January 23, 2012

Giving The Nod To Soft Fraud: Divided We Fall


The term Special Investigations Unit (SIU) is often used as a synonym for fraud, and that is a very unfortunate circumstance. Special Investigations Units have become largely detached from general claim departments while fraud has not.

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The SIU Evolution
The term Special Investigations Unit (SIU) is often used as a synonym for fraud, and that is a very unfortunate circumstance. Special Investigations Units have become largely detached from general claim departments while fraud has not.

In their early days Special Investigations Units were often integrated with and working in close proximately and partnership with the general claim population. Their presence and influence helped keep a universal focus on fraud. In many instances the general claim adjuster retained the claim and the Special Investigations Unit acted as a partner, an excellent training mechanism.

The formula was SIU + informed general claim adjusters = fraud deterrent

The former situation was not perfect because adjuster ability to identify and refer suspect cases varied. In time, rules-based intelligence and predictive modeling tools evolved to strengthen detection and referral. Early on, the new tools alerted the general adjuster who decided whether to refer. But over time alerts were increasingly elevated to the Special Investigations Unit directly because the tools increased referral activity and Special Investigations Unit managers needed a mechanism to control the volume and ensure that the cases with the highest potential were retained.

As the paths of the Special Investigations Unit and the general claim department increasingly diverged, the latter was also becoming increasingly specialized and downsized as automation and production became the top priority. The “need for speed” took an even greater toll on general claim fraud focus and today Special Investigations Units and general claims live in different worlds.

The Soft Fraud Deficit
The Special Investigations Unit has its focus largely on hard fraud and does its best to reach out to general claims about pervasive soft fraud, but the general claim department no longer has the capacity to effectively respond. As a result, a significant soft fraud deterrent deficit opened up across the industry. It’s most notable manifestation is the significant rise in routine automobile injury medical costs.

This rise of routine medical costs involves both hard and soft fraud. Special Investigations Units have dedicated much time and attention to the hard fraud aspect and achieved many notable successes. But as the “churn and burn” automated claim processes of the general claim department gained speed, soft fraud went undetected and undeterred.

The irony is that the widely reported successes of highly professional Special Investigations Units leads carriers to believe that they have their fraud problems fully under control, hence scant awareness of the pervasive soft fraud exists. As predictive modeling tools continue to advance, the focus remains on the Special Investigations Unit, and while advances such as the identification of social networks are great and necessary, where are the tools for the general adjuster aimed at detecting soft fraud?

Who Owns Soft Fraud?
Most internal and external constituents continue to think of the Special Investigations Unit as the owner of fraud issues but Special Investigations Unit leaders are increasingly frustrated with their inability to influence change in the general claim departments.

While different companies may have different philosophies, it seems clear that the Special Investigations Unit is not synonymous with fraud. A wall has been erected, physically and psychologically, between the Special Investigations Unit and the general claim department that has orphaned soft fraud.

The Financial Deficit
The Insurance Research Council estimates that a hospital cost shift has been hitting the Property & Casualty industry to the tune of billions annually. This would likely be much worse if not for the work of Special Investigations Unit professionals pushing back on hard fraud. But unless the detection and prevention of soft fraud begins to get the attention it deserves, substantial fraud will continue unabated and consumers will continue to face needlessly excessive premiums.


About the Author

Michael Rowe has over 30 years of experience in the Property & Casualty Insurance Industry, predominantly in claims. Mike has significant exposure to IT initiatives involving predictive modeling and rules-based intelligence, and he is a strong advocate for infusing a clear business objective and quantifiable ROI into every business activity.

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