WHAT'S THE COST OF FRAUD?
The short answer...A LOT!
The total cost of insurance fraud (non-health insurance) is estimated to be more than $40 billion per year. That means insurance fraud costs the average U.S. family between $400 and $700 per year in the form of increased premiums.
What Is a Fraud Investigation?
A fraud investigation is a process to determine whether fraudulent activity has occurred. If so, specific steps should be taken to stop, prove the action occurred and prevent future actions.
What Triggers a Fraud Investigation?
Activity that triggers a fraud investigation will vary depending on the type of fraud.
How to Conduct a Fraud Investigation
Determine Scope
Outline exactly what you’re looking to understand throughout the investigation. Your scope is likely to change as the investigation moves forward and new information emerges. It’s normal for the scope of an investigation to be updated as new evidence provokes additional questions.
Develop a Strategy
Develop a clear strategy to ensure the right information is gathered. Consider the nature of the suspected fraud and identify possible sources of intel. Some information might require coordination across multiple departments and teams.
Collect Evidence
Once an organization has identified the possibility of fraud, it’s important to not only collect evidence quickly, but also to prevent it from being deleted or destroyed. When the clock is ticking, clear communication is vital. Make requests for information as soon as possible to avoid accidental deletion.
Report Your Findings
When reporting your findings, consider who your audience will be. Insurance companies, stakeholders, law enforcement, and regulatory agencies may all need to view the report. Fraud investigation reports can be used to file insurance claims to recover financial losses and leveraged in criminal cases against a subject.
Premium Diversion
Premium diversion is the embezzlement of insurance premiums and the most common type of insurance fraud. Generally, an insurance agent fails to send premiums to the underwriter and instead keeps the money for personal use. Another common premium diversion scheme involves selling insurance without a license, collecting premiums and then not paying claims.
Asset Diversion
Asset diversion is the theft of insurance company assets. It occurs almost exclusively in the context of an acquisition or merger of an existing insurance company. Asset diversion often involves acquiring control of an insurance company with borrowed funds. After making the purchase, the subject uses the assets of the acquired company to pay off the debt. The remaining assets can then be diverted to the subject.
Fee Churning
In fee churning, a series of intermediaries take commissions through reinsurance agreements. The initial premium is reduced by repeated commissions until there is no longer money to pay claims. The company left to pay the claims is often a business the conspirators have set up to fail. When viewed alone, each transaction appears to be legitimate—only after the cumulative effect is considered does fraud emerge.
Workers’ Compensation Fraud
Some entities purport to provide workers’ compensation insurance at a reduced cost and then misappropriate premium funds without ever providing insurance.
Avoiding Fraud in The First Place
Fraud costs issuers, the merchants, customers, and cardholders a tremendous amount of money—and so do the investigations to resolve them.
Losses from CNP fraud, most of which comes in the form of chargebacks, could top $26 billion this year. But total losses go far beyond just revenue. By some estimates, every $1 in chargebacks leads to up to $3 in additional costs. Transaction fraud costs companies as much as 5% of their total revenues.
When fraud comes through the form of criminal logins or activities that lead to a data breach, it can cost an average of $9.01 million per incident for U.S. companies, thanks to the costs of investigations, remediation, and more.
Indeed, fraud investigations are time- and resource-intensive. They can also often be avoided through fraud prevention systems that can proactively stop attacks before they impact business.