This article was published by International Travel Insurance Journal on July 29th, 2023.
Insurance fraud is not a new phenomenon. It has been around as long as insurance has, with an early instance dating back to 1862 and involving a certain Mr Calvert, an oil cargo ship, and pirates. Of course, insurance fraud has evolved significantly since these times, with fraudsters utilising anonymising techniques to obscure their identity, and technological tools such as blockchain, artificial intelligence (AI) and the Internet of Things (IoT) to conduct their nefarious activities. Insurers, of course, are wise to these practices and their response and countermeasures are also evolving.
However, insurance fraud remains rampant, with the US Coalition Against Insurance Fraud estimating that US$80 billion a year is stolen through false insurance claims and, according to the Coalition’s Executive Director Matthew Smith, this is a conservative estimate. Putting this figure into perspective, he told ITIJ that ‘$80 billion equates to stretching $1 bills to the moon and back 16 times, and also equals what the federal government will spend on cancer research for the next decade’. The situation runs deeper still for travel and health insurers, with instances of collusion between fraudsters and medical providers. Insurance fraud in all of its many forms is a growing problem that has the potential to be further exacerbated by the Covid-19 pandemic, as times of economic hardship are known to lead to an increase in fraud. While there is no indication that fraud can be 100 per cent prevented, the risk can certainly be mitigated, and processes and protocols will become increasingly sophisticated, while experts continue to close in on collusion.
Global trends and impact of Covid-19 on fraud
Trends differ according to the part of the world in question, and looking at the impact of Covid-19, it is apparent that fraud hasn’t lessened as a result of the pandemic; quite the opposite. Indeed, Simon Cook, Head of Specialist Investigation Services, Charles Taylor Technical Services, explained to ITIJ how Covid has presented new opportunities for fraudsters. “One of the trends we’ve seen is policyholders fabricating accommodation costs when they extend stays abroad after contracting Covid – and they are in fact staying for free with friends or relatives,” he said. “We’ve also seen individuals with Covid colluding with accommodation owners or hotels to inflate the cost of extended stays.” It seems that these types of fraud, facilitated by the pandemic, will continue to rise, and Cook confirmed that as global travel increases, Charles Taylor Technical Services is anticipating and prepared for a rise in both opportunistic and organised fraud. “For instance, policyholders wanting to go on holiday but not being able to afford it may try to recoup some of their costs by submitting fraudulent claims for medical expenses or lost possessions,” he told ITIJ.
Dan Kaine, Partner, Risk & Crisis Advisory, Inherent Risks, has also seen instances of financial hardships caused by the pandemic motivating fraudulent claims. “Families want to travel and return to normality, but don’t necessarily have the disposable income to do so. The fraudsters don’t see it as committing a crime, more as stretching the truth. This mentality is costing the insurance industry millions per year.” Inherent Risks identifies, investigates and interrupts travel insurance fraud trends in different parts of the world, particularly in lower-income regions and Kaine has observed other recent trends in light (or dark!) of the pandemic. “As Covid brought the travel industry to its knees for the best part of two years, it caused a ripple effect through all of the ancillary industries that rely heavily on tourism, including hospital and clinics, private ambulance companies and helicopter rescue providers. As a result, we are already seeing a worrying trend of predatory practices to recoup lost revenues, enabling fraudulent travel insurance claims to be submitted, and enabling fraudsters to profit from insurers.”
Kaine and his team have also seen, first hand, collusion between fraudsters and providers. “This includes fake doctors notes, fabricated hospital admissions with elaborate medical bills, and even real police reports about incidents that never happened,” he told ITIJ. “These types of cases are occurring in typically less-developed countries, arguably where local micro economies created by tourism were affected the most during the worldwide lockdowns. We have seen increasing trends of various types of travel insurance fraud occurring already this year in Mexico, Guatemala, Caribbean, Turkey, Greece and Nepal.”
Smith, too, is acutely aware of a range of types of fraud, including intentional inflating and a worsening of the situation due to the pandemic. “Conservative estimates suggest between 10 to 20 per cent of all insurance claims submitted contain some aspect of fraud. This ranges from completely false claims to intentionally misstating or inflating claims,” he told ITIJ. “All indications are that the Covid-19 pandemic, and the ensuing economic impact, have fueled a rise in insurance fraud both in the US and globally.”
Further underlining the severity of the issue, Smith stated that the pandemic has demonstrated that insurance fraud is no longer a national, but a global, issue. He shared some startling statistics with ITIJ: “Organisations such as the United Nations have reported a 600-per-cent increase in malicious phishing attempts to secure personal data. Interpol reported cybercriminals are boosting attacks at the most alarming rate ever seen, and leaders in Spain reported fake insurance scams soared by 21 per cent in 2020 compared to 2019. All of this points to a dramatic rise in insurance fraud crimes around the globe.” Smith said that many of these scams relate to stolen identities which in turn result in fraudulently secured insurance policies and submitting of bogus claims.
Processes and protocols to detect and prevent insurance fraud
Concerning the processes and protocols in place for investigating travel and health claims, Phil Peart, Senior Investigations Manager (APAC), World Travel Protection, said that with easing of Covid restrictions, insurers are taking a new and strategic approach to managing claims. He provided an insight on World Travel Protection’s work to this end: “We have established a new Special Investigation Unit (SIU), staffed by experienced ex-military personnel and claim investigation specialists. It provides an all-encompassing travel risk management solution, combining security, intelligence and investigations, all within the SIU, delivering a complete value proposition for all clients across all disciplines.”
Kaine told ITIJ that a one-size-fits-all approach to investigation processes won’t suffice. “What works in one region, will certainly fail in another. There are many factors to consider, including the geographic location, and culture of the people where the incident (real or fake) happened. This can make a claim much more difficult to validate, especially when corrupt officials, including doctors, police, hotel and airline staff are involved in the fraud, and are profiting in some way,” he said. At Inherent Risks, claims teams undergo rigorous training, as Kaine describes: “Our claims teams are trained to identify key indicators in conjunction with our technology claims platform, which flags a case to be investigated further. If required, assistance from ground agents and region-specific network providers is also requested to investigate cases further, through an on-the-ground approach.”
Technological solutions and fraud detection
In line with evolving types and methods of fraud, the tools at insurers’ disposal are levelling up. For example, Charles Taylor has developed a new social media and open source investigation tool, as Cook explained: “It uses algorithms to search over 220 open source and social media sites for impactful claims intelligence, which can then be acted on by our investigators. It’s a great example of uniting IT and human expertise to protect insurers’ bottom lines. Importantly, by using algorithms to search for intelligence, it also removes unconscious bias from the claims validation process.” The company has also invested in an automated fraud detection and machine learning business. “This will help segregate fraud risk and enhance Charles Taylor’s claims validation toolbox,” Cook told ITIJ.
World Travel Protection uses its database management application, Atlas, which delivers a total claims solution from risk analysis, claim trends and outcome reporting. “Atlas utilises some of the most advanced technology for internet security available today,” said Peart. “All data is hosted in a secure server environment that uses a firewall and other advanced technology to prevent interference or access from outside intruders.”
Inherent Risks has developed machine learning technology that uses pre-populated parameters to alert the team to potentially fraudulent cases. Kaine explains more: “This technology improves its accuracy and increases its alerts based on the amount of data that’s added. The best way to think of it is that the system gets smarter every time we add a new case to it. It also anonymises the traveller data, enabling us to share data securely, internally, and externally with our clients, and our network providers.”
The role of law enforcement to help insurers stop fraud
Insurance fraud is rampant and law enforcement is stretched, so are sufficient resources devoted to catching and punishing fraudsters? “In the context of extremely high levels of insurance fraud, the [UK] police do well with the limited resources at their disposal,” said Cook. He also highlighted the importance of the ongoing campaign for the development of a database of incidents called CUE (the Claims and Underwriting Exchange). “This will enable the travel industry to share claims data and proactively prevent fraud.”
Smith argues that law enforcement needs to do more and said that there is also work to be done to change perceptions of fraud, as well as improving understanding of its far-reaching impact. “There is a tremendous need for local, national and international law enforcement agencies to both learn more about, and increase efforts to prevent, all forms of insurance fraud,” he told ITIJ. “Too often, many law enforcement agencies view insurance fraud as a ‘victimless crime’ or one where ‘only’ the insurance company is impacted. Such beliefs are misplaced. Insurance crimes from arson fires – which dramatically rose during the pandemic – to staged accidents both injure and kill innocent people. Let alone the economic damage that insurance fraud inflicts on consumers worldwide.”
For several years now, Kaine has privately and publicly advocated for law enforcement to take more action against both individuals and international organisations who actively target British insurers. He told us more about this effort: “This has included reaching out several times to associations who portray themselves to be targeting insurance fraud. We have offered to share data, for no fee, with the intent of targeting, and reducing insurance fraud on a global scale.” However, Kaine told ITIJ, these actions have not been well received. “Unfortunately, these efforts have been met not only with a lack of interest, but in some cases, their responses were in fact extremely hostile. It’s a typical silo that we have experienced time and again between private [firms] and government where the attitude is that we couldn’t possibly know more than them. It shouldn’t be about that. Crimes are being committed and assistance companies have the evidence needed to build an intelligence picture that can lead to arrests, and sanctions. That should be seen as a valuable asset to any law enforcement organisation committed to tackling these types of crimes.”
A new era of fraud
It is apparent that the Covid-19 pandemic has ushered in a new era in which financial struggles are motivating people to commit fraud without a true understanding of the severity of their actions and consequences. Additionally, the pandemic has provided new opportunities for insurance fraud, including collusion between holidaymakers and accommodation owners or hotels, and provided the setting for new demographics of fraudsters who don’t necessarily view their actions as insurance fraud. In light of this, mitigation and detection optimisation strategies are more important than ever before, and companies are placing renewed emphasis on travel risk mitigation along with training and awareness for claims teams. As Cook stated: “In this climate of ‘need and greed’, it’s especially important for travel insurers to ensure they have mitigated risks efficiently and optimised their fraud strategies, not least through enhanced training, risk assessments and awareness building for frontline claims teams.”
It seems that what may have once become a national issue has now reached global status. Such a prominent issue that costs the industry so much in time and money cannot be resolved with a one-size-fits-all approach. New tools, algorithms and technologies such as machine learning are, and should continue to be, used by the industry in the fight against fraud. Unfortunately, fraud is pervasive and insidious and, in addition, there are many misconceptions on this topic. There is a clear need to improve understanding and awareness of insurance fraud and for law enforcement to take more notice and action on an issue that is not just about rising premiums, but is causing economic damage and even loss of life. With continued and enhanced efforts to mitigate and spread awareness of fraud, as well as by organisations that are exposing, building evidence and determined to stamp out this criminal practice, the insurance industry and its partners remain one step ahead.