Protecting Your Business: 6 Steps to Preventing Insurance Fraud
Insurance fraud costs companies around the world billions of dollars every year. That goes for not just insurance companies, but also ordinary businesses operating in a diverse array of industries who wind up paying far more money than they should for policies. In the United States alone, the FBI estimates that insurance fraud costs businesses $40 billion each year through increased premiums of $400 to $700. Read on to find out what steps to take to prevent this expensive problem.
Step 1: Establish a Fraud-Detection Strategy
It’s important for insurance companies and clients to be able to identify potentially fraudulent claims before they are paid out. This requires establishing an effective fraud-detection strategy. Frameworks for accomplishing this goal range from out-of-the-box automated solutions to full-scale investigations of potentially fraudulent claims. Business owners can visit johncutterinvestigations.com to learn about one private investigator with plenty of experience conducting insurance fraud investigations.
Step 2: Understand Relative Levels of Fraud Potential
Every type of claim has a different relative level of fraud potential, so each of them should be handled differently. Companies with limited resources to devote to investigating fraud should focus on those claim types that have the greatest potential for fraud and those forms of fraud that can be identified most successfully. Common insurance fraud schemes typically involve the intentional destruction of property and misreporting of its value.
Step 3: Leverage the Power of Data Analytics
Insurance fraud can be divided into two categories: criminal fraud and cultural fraud. The first involves active, intentional criminal activity, while the latter is typically perpetrated by genuine claimants who are acting opportunistically. Data analytics can help insurance adjusters and other industry professionals systematically apply suspicion scores to claimants to help distinguish both types of fraudulent claims.
Step 4: Continually Review Claims
Successfully reducing the instances of insurance fraud within a company requires persistence. Use data analytics and predictive modeling to continually review claims and monitor them for their fraud potential. They remove much of the hands-on work of manual analysis while simultaneously helping insurance providers detect patterns that could be indicative of criminal fraud.
Step 5: Create a Layered Approach
While data analytics and predictive modeling are extremely helpful tools, there is no way to establish a successful fraud detection program without human involvement. No single method can detect all forms of fraudulent policies or claims, and professional criminal fraudsters often hide in multiple databases.
It’s difficult for even experienced insurance adjusters to catch instances of fraud without access to all the right tools and methodologies, so don’t be afraid to hire outside consultants and investigators. Videos, photos, and live streaming are all commonly used to document evidence, but they can also be faked. Creating a layered approach that involves leveraging the power of technology and working with outside consultants to investigate all facets of potentially fraudulent activity is the best way to reduce unnecessary spending.
Step 6: Be Ready to Revise the Plan
As insurance companies, businesses, and investigators adopt new ways to detect fraudulent claims, criminals adapt new ways to get around these tactics. Preventing fraud requires all actors to be proactive, identify trends early, and revise fraud prevention plans to stay ahead of the criminals.
The Bottom Line
Insurance fraud costs insurance companies and policyholders alike billions of dollars each year. It’s unlikely that even the best team of analysts and investigators will be able to detect every instance of fraud, but that’s a good starting goal. Follow the steps above to maximize the chances of stopping criminal fraudsters in their tracks.