One of the most significant risks an insurer faces today is the risk of fraud. According to the December, 2012 Forrester Research report “Prevent Insurance Crime with the Four Cornerstones of Better Fraud Management” (the “Forrester Report”), the FBI estimates that non-healthcare insurance fraud costs the industry at least $40 billion annually. The resulting average higher insurance premium by household is at least $700 annually.

Insurance industry estimates generally put fraud at about 10 percent of the P&C industry's incurred losses and loss adjustment expenses each year. With respect to healthcare fraud, the Government Accountability Office estimates that improper Medicare payments alone amount to at least $17 billion annually, and some estimates of healthcare fraud overall are cited to be in excess of $500 billion.

Many insurers have begun to highlight claim fraud risk on their enterprise risk management (ERM) “Top Risk” lists. A deeper look into the statistics reveals claim fraud carries a triple threat—the potential for high frequency, high severity of loss, and significant reputational impact. It's not surprising, then, that claims fraud gets attention and resources. In fact, many states require insurers to monitor and report suspected instances of fraud. However, within ERM programs, risk professionals must look at the potential for internal and external fraud in all departments and functional areas. Is fraud risk in all areas being sufficiently assessed? How can fraud management be most improved?