Tag Archives: National Insurance Crime Bureau

Unlike the criminals guilty of ‘hard’ fraud—such as the ones we often report about on our blog involving PIP insurance schemes through staged car accidents—there is another group of people who commit ‘soft’ fraud without fully realizing the impact it has on increasing their insurance costs.

Soft fraud, also known as opportunity fraud, is the bane of the insurance industry and the Special Investigative Units (SIUs) that serve them. The little lies, exaggerations, and exclusions that make up this type of fraud are difficult to detect, and when they are uncovered, are often difficult to investigate without offending long-term customers.

According to a commentary by Joseph Bracken on InformationWeek Insurance & Technology, soft fraud includes circumstances like:

• Overstating the extent or origin of damage when filing a claim
• Overestimating the value
• Minimizing annual mileage driven
• Neglecting to mention the existence of teenage drivers

Consumers’ tolerance to soft fraud has been shown in an Insurance Research Council 2013 study in which 24 percent of respondents thought it was acceptable to overstate the amount of a claim submission as a way to offset the cost of a deductible, and 10 percent said that insurance fraud “doesn’t hurt anyone.”

However, the Coalition Against Insurance Fraud, reveals just how much insurance fraud hurts—it costs the economy $80 billion annually, which is enough to cover salaries of 2.2 million American workers for a year.

This is where analysis using technology can come into play, Bracken says, to help SIUs protect policyholders from soft fraud, including the following:

1. Establish a baseline on the number of claims being investigated, keeping in mind that based on industry data, about 10-20% of insurance claims have the potential to be fraudulent.
2. Establish patterns of activity according to type of claim or claimant demographic to identify inconsistencies.
3. Set up business rules and maximum limits to identify the claims that need closer review, basing them on claim characteristics (exceeding a certain dollar limit) or insured behavior (such as a change in the coverage limit up to 60 days before a claim).
4. Develop norms for common claims and flag those that veer from the norm.
5. Compare in-house and third-party data to identify inconsistent behavior.
6. Compare average retail store values with claim values.
7. Eliminate data silos so investigators can merge data from different sources within the company.

While this analytical investigative approach may seem a heavy-handed way to combat soft fraud, it ends up being an essential component to achieving several goals—it’s successful in detecting claims that are most likely to be fraudulent, it’s cost-effective for SIU investigators to zero in on those claims, and it ultimately decreases premium costs.

The National Insurance Crime Bureau (NICB) has noticed an uptick in the use of more sophisticated schemes to steal cars as new vehicle technology makes methods like hot-wiring almost obsolete. These findings highlight a growing trend in “financial fraud” auto theft.

Even though these vehicles are technically stolen by crooks, the methods they use for the theft—in legal terms—constitute financial fraud, the NICB explained in a news release. Consequently, these stolen vehicles are not counted as auto thefts, partially explaining a continual decline in auto theft crime statistics over the past two decades.

One such ploy involves the use of stolen forms of identification, such as fake drivers’ licenses and personal information stolen from identity theft victims. Stolen IDs are used to fraudulently lease or obtain loans to procure new vehicles. Once the crooks drive the vehicle off the lot, they never make scheduled payments. Often instead, these cars are re-sold to unsuspecting buyers after the scammers switch the Vehicle Identification Numbers (VINs).

Unfortunately for investigators, there is currently no central database that quantifies these crimes.

“Trying to put a number on these kinds of thefts is a challenge,” said NICB President and CEO Joe Wehrle. “It’s comparable to a hacker stealing IDs—you don’t know you’re a victim until it’s too late. Most of these thefts don’t show up in traditional crime reporting numbers and become financial losses for lenders, car rental companies and others. The result is millions of dollars added to the cost of doing business which is ultimately passed on to consumers.”

NICB advises consumers to frequently check their credit reports for signs that someone else is using their identity to take out new loans.

Because these types of “white collar” crimes have become more widespread, the NICB has launched a new series to draw attention to the growing trend in order to raise public awareness and thwart these types of auto thefts. Over the next few months, NICB will expose other new schemes that criminals are using to steal cars besides using stolen IDs.