified before.
Unsupervised methods of statistical detection, on the other hand, involve detecting claims that are abnormal. Both claims adjusters and computers can also be trained to identify “red flags,” or symptoms that in the past have often been associated with fraudulent claims. Statistical detection does not prove that claims are fraudulent; it merely identifies suspicious claims that need to be investigated further.
Fraudulent claims can be one of two types. They can be otherwise legitimate claims that are exaggerated or “built up,” or they can be false claims in which the damages claimed never actually occurred. Once a built up claim is identified, insurance companies usually try to negotiate the claim down to the appropriate amount. Suspicious claims can also be submitted to “special investigative units”, or SIUs, for further investigation. These units generally consist of experienced claims adjusters with special training in investigating fraudulent claims.These investigators look for certain symptoms associated with fraudulent claims, or otherwise look for evidence of falsification of some kind. This evidence can then be used to deny payment of the claims or to prosecute fraudsters if the violation is serious enough.
Determining fraud committed by the health insurance companies can sometimes be found be comparing revenues from premiums paid against the expenditure by the health insurance companies on claims.
As an example, in 2006 the Harris County Medical Society, in Texas, had a health insurance rate increase of 22 percent for “consumer-driven” health plan from Blue Cross and Blue Shield of Texas. This was despite the fact that during the previous year Blue Cross had paid out only 9 percent of the collected premium dollars for claims.
Due to the sheer number of claims submitted each day, it would be far too expensive for insurance companies to have employees check each claim for symptoms of fraud.Instead, many companies use computers and statistical analysis to identify suspicious claims for further investigation. There are two main types of statistical analysis tools used: supervised and unsupervised. In both cases, suspicious claims are identified by comparing data about the claim to expected values. The main difference between the two methods is how the expected values are derived.
In a supervised method, expected values are obtained by analyzing records of both fraudulent and non-fraudulent claims. According to Richard J. Bolton and David B. Hand, both of Imperial College in London, this method has some drawbacks as it requires absolutely certainty that those claims analyzed are actually either fraudulent or non-fraudulent, and because it can only be used to detect types of fraud that have been committed and identified before.
Unsupervised methods of statistical detection, on the other hand, involve detecting claims that are abnormal. Both claims adjusters and computers can also be trained to identify “red flags,” or symptoms that in the past have often been associated with fraudulent claims. Statistical detection does not prove that claims are fraudulent; it merely identifies suspicious claims that need to be investigated further.
Fraudulent claims can be one of two types. They can be otherwise legitimate claims that are exaggerated or “built up,” or they can be false claims in which the damages claimed never actually occurred. Once a built up claim is identified, insurance companies usually try to negotiate the claim down to the appropriate amount. Suspicious claims can also be submitted to “special investigative units”, or SIUs, for further investigation. These units generally consist of experienced claims adjusters with special training in investigating fraudulent claims.These investigators look for certain symptoms associated with fraudulent claims, or otherwise look for evidence of falsification of some kind. This evidence can then be used to deny payment of the claims or to prosecute fraudsters if the violation is serious enough.
Determining fraud committed by the health insurance companies can sometimes be found be comparing revenues from premiums paid against the expenditure by the health insurance companies on claims.
As an example, in 2006 the Harris County Medical Society, in Texas, had a health insurance rate increase of 22 percent for “consumer-driven” health plan from Blue Cross and Blue Shield of Texas. This was despite the fact that during the previous year Blue Cross had paid out only 9 percent of the collected premium dollars for claims.
Legislation
National and local governments, especially in the last half of the twentieth century, have recognized insurance fraud as a serious crime, and have made efforts to punish and prevent this practice. Some major developments are listed below:
United States
- Insurance Fraud is specifically classified as a crime in all states, though a minority of states only criminalize certain types (i.e. Oregon only outlaws Worker Compensation and Property Claim fraud).
- 19 states require mandatory insurer fraud plans. This requires companies to form programs to combat fraud and in some cases to develop investigation units to detect fraud.
- 41 states have fraud bureaus. These are law enforcement agencies where “investigators review fraud reports and begin the prosecution process.”
- Section 1347 of Title 18 of the United States Code states that whoever attempts or carries out a “scheme or artifice” to “defraud a health care benefit program” will be “fined under this title or imprisoned not more than 10 years, or both.” If this scheme results in bodily injury, the violator may be imprisoned up to 20 years, and if the scheme results in death the violator may be imprisoned for life.
Canada
- The Insurance Crime Prevention Bureau was founded in 1973 to help fight insurance fraud. This organization collects information on insurance fraud, and also carries out investigations. Approximately one third of these investigations result in criminal conviction, one third result in denial of the claim, and one third result in payment of the claim.
- British Columbia’s Traffic Safety Statutes Amendment Act of 1997 states that any person who submits a motor vehicle insurance claim that contains false or misleading information may on the first offence be fined C$25,000, imprisoned for two years, or both. On the second offense, that person may be fined C$50,000, imprisoned for two years, or both.
United Kingdom
- A major portion of the Financial Services Act of 1986 was intended to help prevent fraud.
- The Serious Fraud Office, set up in 1987 under the Criminal Justice Act, was established to “improve the investigation and prosecution of serious and complex fraud.”
- The Fraud Act 2006 specifically defines fraud as a crime. This act defines fraud as being committed when a person “makes a false representation,” “fails to disclose to another person information which he is under a legal duty to disclose,” or abuses a position in which he or she is “expected to safeguard, or not to act against, the financial interests of another person.” This act also defines the penalties for fraud as imprisonment up to ten years, a fine, or both.
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