According to the coalition Against Insurance Fraud, insurance fraud is an $80-billion crime wave. Unfortunately, most insurance carriers have neither the processes nor technology they need to stop fraud.Even so, as fraud schemes become more sophisticated, insurance carriers must examine an even wider array of data to identify fraud trends and detect fraudulent claims. To do this, they must institute a set of technology best practices and techniques to automatically detect fraud and abuse early in the claims process.
A business rules management system (BRMS) that enables organizations to develop, deploy and manage applications for automating decisions can serve as the technology basis for this approach.
While making a commitment to streamlining the claims process and automating workflows may seem daunting, the benefits of doing so far outweigh inaction.
Today, most insurers still rely on manual and inefficient processes, with fraud detection left to adjusters who may have 30 years of experience or just one and few tools to help them see trends and anomalies given the high volume of claims.
Detecting Fraud
Fraud departments within some carriers use analytics to detect fraud patterns, but these operations are typically siloed with limited ability to disseminate information throughout the organization, providing little assistance to adjusters in their effort to evaluate and take action on a specific claim. For this reason, fraud is often undetected or detected only after a claim has been paid.
Exacerbating the problem is the ever-increasing volume of transactions, along with complex, multiple reimbursement methodologies that leave insurers wide open to inappropriate claim payments.
And there's more bad news: Insurance carriers are under growing pressure to serve consumers through all available channels, including the Internet, opening new doors that fraud perpetrators will gladly walk through.
To meet these challenges, insurers must deploy a system that provides real-time data analysis on all incoming claims and automates fraud detection processes and procedures. But so far, the insurance industry has been slow to utilize such technologies, in part because existing, fragmented manual processes can't be easily automated.
For fraud prevention to be effective, however, insurance carriers must streamline and automate their claims process and eliminate different claims systems for each line of business.
Given that the claims process is rules driven, a BRMS lets carriers automatically assign claims, automate best practices and state-specific regulatory stipulations, and determine payment and settlement schemes. With a BRMS, fraud detection can be completely integrated into the claims process and used early on in the claims lifecycle.
Using Automation
Early fraud detection allows insurance carriers to automatically separate claims into "buckets," detecting anomalies and routing suspicious claims to an investigation group or a suspense file, while letting non-suspicious claims continue through the normal process.
With a BRMS, insurance carriers can score claims based on multiple attributes and automatically make decisions based on the average score.
For example if a claimant has submitted three claims in the past five years in excess of a specified dollar amount, then the score would be different than if a claimant has submitted a claim below the dollar threshold and has submitted no other claims during the past five years.
Or, if a claimant has had a policy for only six months and is submitting a claim in excess of a specified amount, the score could indicate that the claim should be routed to the fraud group.
A BRMS allows organizations to maintain all rules in a central repository, enabling access across all their lines of business, and the rules can be easily changed, providing insurers with the flexibility to quickly adapt to evolving conditions as criminals find new ways to commit fraud.
Managing Rules
A BRMS also delivers an improved audit trail, so insurers can track the rules supporting fraud detection policies over time, which is important for governance and regulatory compliance.
Additionally, a BRMS complements existing analytic tools. Analytics can be used to detect patterns, while the BRMS renders decisions based on the patterns.
Insurers should look for a BRMS that enables both their business and IT users to easily manage rules across all lines of business. And they should look for a system that has the flexibility to leverage legacy platforms, open technologies and industry data standards, such as ACORD's XML, enabling a wide range of strategic applications across multiple channels and systems.
Consumers know that insurance fraud leads to higher premiums, so insurers that can stop fraud, reduce losses and control premium increases can improve their bottom lines while creating a clear competitive differentiator.
Maneeza Malik is industry marketing director, insurance, ILOG Inc., Mountain View, Calif. She can be reached at info@ilog.com.
