How does a Special Investigation Unit become best-in-class?

Jim Murphy Assistant Vice President, P&C Insurance Claims Practice
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May 25, 2017 -

The thirty billion dollar fraud question

Estimates put insurance fraud in the United States at approximately $30 billion annually. If insurance fraud is not prevented, is the industry willing to withstand $30 billion, $50 billion, or even $100 billion paid out on fraudulent claims annually? The billion dollar question is how much is your company's slice of this pie, and how are you working to reduce it? The answers to these questions are shaped, in large part, by what your organization has in to place to detect, investigate, and prevent insurance fraud, within the mix of your book of business.

A study conducted by the Coalition Against Insurance Fraud in June/July 2014 found half of insurers surveyed felt that the amount of suspicious activity had increased over the past three years, which makes sense when you consider the recession was in full swing then. However, what about now in 2017? How is your organization taking steps to identify and fight fraud? Those companies that have implemented a program utilizing analytics and technology to identify and investigate fraud have a competitive advantage at deterring fraudsters, pushing them in turn to seek softer targets. It is important to note that if your organization has decided not to implement a fraud program, invest in fraud technology and/or an Special Investigation Unit (SIU) operation, the likelihood is very high that the organized fraudsters know this as well. Take the time to reflect and consider the state of your fraud defenses—below are some excellent methods to consider in your analysis.

Are you tracking the right metrics and is your performance where it should be? Detecting, investigating, and preventing fraud can be a very challenging endeavor even for the most mature SIUs.

Metrics: Most SIUs keep track of certain metrics—e.g., annual percentage of claims investigated, impact ratio, expenses, cycle time, etc.—to determine their success and value to the company, policyholders and shareholders. Many of these can be influenced by decisions made by SIU management such as installing fraud technology, effectively utilizing SIU staff, and controlling expenses.

One of the ways an SIU can have a possible impact on their metrics is to conduct a diagnostic assessment of their processes, technology, and people to determine where they fall on the assessment matrix (Figure 1). The SIU can either conduct their own-self assessment or hire an outside vendor to complete the diagnostic assessment, which will provide an unbiased and outside perspective on the overall SIU operation. In either case, it is important to determine what each area is doing and determine any areas of opportunity for improvement. The following are examples for each area:

Process: Review the entire claim referral process to determine its efficiency. A recommendation could be to identify certain highly scored loss types and automatically send the referral to an SIU investigator. This would eliminate several steps in the referral process thereby decreasing the cycle time.

Potential Benefit:

  • Operating model and operational excellence framework will likely reduce cost by up to 25 % 
  • Cycle time reduction

Is your organization on top of current advances in technology and is it applying and utilizing the right tools to advance fraud handling?

Technology: Are analytical fraud models being used and are they creating too many false positives or detecting the right claims to investigate? Boosting an existing fraud model or creating ones that are accurate can assist in increasing the overall unit's impact ratio and investigator's turnaround time. It is also important to have a feedback loop that uses previously rejected scored claims to recalibrate the fraud model, which will provide for more precise scoring.

Potential Benefit:

  • Digital and analytics fraud solution for claims can improve early detection and improve SIU's impact ratio by 10 %
  • Increase in total claims investigated to 2–3% annually

Does your organization have the right mix of people in place—whether they are employees or third-party service providers—to deliver on your fraud strategy?

People: An experienced investigator handles both non-complex and complex investigations. The investigator is also responsible for completing background database runs for newly assigned investigations. Utilizing a third-party resource to handle less complex tasks would allow the Investigator to focus on complex tasks such as major case investigations. This can increase the overall productivity of the investigator and SIU.

Potential Benefit:

  • More engaged full-time staff
  • Cycle time reduction
  • Increase in total claims investigated to 2–3% annually

Figure 1: SIU Assessment Matrix

SeeClose detailed view

Beyond the targeted and tactical views, what else can you consider in the way of assessing how your organization can best tackle fraud ?

Thinking Outside of the Proverbial “SIU Sandbox"

Design thinking: As follow up to a diagnostic assessment, a design thinking workshop focused on SIU operations can improve an organization's chances of successfully detecting, investigating, and preventing fraud. Design thinking is a human-centered approach that helps organizations identify innovation, realize the latent possibilities of digital technology and analytics, and pinpoint the requirements to achieve success within their operation (Figure 2). The goal for this type of workshop is to align the SIU's front, middle, and back office with the potential for real business impact. Below are some of the benefits an organization will yield from a design thinking workshop:

  • Identification of strategic areas within the SIU that will align with unit and organizational goals and objectives (e.g., expense management, increase in impact ratio, reduction in cycle time)
  • Best practices in the industry and the resulting impact
  • Learn about digital capabilities and their implications
  • Gain insight into their current state and how to move to a best-in-class SIU operation 

Figure 2: Focus areas for operational transformation

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For an SIU to become more effective and efficient, companies should analyze their operation for the opportunities to innovate, automate, and re-shape the model to best suit the way they conduct business. Whether this is accomplished through a diagnostic assessment or a design thinking workshop, the goal is the same. Look at what you are doing (current state) and determine where you want to go (future state). The potential benefits of expense reduction, increased productivity, and competitive advantage far outweigh the time spent. The availability of new fraud technologies, the use of analytics and big data for actionable insight, and the application of digital interventions, make for a much easier decision now than ever before.

The companies that successfully balance process, technology and people in the fight against fraud are well on their way in becoming best in class.

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