The Five-Stage Premium Fraud Investigation Process

Disclaimer: All views expressed in this article are my own and do not represent the opinions of any entity with which I have been, or am now, affiliated.

Every premium fraud case is unique. Each involving its own set of facts, circumstances and nuances. Despite the varied nature of these frauds, however, the same five-stage investigative process can, and indeed should, be applied to every single premium fraud case.

The premium fraud investigation process can be broken down into the following five stages:

-?????????Stage 1: the identification of red flags and referral to SIU

-?????????Stage 2: detailed claims review

-?????????Stage 3: detailed policy review

-?????????Stage 4: Open-Source Intelligence (OSINT) research

-?????????Stage 5: interviews and physical inspections

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Stage 1 – The Identification of Red Flags and SIU Referral

The first stage in the investigation process involves the identification and referral of red flags to the Special Investigation Unit (“SIU”).

An insurer’s claims adjusters, underwriters, auditors, loss control specialists etc. are the front line against fraud and are therefore essential during this stage. They interact directly with insureds, work on policy and claims documentation, review financial statements etc. Training these departments in identifying fraud red flags is critical to an insurer’s overall fraud fighting success.

Stage 2 – Claims Review

After red flags have been identified and the matter has been referred for investigation, an SIU investigator may be assigned to the case and stage 2 of the process begins.

Data is being received constantly throughout the lifecycle of a policy. Underwriters receive data during the application and renewal stages, claims adjusters receive data once claims start coming through the door and auditors receive data upon expiration of the policy. An investigator will review all of this information, with a view to identifying any potential inconsistencies within it. For example, an insured may tell an auditor that a claimant who is not identified on payroll only worked for the company for a week before suffering their injury and was therefore never placed on payroll. The claimant’s supervisor, ignorant to the owner’s fraud, may tell the claims adjuster the truth - that the claimant had been employed at the company for five years. Such inconsistent accounts are exactly the kind of things an SIU investigator is looking for.

Typically, the SIU investigator will review the following claim documents:

1.??????Claims adjuster telephone notes detailing their communications with the employer/claimant etc.

2.??????AOE/COE reports

3.??????Deposition transcripts

4.??????Medical reports

5.??????Wage statements

6.??????Personnel files

Etc.

Stage 3 - Policy Review

Stage 3 involves a detailed policy review. This should include a review of:

-?????????The Acord application form

-?????????Loss control site visit reports

-?????????Audit worksheets

-?????????Correspondence between the underwriter and broker/agent

-?????????Etc.

Just like with the claims review, the SIU investigator is checking for inconsistencies between the policy data and information found within the claims or received at audit.

Stage 4 – Open-Source Intelligence Research

Open-source intelligence research (often referred to as OSINT) is a critical component of a premium investigation. The term OSINT simply means researching publicly available information that we can gather and analyze.

Underwriters, Claims Adjuster and Auditors all rely very heavily on information disclosed to them directly by an insured. OSINT allows the SIU investigator to independently verify that information.

There are three main sources of publicly available data:

1.??????General internet and social media sources – the likes of Facebook, LinkedIn, Indeed, Google, Yelp, TripAdvisor to name a few

2.??????Data Aggregators – investigative databases designed specifically for fraud investigators (such as TLO, Accurint etc.)

3.??????Public agencies, regulatory authorities and court records – consider for a moment how much paperwork a company has to file in order to become a registered company, receive and maintain the appropriate licensing, bid on public works jobs etc. An investigator may be able to obtain some of this paperwork via public record request. You will be surprised just how helpful some of this documentation can be.

OSINT research can help an investigator determine the true payroll, true employee classifications and true claims history.

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Stage 5 - Witness Interviews and Physical Inspections

One of the most important elements of an investigation is witness interviews.

Audits offer a great opportunity for an SIU investigator to interview high-level individuals within a company. It also allows the investigator to request and review financial records, bank statements and other important records. Finally, getting a foot in the door at audit allows for physical inspections of an insured’s premises.

Other options available to an investigator include telephone interviews or loss control site visit attendances.

Summary

Although it is the SIU investigator who is tasked with the job of investigating premium fraud, the investigative process, as a whole, often involves a coordinated effort between multiple departments.

The SIU investigator relies heavily on skilled underwriters, claims adjusters, loss control specialists and auditors.

So, while each premium fraud case is unique, the five-stage investigation process remains consistent, drawing on the expertise of each of these integral departments. Fighting fraud is, after all, a team effort.?

About Me: I am a fraud investigator who specializes in workers' compensation premium fraud investigations and Open Source Intelligence research