“Scan”-ing for Fraudulent Claims

Once you have been around the block a few times in the insurance business, you know that those who attempt to make fraudulent claims are often quite ingenious in their efforts to disguise the wrongdoing.

It takes an experienced adjuster to see the red flags that point to fraud. Fraudulent claims hurt everyone – the company, the broker and the client – by causing the cost of premiums to rise. Most large insurance companies employ special investigations officers to investigate dubious claims, using a combination of common sense methods.

Some of the red flags are almost immediately obvious. For example, if a client is excessively eager to settle, if the property appears to have been insured for more than its real value, if irreplaceable personal items such as photographs – or indeed, the insurance policy itself – are miraculously spared when other, more expensive items are lost during a fire or break-in ransacking, an investigator may become suspicious. Sometimes, claims for loss are made even before the policy has been received by the company insured – that kind of timing always makes the insurer wonder what is going on.

Once suspicion has been raised, the next step is to run a check through the Insurance Crime Prevention Bureau (ICPB) databank to see if there is a history of similar claims by the same client. Often, insurance scam artists leave a trail, as they move from company to company. The investigation of insurance fraud is a painstaking process requiring great attention to detail.

A case in point

The Citadel Assurance’s special investigations officers once investigated a claim made by an insured young man whose electronic repairs business had been broken into. He claimed that he had lost not only the equipment he was repairing for clients, but also a substantial amount of new inventory he had purchased to sell. His inventory list proved to be far less than complete, no photos were available to substantiate his claim, and when he was asked to produce receipts for the items he was holding for clients as well as those he had purchased for resale, he became agitated. He could not remember where he had put his records, but assured the company that he would provide them. When the receipts were produced a few days later, The Citadel consulted a handwriting specialist who quickly showed that they had all been written by the same person. The claim was denied.

Bodily injury claims

Among the most difficult types of fraud to prove are those that involve bodily injury claims. Although extensive documentation from medical professionals is required to substantiate a claim, pain and disability are very difficult to quantify and prove. There have even been instances of unscrupulous doctors facing disciplinary action by the College of Physicians and Surgeons when fraudulent claims have uncovered false statements of injury and debilitation.

The greatest challenge in this sort of case is to prove that the claimant is not as debilitated as he or she claims to be – and that can involve many hours of surveillance and investigation. Often, these are hours that can prove to be too costly, in fact, to make the investigation worthwhile. There simply is neither the time nor the manpower to investigate every claim. Adjusters have to trust their instincts to pick the questionable claims out of the pile.

Scanning fraud

One of the methods now being used to determine whether or not a claim may be suspect is a system called SCAN or “scientific content analysis”. Developed by a former Israeli intelligence officer and used by insurance professionals, investigators and law enforcement officers around the world, the method is both simple and effective. Based on the premise that the majority of people – even those guilty of committing a fraud – prefer to tell the truth as much as possible for fear of being caught in a lie, the SCAN method involves asking a claimant to write a “pure account” of the circumstances surrounding their loss.

When an individual is questioned verbally about a loss, the interviewer unconsciously transmits information that may taint the statement. By asking instead that the individual write down the events that led up to his loss, no information is shared and the statement generated can then be considered “‘pure”. It is vital that the claimant be given only the briefest instructions regarding the writing of the statement and that he be left alone to put down the facts in his own words.

The second part of the SCAN process involves an in-depth analysis of the pure statement – preferably by someone uninvolved with the investigation, who can bring an unbiased eye to the task. Given that people tend to tell the truth as much as possible to avoid being caught in a deliberate deception, the largest part of the pure written statement will be an honest account of the circumstances surrounding the loss. Only when the writer reaches that part of the story where the truth will implicate him in fraudulent activity will he begin to lie.

The SCAN process analyzes the written words themselves to determine where the truth ends and the lie begins. When people write about things which are not true, they use different sentence structures and employ more formal language than they might if they had nothing to hide. Writers who are being deceptive often choose odd verb tenses and leave out personal pronouns to avoid the need to make directly false statements. A trained SCAN analyst can pinpoint the areas in a pure account where the writer begins to deviate from the truth.

While a SCAN analysis can not be used as a conclusive method of telling which claims are fraudulent, it can alert the adjuster to dishonesty in a statement and point to the areas in the account of the loss that warrant a more thorough investigation. Following the analysis of the written statement, the claimant is interviewed and questionable areas of the account are probed in detail. If the account is truthful, the response of the claimant will be one of relief at having unburdened himself. If, not, the interviewer may sense uneasiness, and be able to get to the heart of the deception.

Back to basics

When it comes to loss prevention and fraud detection, there are no easy answers. What is required is a thorough understanding of the individual, the business or the property being insured, the potential risks involved, and the best strategies for both preserving the client’s interests and preventing fraudulent claims in the future. Underwriting is a back-to-basics job that relies on good research, painstaking attention to detail and a willingness to approach each client, each property and each business individually, carefully protecting against the possibilities for loss for both the client and the insurer. It is a matter of working with each customer to help boost existing loss prevention programs and create the kind of solid inventory records and property lists that will protect both the client and the insurer in the event of a claim.

From examining common sense “red flag indicators”, using SCAN to evaluate a statement of claim, the back-to-basics approach seems to offer the insurance industry today the best prospects for successful loss prevention and fraud detection.