With inflation on the rise and greater financial desperation, there’s been an uptick in fraudulent insurance claims. According to the Coalition Against Insurance Fraud (CAIF), total losses due to insurance fraud are at least $308 billion annually, and the number continues to rise. Dealing with insurance fraud is a critical concern for independent insurance agents in 2023 when everyone is feeling the pocketbook squeeze. To avoid insurance fraud in your agency, consider the following strategies:
Stay Informed and Aware
Keep up-to-date with the latest trends and tactics used in insurance fraud. CAIF has put together a list of scam alerts here. Awareness of new schemes enables you to identify potential red flags. There are also patterns you can begin to familiarize yourself with. Here are a few to watch for:
- A client who has submitted many claims or claimed many losses over his/her lifetime
- Receiving handwritten receipts for repairs on something recently covered
- Fire damage claims for fires that occur immediately after a family argument or fight
- Medical claims filed just before a seasonal employee’s job ends
- Homeowners or auto owners’ insurance increasing just before a client submits a claim
- Auto or homeowners claims coming in from those who are behind in car payments or mortgage payments
- Injury claims that don’t match the reported incident
Educate yourself and your team about different types of insurance fraud and the common signs to watch out for in each area. Committing to ongoing training will enhance your ability to detect and prevent fraudulent insurance activity.
Partner With Current Clients
Conduct comprehensive risk assessments for clients to identify potential vulnerabilities and exposure points where fraud might occur. Educate your clients about the consequences of insurance fraud and the importance of providing accurate and truthful information during the application and claims process.
Conduct occasional client interviews to validate information and gain deeper insights into their coverage needs and risk exposure.
Screen New Clients
Implement thorough screening procedures when accepting new clients and verify the information provided to ensure accuracy and legitimacy. Here’s how you can effectively screen new clients:
- Collect Comprehensive Information: Gather detailed information from your clients, including personal details, contact information, and background data.
- Verify Identity: Request official identification documents such as driver’s licenses, passports, or social security numbers to confirm the client’s identity.
- Screen Against Watchlists: Check clients against various watchlists, such as fraud databases, sanctions lists, and anti-money laundering databases.
- Interview: Conduct a thorough interview with the client to understand their needs, motivations, and risk exposure. Inconsistent answers could indicate potential fraud.
- Check References: Request professional references from previous insurance providers or employers. Contact these references to validate the client’s claims.
- Review History: Investigate the client’s claims history with other insurers. Look for patterns of frequent claims or suspicious activity.
- Use Data Analytics: Employ data analytics tools to detect anomalies and inconsistencies in the information provided by the client.
- Do a Credit Check: Conduct credit checks to assess the client’s financial stability. Unusual financial behaviors could raise red flags.
- Check Social Media: Review the client’s social media profiles to gain insights into their lifestyle, activities, and potential discrepancies in the information provided.
- Watch Behaviors & Unusual Requests: Evaluate the client’s behavior during interactions. Sudden urgency or inconsistent behavior could indicate potential fraudulent intent. If the client’s requests or circumstances seem unusual, ask probing questions to clarify their intentions and motivations. If something feels off or raises doubts, trust your instincts and conduct additional investigations.
- Document Everything: Maintain thorough records of all interactions, interviews, and information collected from the client. This documentation can be crucial if fraud is suspected later on.
Performing due diligence can significantly help independent agents reduce the risk of fraud and protect their clients and the agency from potentially harmful situations.
Invest in advanced fraud detection software that analyzes patterns and cross-references data. It should also flag suspicious behavior. Use these and other tools for data analysis, fraud pattern recognition, and predictive modeling to identify anomalies and potentially fraudulent behavior. Strengthen your underwriting process to identify potential fraud indicators. Utilize data analytics and technology to flag inconsistencies.
Optimize Partnerships & Networks
Partner with insurers that have robust fraud detection systems and share information about fraudulent activities to enhance collective efforts. Collaborate only with reputable service providers, vendors, and clients. Unethical partners could facilitate fraudulent activities.
Network with other insurance professionals to share experiences, best practices, and strategies for tackling insurance fraud.
Ensure You’re Collaborating with Reputable Professionals
Collaborate only with reputable service providers, vendors, and clients. Unethical partners could potentially facilitate fraud. To avoid questionable companies and clients, consider these strategies:
- Conduct Due Diligence: Thoroughly research potential service providers, vendors, and clients before entering into any agreements or partnerships. Use online resources, reviews, and industry associations to gather information about their reputation and track record.
- Verify Credentials: Verify the credentials and certifications of service providers, vendors, and clients. Legitimate professionals should have relevant licenses and certifications in their respective fields.
- Check References: Request references from potential service providers, vendors, or clients and contact those references to gather information about their experiences. Ask about the quality of services, communication, and professionalism.
- Run Background Checks: For more critical partnerships, consider conducting background checks on potential partners. This can help uncover any red flags or previous instances of fraud.
- Go on Referrals: Seek recommendations from other trusted insurance professionals or colleagues in your network. Word-of-mouth referrals can provide insights into the reliability and trustworthiness of potential partners.
- Get Connected: Join industry associations and networks related to insurance and related fields. These groups often have established members who can vouch for the reputation of service providers, vendors, and clients.
- Trust Your Instincts: If something seems too good to be true, or you have a gut feeling that something isn’t right, trust your instincts. It’s better to be cautious and do more research than to rush into a potentially problematic partnership.
Remember that even when taking these precautions, there’s always a level of risk involved in business interactions. Staying vigilant and conducting thorough research can significantly reduce the likelihood of falling victim to fraud or unethical practices.
Monitor Potential Fraudulent Activity
Make use of technology tools for data analysis, fraud pattern recognition, and predictive modeling. This information can help you identify anomalies and potentially fraudulent behavior. Be sure to maintain thorough documentation of client interactions, underwriting processes, and claims procedures. Detailed notes can provide a trail of evidence in case of fraud investigations.
Report Suspicious Activity
Report any suspicious or fraudulent activity to the appropriate authorities and industry associations. This contributes to a collective effort to combat fraud, which can ultimately lower costs for everyone. If you find something suspicious, contact your state fraud bureau or the National Insurance Crime Bureau (NICB). If you need to report scams by medical providers, contact the state medical board.
Be prepared when you contact these fraud bureaus or other agencies. Be sure you can clearly explain the details of the scam as well as how much money you believe was lost. Also have the dates, names, phone numbers, emails, and other contact information of the suspected individuals or organizations. Have ready access to relevant records and other evidence that may be helpful
By combining vigilance, education, advanced technology, and collaborative efforts, independent insurance agents can effectively combat insurance fraud in 2023, protecting their clients, their businesses, and the integrity of the insurance industry as a whole.