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By Bill Lundy
Some philosopher (of whose name I have no clue) once said, “The more things change, the more they remain the same.” Some other philosopher (who is just as obscure) said, “ The only thing constant is change itself .” Someone else said, “There is nothing new under the sun.” I take that to mean , “Things don’t really change much.” So, what’s the consensus? We have one for change and two for not much change at all. Looking at the history of the insurance industry — and its response to fraud — over the past 30 years, I think I’ll go with the majority. The more things change, the more they stay the same.
We’ll hear a lot of vehement response to that and we’ll hear how so many programs are invented now that were never on board thirty years ago. We’ll also hear how the industry has taken on the evil giant of fraud and is beating it back. But we should take a look from street level and get a glimpse of what is happening in our world.
My favorite Editor from the John Cooke Fraud Report asked me to write something on arson for the new online JCFR. I started writing but then stopped, stuck on the thought that anything I say today is just so much old news. What is happening in the fraud fighting segment today … and how is it different than the stuff that we were seeing about thirty years back when the anti fraud movement was just getting started?
Let’s talk about the mid to late 70’s. Fraud was being noticed by a few companies as a real threat. It was chewing up somewhere around 10% of insurance claims dollars. Arson was the big deal because of the cost. Some companies launched anti arson programs. Then they looked and saw that fraud was a big player in the auto casualty lines as well. The old ICPI (Insurance Crime Prevention Institute) was fighting it feebly, but for one reason or another, mostly having to do with money, they were not having the impact they wanted to have.
About 20 years after they were invented, the old ICPI underwent a rather swift change and got “married” to the old NATB, the National Automobile Theft Bureau. A new day was dawning and high expectations blossomed in the industry. SIU’s were being brought on-line and the anticipation within the fraud fighting community was high. Indeed, we were on a roll.. We really believed that insurance fraud would be a well killed monster. No one even remotely envisioned that the same old bugaboos that throttled the ICPI and NATB would throttle their finely tuned new machinery as well.
The plan was for the newly formed NICB and the SIUs to combine their talents and train each other and cooperate on a scale that the federal government wished they could muster. Never in the history of the insurance industry had so much dedication been put to the solution of one problem, insurance fraud. Whether it was arson, auto casualty, life insurance, worker’s comp or any of the other frequently committed fraud schemes, there was someone or some organization dedicated to do battle. Nationally known companies like the old InPhoto Surveillance were born. Organizations like CAIF, IASIU, ICAC were born and thrived. All of them mingled and talked and trained each other. It has been a time of education. Even today, insurance fraud is one of the most often discussed and trained single issues in the industry.
So, with all of this dedication, why has the beast not been killed or at least maimed? Here’s my theory.
As a member of both the private side and the industry side, I get a unique perspective. I’m a lifer in IASIU so I keep an ear to the ground, and I’m a P/I working a private business of fire and fraud investigations and consulting. I hear the input from both sides of the aisle. This is what I know:
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Recently unemployed investigators say that the SIU’s are being trimmed and slimmed, downsized and in some cases deleted.
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Many of the SIU’s report that the industry is outsourcing the fire and fraud investigations so don’t require the larger SIU’s.
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The Private Investigators report that the companies are directing more investigations in-house and less to the P/I’s.
Is that not a little confusing? Not really. Remember … The more things change, the more they remain the same. It’s the same old issue: Money.
The industry has discovered that SIU’s are not cheap. They cannot handle a claim count as large as the normal claim department. They have travel budgets and cars and other expensive outlays and they need to be trimmed back. On the other hand, outside resources are equally expensive and need to be reduced for the same reason. It makes perfect sense to the auditors, actuaries, accountants and to the executives. It doesn’t make a lot of sense to the Claims V.P.’s but then, they are not the ones telling the executive level what the budget will be. They’re being told by the execs what their budgets will hold. So why don’t they just tell the executives what the problem is and how they can solve it? May I offer one reason?
They don’t know. And, yes, I’ll say it again. THEY DON’T KNOW!
The Claims VP’s and the sub-executive level don’t know how to solve the problem of fraud. They don’t really see the big picture or understand the impact of the problem. They hear from time to time about how much fraud is thought to cost, but it was discovered in a survey undertaken by a national firm that the majority of executives believe that fraud may cost a couple of percent … but not in their company and certainly not the 10% claimed by many of the fraud fighters. Why don’t they just see? Is it fog on their glasses? Are they really all that dense? Are they purposely putting on blinders? Do they not care and they just want to pump premiums? All of the above may be true in a case by case analysis. But one of the truest reasons of all is that the training and education that has evolved in the fraud fighting segment has not filtered UP to the executives. For thirty years we have been holding a conversation about fraud and the conversation has been going in circles. We have been talking to ourselves.
A few weeks back, I spoke to one of the directors of a rather large national insurance company who told me the people at the top have no clue of the cost of fraud or what the people at the other end of the spectrum are doing. Soon thereafter I heard from another company that wanted to know how to address fraud more effectively. I asked if they are a member of NICB. “No,” they said, “what’s that?”
How can this be? They were serious and I was stunned. “It’s only the single national insurance fraud investigation group on the block that does inter-company fraud investigations and takes them to the police. It’s like an SIU that works for the industry. It does lots of things that no one company can do for itself,” I told them.. They asked, “Should we belong?” and I replied, “You shouldn’t be in the P/C insurance business if you don’t!”
And that’s only one piece of the pie.
Let’s look at some numbers, because numbers don’t lie.With an annual premium income of upward of $650 billion in the P/C industry alone, the NICB exists on a budget of somewhere in the neighborhood of $40 million, the Coalition, ISO and support of IASIU events triples that number. Still, those totals are wholly unrealistic — because the insurance industry is spending, overall, (much) less than one half of one percent to fight a problem that is, at a minimum, accountable for 10% in premium losses. Other camps estimate the percentage of fraud loss to percentages as high as 30%. These statistics beg the question … Are the executives blind, foggy, greedy, uneducated? I think I’ll opt for simply, “They don’t know.” Why don’t they know? Because they have not been told. (Editor’s note: Please send them a copy of this article. Maybe, just maybe, it will open a few eyes.)
For thirty years the SIU’s and fraud fighters have been training and training. They are like black belts. They know what they can do. They know who to do it to. But they don’t get in the ring often enough to show their talents. Why? It costs money to fight. To investigate. To prosecute. To send a message to those who steal that they can and will be caught and punished. But the executives who make decisions on dollar allocations for the industry have no idea what fraud is costing them or how to stop the hemorrhage, so they continue to pay, pay, pay (and invite, invite, invite even more fraudulent claims.)
The decision-makers also don’t know the ROI (Return on Investment) for fraud fighting probably is on the order of seven to one. Communications between the fraud fighters and the executives are way too infrequent and way too shallow. Look at the industry and we can see that many, if not most, of the top executives come from a marketing background or from some other business pursuit and this may well account for the lack of knowledge about fraud.
How many executives come from claims? Few. How many from SIU? Almost none. If the fraud fighters don’t communicate with the top executives, the execs will never know what fraud costs or what to do about it.
If there is a way to get that camel’s nose into that tent, I don’t know what it is, but it needs to get there.
Bill Lundy, Co-Founder, Life member, IASIU
Midstates Investigations &
Technical Services, Inc
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