Technology permeates every aspect of our lives, from the way we buy our goods to how we monitor our kids and homes, and it is also having a tremendous effect on the insurance industry.

The Washington, D.C.-based Coalition Against Insurance Fraud says that insurance fraud is an $80 billion-dollar-a-year enterprise, and as fraudsters become more daring, investigators are using a broad range of tools to capture them:

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  • Data analytics or rule-based analytics allow companies to look at large amounts of data and ask some common questions to help flag claims that require a bit more investigation. For example, in a health insurance claim, if a procedure that could only be performed on a female was submitted as a claim on a male, this would trigger a flag indicating that the claim requires a closer examination.
  • In fraud modeling, predictive analytics looks at fraud based on a series of different risk factors and helps insurers predict which claims are most likely to have some sort of fraud issue, explained Dan Zitting, chief product officer for ACL, a software company and fraud auditor based in Vancouver, British Columbia. "We're basically building a statistical model that says these are the claims we should investigate."
  • Through network analysis, insurers can look at the relationships between people such as family and co-workers, and different elements in the data to identify potential fraud. Case management can help investigators who are looking for anomalies based on these types of analyses determine whether there really is fraud involved or if the analysis has just indicated a false positive.

The effectiveness of a successful data analytics program rests on several things. "One of the biggest determining factors depends on how much support the company has from their IT department, how much data they have and how much experience they have in fraud analytics," said Zitting. "In any company, just the basics work like looking for which claims were paid out twice or who is using the social security numbers of dead people. It's easy to get these quick wins and low-hanging fruit before going to more complex models."

Zitting said that a lot of companies know fraud exits, but don't necessarily choose to pursue it. He estimates that 5-8 percent of claims paid are fraudulent and says that fraud exists in every company regardless of size.