Fighting Commercial Insurance Fraud Takes Teamwork, Diligence and Resolve
As long as commercial insurance has been around, fraud has been right there with it, hitting the bottom-line of honest policyholders.
But risk managers, brokers and agents are far from defenseless when it comes to combating fraudulent general liability, commercial auto and workers compensation claims. Buyers should work with their insurance intermediaries and providers to proactively protect their companies against the significant financial impact of false claims.
According to experts at Liberty Mutual Insurance, three best practices are emerging as critical ingredients for effectively deterring commercial insurance fraud:
- Partnering with your insurance intermediaries and providers to develop a “battle plan” detailing how your company and insurance partners will protect against false workers compensation, general liability and commercial auto claims
- Creating clear and specific guidelines for reporting, investigating and managing claims
- Building a company atmosphere where fraud is not tolerated
Understanding the Impact
The roots of commercial insurance fraud go way back. In the 16th century, beggars would pretend to be accident victims to collect money from tavern and other business owners. Early in the 20th century, an enterprising woman, Ana Strula earned the title of “Banana Annie” after reporting 17 separate banana peel “slips” between 1909 and 1912 in an attempt to collect. More recently, Isabel Parker, a retiree with a serious gambling problem, pulled off 50 slip-and-fall claims over seven years before being snagged by a suspicious insurance agent.
The history of commercial insurance fraud is littered with colorful, sometimes humorous, anecdotes. Unfortunately, nothing is funny about the negative impact fraud has on policyholders.
While the aggregate level of commercial insurance fraud may be hard to definitively quantify, companies can protect against false claims, according to Mike Butler, manager, Special Investigations Unit, for the Commercial Markets strategic business unit of Liberty Mutual.
“Credible studies estimate that anywhere from five to 10 percent of all insurance claims – personal and commercial – are fraudulent,” said Butler. “The real questions commercial policyholders should ask are how does fraud impact my company and what can I do to protect against fake claims, rather than worrying about the macro situation and accepting it as a necessary cost of doing business.”
For Steven Friedman, director of Special Investigations, Liberty Mutual Agency Corporation, effectively fighting insurance fraud is all about commitment. “Insurance fraud has been estimated to be an $89 billion industry,” notes Friedman. “Those committing insurance fraud are not going to stop, but it is critically important that we do whatever we can to ensure that fraud’s impact is minimized. Fraudsters tend to go for the easiest targets, making it critical for companies to proactively build fraud-resistant organizations.”
Developing Effective Solutions
Kate Gordon, national coordinating counsel, Liberty Mutual Special Investigation Units, said that those numbers, while daunting, do not mean commercial insurance policyholders are defenseless. Whether it is in workers’ compensation, general liability, auto, property or any property and casualty line, Gordon said there are “best practices” that can be used to fight fraud and lessen its impact on the bottom line.
“The first thing you need to do is create a ‘battle plan’ for your organization, ideally working closely with your insurance broker and provider,” Gordon said. “It takes a clear, step-by-step process to create an action plan, starting with the fundamentals.”
Those basics include determining how insurance fraud might affect your company. Do you face the potential for fraudulent workers compensation, general liability or commercial auto claims? Are you most exposed to internal fraud from employees or external fraud from the public? Are there specific issues for potential fraud that apply to your industry or organization?
To effectively determine how fraud might impact the company, Gordon said each organization should decide if there is a department in place that can make this judgment. If not, can an internal team be created, or will it take outside resources, including legal or investigative help? Of course, working with your insurance carrier and/or broker or agent is critical in exploring your exposure to false insurance claims.
The next step in building the battle plan is to set goals for your organization, goals that focus on zero tolerance for fraud, referrals to law enforcement, and internal investigations. Understand the state and federal laws and regulations covering insurance fraud, and know which information will be most helpful to insurance carriers and law enforcement.
The second best practice for building fraud-resistant organizations is to set clear and specific written guidelines detailing how your company and its insurance partners will fight fraud.
“With these formal guidelines in place, your company can defend against fraudulent claims more effectively,” Gordon said. “When procedures are in place, routinely followed and documented, the resulting inspection logs, videos and other documents reduce the chance a fraudulent claim will succeed in court.”
The final best practice is developing proactive strategies that prevent an atmosphere where fraud will be more likely.
“Communications is the key,” Gordon said, adding that everyone from front line workers to the public must understand the company’s zero-fraud tolerance, and the procedures that exist to prevent, investigate and prosecute false insurance claims.
“Fighting commercial insurance fraud takes a team effort,” Butler said. “It starts with the customer and quickly involves insurance intermediaries and providers. And once a claim comes to the carrier, that means partnering with a whole host of people – including investigators, doctors and nurses, legal professionals, and field representatives – to ensure fraud is rooted out.”