Copyright held by The John Cooke Fraud Report. Reprint rights are granted with attribution to The John Cooke Fraud Report with a link to this website.
By Leslie Kim
Thirty Years And Counting
It’s 1986 and individual companies in Southern California, the recognized birthplace of staged auto scams, are beginning to notice patterns. Certain attorneys and doctors are showing up more often than might be expected. Soft tissue injuries are more and more prevalent. There are 50 chickens, each with its head cut off, running in different directions. Open the file, process the paperwork, pay at an estimated rate of 2.5 times the medicals.
There’s very little communication between carriers, and the word “fraud” is just taking root — though little response is yet taking place. NASIU had been in existence for two years — created in October of 1984, with Bill Lundy as the first President — but it’s still a very small group. (It would be 1988, two years later, that Joe Wells would launch the Certified Fraud Examiners group, in much the same way.)
Twenty Five Years And Counting
It’s 1991 — and the California legislature has become involved by amending the insurance codes. Now all companies selling auto insurance in the Golden State are required to establish a Special Investigative Unit and to take steps to identify, report and combat insurance fraud. The code also calls for Fraud Education, however it fails to define the experience levels of those charged with the investigation of suspected fraud — or — of those responsible for training of company personnel.
Non-compliance is not followed up upon. It is, indeed, the Wild West — a gold rush exhibiting a rapidly escalating momentum. Even worse, the Wild West is beginning to branch out into other communities: New York, Boston, Miami, Chicago, Detroit, Dallas, Houston, Atlanta, and Seattle. Tiny weeds, beginning a wild growth cycle.
On a global basis, something else occurred in 1991 that changed the course of world history. In December, the Soviet Union collapsed, the USSR was borne, and a year later even that began to fragment.
Without the Red Threat, the FBI here in the US began its own reinvention and soon assumed a larger role in the problem that was by then threatening both the national and global economies: Fraud.
Within the insurance arena, P& C was less affected than health care because so many Federal Programs were being abused. Still, it was the beginning of increased communication and cooperation between the Federal and State governments in many areas of fraud.
On the technology front, HTML (born in 1990) is beginning to lay the ground work for the internet in coming years. It is, however, unimaginable to all but a few. Instead it is the stuff of fantasy and science fiction.
Twenty Years And Counting
It’s 1996 and Southern California has adjusters and special investigators running 24/7. Due to the enticement of free money and the apparent ease by which it can be obtained, every street gang, organized criminal cartel, or other so-inclined entrepreneurial spirit is greedily dipping into the pot. Each group has its own script, as distinct as a fingerprint. A seasoned investigator can often simply read an incoming file and pinpoint the details of the scam. “Hmmm.
Two older model cars, stop sign intersection in East LA, just after midnight, solo driver runs the stop sign and T-bones a vehicle with three occupants. Three injuries.”
We can’t so document it in the file, but we instantly know what attorney firm is involved, which treating facility will provide the medical reports, how those reports will read, the expected duration of the treatment, the ethnicity of the participants and, of course, their eventual demands. Still, adjusters make the calls, do the interviews, document their files and handle the claim as appropriate. Sometimes the ‘appropriate’ handling involves a referral to SIU. When that happens, SIU investigators do their own review, make note of the known connections, and once in a while do a clinic inspection, a line-by-line medical review, or a little surveillance. They may quietly discuss the situation at an area SIU meeting and maybe, just maybe, figure out enough to make a few claims go away. Or, if enough similar claims come through, they may refer the file (once the legal representation letter is received) to the company’s own defense counsel. This, in turn, might result in an IME, an examination under oath, a deposition or, in the best of scenarios, a somewhat rare RICO action after the formation of a multi-company/agency task force.
Right in this timeframe, a “Good New/Bad News” item has reared its deadly head. After the dust settles, it turns out to be good news for dedicated fraud investigators. When the accident in question took place, however, it was bad news for the paid passenger sitting in the back seat of the ‘squat’ vehicle on a busy freeway. Though his sustained injuries were intended to be minor — and thus he was to get the going rate of $200 to get ‘hurt’ — this passenger, instead, got dead. In the grand finale, the ensuing criminal charges extend to the attorney who has been funding the staged accident ring. He is rewarded with a lengthy jail sentence and an end to his career.
Meanwhile, fraud has hit every major city in the US and a whole lot of smaller places, too.
Computer technology and associated record keeping is increasing and our collective databases (think NICB and ISO) are growing larger. NASIU is has morphed into IASIU, reflecting the international nature of P&C fraud – CFE is now ACFE, focusing on financial frauds – NHCAA (Healthcare) is bringing together LH&A investigators – and countless other membership clusters are forming organizations to share information and to train their ranks to fight back. The John Cooke Fraud Report, the first publication intended as a cross-education tool to “communicate and educate” is now two years old and has expanded internationally. Tools are now being shared, cross-industry, and participation in fraud prevention/ fraud identification, and fraud prosecutions continue to increase. Initially, only a handful of states mandated a dedicated Fraud Unit within their Department(s) of Insurance, but that number is on the upswing. (Note: As of 2015, it stood at 42 plus DC.).
In 1996 the vast majority of households have only landlines. Cell phones are a luxury item — and one of the best perks of working for an insurance company SIU is a paid cell phone. Incoming and outgoing calls only — and expensive at that. Area codes are issued according to whatever is in place where you get the phone. Long distance charges are a killer. And if a user goes over his “minutes,” the result is a multi-hundred dollar bill. Or a thousand dollar bill.
Wrong numbers incite rage because each time the cell rings, it is racking up minutes. “Smart Phones” are those that can do any additional computer type function, but they cost over a thousand dollars. And (by today’s 2016 standards) they are pretty dumb.
Investigators still carry printed maps to find an address and fraudsters rely heavily on mail drop addresses.
Technology is rapidly moving ahead, at least within the mindset that is known and understood. In fact, it’s 1996 when GOOGLE is born, although the word “GOOGLE” will not enter the dictionary for ten more years.
Cutting-edge GPS is the talk of the town — developed by the Department of Defense, it is based on 24 satellites. It’s expensive and it’s ordered according to city. Ford, BMW and Oldsmobile are the first on the block to offer in-car systems — selling at about $2,000.
Standard office-to-office communication has moved from mail documents to fax documents. Copy machine technology continues to improve and forgery has become big business. It’s getting difficult to tell if a document is original or a copy. With each generation of copier, the difficulty is increases.
Auto manufacturers have now moved to computerization of certain elements of vehicle production. Cars are becoming computer “smart.” Or perhaps smartER, as the case may be. A good example is modern airbags — which require advanced “thinking” to know when/where/how quickly to deploy. Each manufacturer, generally according to model of the vehicle, has its own very well-protected technology. They alone hold the key to interacting with their computer modules. Eventually the Feds mandate that ALL vehicles have airbags, and this technology, too, takes off. Smart cars begin their 20-year journey toward the envisioned eventuality of driving themselves.
Ten Years and Counting
Within the mindset of what WAS in 1996, 2006 technology is stunning. It’s already game changing in so many ways.
The double-edged sword begins to rear its ugly head. While effective task forces are becoming more commonplace in 2006, due primarily to the advancement of computer technology, link analysis, car trackers, and readable vehicle brains, the downside is that the serious fraudsters have been learning from their mistakes.
Other aspects of technology have also moved forward by leaps and bounds that were unimaginable just ten years ago. No longer do SIU personnel take over a wall in their home garage to make a link analysis chart to connect the dots between the players; now there are software programs to instantly make the links. Each one is better than the last — computers spit out answers quicker than investigators can ask the questions. Download speeds, storage capacities, and smart software are also changing at a pace heretofore unimaginable.
It’s 2006, think about it: that’s pre-iPhone. (2007.). Apple launches the real “smart phone” phenomenon and changes the face of what we know as communication. But something else is happening in this same time frame — something life-changing that was wholly unpredictable years earlier unless you were prone to both wild guesses and an extreme imagination: The phenomenal growth of social media platforms; socialization via computer screen.
The actual birth of social media was based on the ‘six degrees of separation’ theory, so aptly named Six Degrees. First introduced in 1997, its run was about four years. When the term Weblog became “blog,” the entire concept of personal privacy began to change. That was followed by America Online’s Instant Messenger, and by the year 2,000, 100 million people around the globe could connect via this thing called the Internet. Soon, first involving young people because music was a centralized theme, came My Space. A My Space user could decorate their space like they might decorate their bedroom. A year later, in 2004, Zuckenrberg set the bar, releasing the biggest and most communicative such platform to date — and then continued to outpace every one that followed. Flickr, Photobucket, Instagram, Tumblr, Google Buzz, Loopt, Blippy and Groupon. And who among us has not connected with long-lost friends on Classmates and old work buddies on LinkedIn. Add to that those seeking romance on Match or countless others and the absolute current concentration of Facebook users. In under ten years, the numbers have increased from less than one million … to well over one BILLION worldwide.
As an investigative tool, social media is almost as much of an unparalleled advance as the magic of Forensic Data Extraction. The first requires the attention of only a curious novice. The FDE requires a highly trained expert, but the results are often miraculous.
In step with the rapid advancement in technology is the true elephant in the living room. It is changing the way we do business, the way we live our lives, the way manufacturers chart their next steps, etc., premised on one thing. One word.
Liability.
Technology has jumped ahead by leaps and bounds. Email and e-storage has displaced paper storage. FAX machines are passé, mail delivered through the post office is not the primary form of communication, banks are processing less fewer checks each year (and standard Achievement Tests must be rewritten because children do not know what a ‘check’ even is!), everybody and his dog has email, a person who lives in Houston might carry a cell phone with a 907 area code number (Anchorage), and the fastest growing personal economic threat is identity theft.
Fast Forward to right now. Today.
We live in a homogenized world. Criminals move across borders electronically like stealth warriors. Drug manufacturers go from darlings of the stock market to worthless in nano-seconds. Television channels are supported by advertising — in every language known to man — and attorneys use buzzwords like mesothelioma, stress, injury, and even vaginal mesh to line their own pockets as they redistribute wealth. Most every major decision made by both individuals and businesses lies upon the same foundation: the assessment and prediction of risk vs. profit.
Insurers are no different. Sometimes we forget the speed of information transfer. Sometimes we fail to consider that today’s time saving ‘nuisance settlement” will give rise to tomorrow’s veritable flood of new claims. (In some locales, buying a Super Lotto ticket is fueled by the one-to-millions chance of wealth. In other locales those dreamers need only to get rear-ended, grab their neck, and say “ow” to assure a payday.} To date, the response of insurers is exactly what it’s always been. Tweak the rates UP, tweak the coverages DOWN, play the coverage extension/elimination game via endorsements, tough-down on adjusters to process more-quicker, train only to the extent required by compliance statutes, and add new tools to the fraud-fighting arsenal only as a reactive measure to an out-of-control situation.
Is There An Answer?
It’s time to turn the tables. When ‘reactive’ just doesn’t cut it any longer, it’s time to get ‘proactive.’ Technology for “our side” is not only marching ahead, it’s screaming ahead at a full out run!
Consider these numbers:
The US population is currently over 324 million. According to Statista, between 2008 and 2016, US users of Social Media have more than tripled to a current 78%. (Do the math! More than 250 million use at least one social media platform.) And how about those smart phones? There are more than 200 million (207.2 is the exact estimate) in the US. Digitaltrends.com says this, “While about 47 percent of the 21,517 households polled only use cellphones, roughly 41 percent still have both landlines and mobile phones. About 8 percent of those in the survey don’t have cells at all, and around 3 percent are completely phoneless.”
Now consider this reality about our medical system: Marcus Welby is long dead. Instead we have neurologists, urologists, cardiologists — in fact, there are more than 130 sub-specialties within the Western medical profession. Add in all of the peripheral providers, Chiropractors, Podiatrists, and sub-sub specialists, and the current medical build word of the decade is “referral.” In valid cases, and yes we do have some, this world of specialists is fine. But in “questionable” cases, insurers need to stick a spoke into the wheel of spiraling meds.
Update all forms. Update how we look at claims. (a/k/a Stop believing everything you see on TV) Incorporate emerging technologies. Increase and modernize staff education. Fully and appropriately use specialists. Scrutinize all incoming reports. Make full use of Social Media. Consider the BIG PICTURE. Get familiar with the magic of Forensic Data Extraction, Electronic Data Recorders, etc. Increase cooperation and information sharing among carriers. GET and STAY current. And on and on it goes ….
Summary
One short sentence. Learn from yesterday, operate in the present, adapt for the future.