A robust method of claims fraud prevention is still in its phase of evolution. Claims fraud is a deliberate act of deception committed by or against any business or a government or non-government agency to receive undue monetary gains. The scope of claims fraud does not stay limited to insurance companies alone, but it is a wide occurrence in the manufacturing, retail, and governance sectors. Different kinds of applicants may conduct claims fraud.
While the general policyholders and the applicants can commit fraud, the same can be committed by the claimants or the claim processing agencies. These frauds may include false claims for a staged accident, or inflated claims in natural disasters, faked death, or even premium diversions. Several benefit claims, employment, pricing, rebate coupons, product recall, and warranties all provide ample opportunities for claims fraud.
The Extent of Claims Fraud
Claims fraud has a deep-rooted impact on business revenues in the form of higher costs of goods, increased premium amounts, the surge in other related crime and litigation, and lack of reliability. It is estimated that claims fraud constitutes about 10% of claims expenditure in companies across the globe. It amounts to billions of dollars annually. The figures may vary from one industry to the other, but the losses remain a source of headache for most business houses.
These figures make it imperative for companies to develop a dynamic and robust model of fraud detection at an early stage. This pro-activeness will provide them with ample opportunity to reduce their claims fraud costs and mitigate potential revenue losses. Countries worldwide agree to set up some kind of claims fraud management system based on a compliant set of agreeable strategies.
Here is a look at the strategies that companies have been employing to avoid claims fraud.
Strategies to Curb Claims Fraud
- Set-up an Internal Claims Fraud Detection Framework: This means is the simplest yet most effective way to identify, detect, and eliminate fraudulent activities in their nascent stages within the company. Here it becomes necessary to identify fraud before the claim gets paid and this is carried out in different stages of claims processing. A complete analysis of the various parties involved in the claim process and their background checks are needed. The office workforce should be trained efficiently to have a fraud-intolerant culture and act as a whistleblower whenever there is an instance of fraud detection. Spot audits should be the norm.
- Report the Fraud: Fraud detection is just the beginning of the process. The people behind the fraud and the consequences of their activities should be brought openly to light with the help of a powerful Incident Response Plan. It involves collecting and preserving evidence, investigation, notifying external agencies, and the assessment of loss. The process will involve a whole range of follow-up procedures, as well.
- Re-building Fraud Management Skills: All companies should aim to develop fraud detection and investigation skills. It is only possible if an integrated fraud management process is employed. Such a process should handle all activities from notification of the first instance of fraud to the complete claims cycle, ending with claims settlement and recovery. Companies should be aware of the level of fraud potential to be able to create an efficient process.
- Employ Data Analytics for Fraud Detection: Companies can use systems based on Fraud Analytics to learn and uncover any emerging fraud patterns. As company data grows in volumes, fraud detection becomes a challenge. The traditional rule-based systems used by companies for fraud detection are limited to known fraud patterns. However, in the case of unknown or novel fraud instances, sophisticated techniques like Fraud Analytics need to be employed. These machine learning-based systems can easily integrate Predictive modeling based on data mining tools for claims to use internal and external data to identify fraudulent applicants or policyholders.
- Review and Rescore Claims: The framework for an efficient Claims Fraud detection and investigation system does not stop at the analytics and assessment stages. Claims require a process of continuous fraud monitoring with the right tools. Instead of using age-old manual analysis tools, automated, hands-on tools can be used to determine Suspicion scores that detect any fraudulent patterns. This method is much more accurate than traditional fraud detection methods. It further builds the need to re-score the claims using Predictive Analysis.
- Revise Claim Models Based on Market Research: Companies can delve into advanced research and adopt intensive research-based claims models to detect claims fraud at the earliest stages. However, fraudsters always try to move one step ahead and constantly work upon ways to come up with ways to initiate fraud. Thus, insurance companies need to be on their toes to pick up new market trends and the prevalent market conditions to identify new means of fraud attempts.
An effective combination of both technical tools and human vigilance has to be used to combat fraud. Businesses need to base the framework for Claims Fraud Management on an integrated approach. Companies can use advanced technical tools to build their business competencies and workforce culture along the lines of analysis and insights. It means companies should not only have strategies for avoiding claims fraud but, at the same time, should have an operational model with clear fraud management goals.
It becomes the prime responsibility of all employees of a company to address the claims fraud challenge together along with all business units. They should have consistent data capturing standards and a definite action plan to evaluate claims using multiple data sources. The entire process of building up the Fraud Detection framework will require time and patience but will go a long way in fraud mitigation and assessment.
A great way to minimize the risk of fraud is by automating processes. Clearcycle offers a range of payment models as well as reimbursement solutions that you should explore. Using the same can ensure greater transparency and fewer incidents of claims fraud in your organization.