As we begin the new year with excitement and anticipation, it is a good time to pause and consider what trends to expect regarding fraud. Evolving technology continues to impact the financial sector – in particular, the life insurance industry, as carriers increase their reliance on automation for workforce productivity and analytics for claims evaluation.
Perhaps the greatest impact of the past year has been the steady reductions of in-house SIU field staffs and the replacement of experienced claims personnel. While it is wise to always find efficiencies and make things easier for clients, it is a mistake to throw out experience and solid protective measures that shore up the way we do business. If there is one thing we can all agree on, it is that due diligence has always been an industry best practice that continues to provide a solid return on investment. We see this implicitly and empirically in our daily work.
The second major factor – one with a global impact on our industry – has been the reinforcement of GDPR, which will change how we conduct investigations and properly adjudicate claims. We are already seeing how strict privacy laws make it more difficult to conduct investigations and obtain police reports, medical records, and other documentation. This will continue to be a major issue in North America as well, given recent rumblings that some form of GDPR-type regulations will be adopted. This could potentially further limit our ability to gain cooperation from law enforcement and increase the ability of fraudsters to hide behind these privacy laws.
Shifting immigration trends will change the landscape in many countries and lead to a larger number of claims from people in the Middle East who now live in Europe and people from Central America and the Caribbean migrating to the U.S. and Canada.
Perhaps the biggest risk that has grown over the last year has been the rising tide of simplified issued policies sold through the internet. After several years of effectively combating nomadic fraud in the U.S., the resurgent sales of simplified issue are spurring a dramatic increase in nomadic fraud. But as many experienced investigators leave or retire, the ability of companies to recognize these groups is being disrupted. It is most important for companies to implement experienced risk controls to recognize and detect these fraud trends that can decimate a company if there is not enough education and experience to recognize these attacks and implement protective barriers at the time of inception. Without a doubt, these cases are much easier to defeat during underwriting rather than at claim time.
We must recognize the different groups of nomads, from Romani to Irish travelers. Although they use the same type of schemes, the unique profiles of their names, alleged work activities, and family histories make it easier to combat this type of pervasive fraud. In many instances, insurance companies have stopped asking for employment history – which eliminates a simple and effective means to defend against these cases at application time. An experienced staff with the proper risk-avoidance tools is essential to avoiding messy nomadic schemes. We are strong advocates of simplified process with the proper tools for fraud detection.
As economies in China and Southeast Asia continue to mature and create great wealth, we see increasing business opportunities in this region. While there are many new millionaires – particularly in China – the ability of insurers to obtain reliable information with which to vet these potential clients becomes more difficult and more costly. Remember that, although China has largely adopted a capitalist business model, its government remains a closed and tightly guarded Communist country. The ability to perform due diligence and “know your customer” is complicated. Criminal and civil records are essentially unavailable and banking information is not an open record. Even confirming employment information can be quite difficult, especially for those who claim to be self-employed.
Despite these difficulties, it is essential to perform a complete background on every applicant. Partnering with an agency like Diligence International Group, which has a global footprint that reaches China and Southeast Asia, means you get access to information through government contacts and open sources – an essential step to writing business in that region.
Many of the applicants seek sizable coverage. We find that on the claim side, most fraud in Asia stems from medical misrepresentation. While it is not always easy to do an international medical canvass, it is highly effective in uncovering undisclosed medical history – the biggest factor impacting claims from China and Southeast Asia. While people still seek traditional Chinese medical care, we have seen rapid growth in western-style medical facilities, especially for oncology. Finding treatments and getting medical records is not easy, but when you know what authorizations are needed, the process becomes feasible and effective.
Over the years, a great majority of our referrals have come from China. However, we have seen a shift in more recent years. Today, most requests originate from Mexico and Latin America. Mexico’s criminal situation is now a pervasive and persistent issue as homicides and corruption continue to escalate. Mexico’s new president has promised to combat corruption, but at the same time, one of his mandates is to give immunity to many imprisoned cartel members.
We anticipate Mexico will continue to evolve and do not foresee any decrease in corruption any time soon. The drug trade continues to be a major industry, which will only spur further criminal activity. 2018 saw an 18 percent increase in homicides vs. 2017’s record number. This equals 33,000 homicides annually. In our experience, while the authorities do investigate many of these cases, few (if any) are actually solved. We have seen Mexican immigrants apply for life insurance while allegedly working along the border, who are later killed on the Mexican side of the border. Many of these people routinely indicate they work in trucking companies or import/export businesses.
When you consider that the U.S. remains the biggest market for drug consumption, we expect to continue seeing an increasing number of fraudulent claims from Mexico. We continuously encounter fraudulent claims where physicians and funeral home directors are paid to issue fabricated documents and false confirmation of deaths. We will also see steady growth in questionable claims from medical facilities that are willing to create false medical reports and/or exaggerated medical billing. That is why it is important to partner with a company with the experience and capabilities to detect these questionable cases as well as who understands the legal process to register official documentation.
Needless to say, we are also seeing a considerable amount of fraud from Central America – particularly Guatemala, Nicaragua, and El Salvador. Cartels from Mexico continue to take over many of the trade routes and homegrown Central American groups are very adept at creating false identities – they depend on insurance fraud for revenue. The leader for fraud and corruption continues to be Venezuela. With the country literally lacking every essential need and resource, the level of corruption and fraud is totally correlated to the level of misery. In this past year, we worked multiple fraudulent death claims. In four such cases, we found the supposed deceased/insured… alive!
Africa continues to deliver a high number of fraudulent death claims and questionable medical claims. Lax regulations and record-keeping make it easy to procure any type of documentation from corrupt government employees. There are also many terrorist groups in some western Africa countries, where it is difficult to conduct a legal and reliable investigation. We continue to see questionable deaths – usually attributed to vehicular accidents, typically in remote locations. Again, the use of the streamlined applications makes it questionable whether some applicants were even in the U.S. when the policy was allegedly taken out.
Africa is also notorious for questionable medical claims, and we find many instances where the billing has been fabricated or the charges highly exaggerated. In many of these medical facilities, medical terminology is very elementary and the diagnoses and subsequent treatments lack description to support the charges.
We are also experiencing major increases in the number of questionable disappearance cases. It is very important to perform a thorough background investigation into the insured and their daily contacts, and it is essential to start the investigation right after notice has been received of the disappearance – while leads are fresh, and witnesses are easier to locate. We are noticing in these cases how quickly the family retains a lawyer and a presumption of death follows through the court system. Once issued, it obviously complicates our ability to interview family members who are now legally represented. The attorney becomes a barrier to securing thorough interviews and performing forensic examinations of computers and telephones. There are many tools and contacts we use to develop leads and find missing persons. Timely and thorough interviews are essential to developing these disappearance investigations.
In the context of what we have experienced over the last year, we feel these are the main categories of fraud we can expect to evolve in the course of 2019.
To reduce costs, many companies are relying solely on documentation without verification. It is of the utmost importance to have an agency that understands the nuances of how documents are issued by government agencies and the protocol to pursue a judicial inspection that you can challenge in-country without the expense of litigation. In their efforts to save money, companies choose less-expensive routes to only validate the documentation. We have worked many cases where, on the surface, the documentation initially appears official. But upon investigation, we find the doctor or government official has been paid off, and we end up finding the alleged deceased alive.
Although there are many exciting opportunities for capturing new business in the coming year, the trend for fraud remains perilous. The best advice we can offer is to always rely on experienced partners who are able to not only detect complex frauds but also help you pursue these cases if they go to court. There are many investigative agencies, but few understand the nuances of risk avoidance and legal technicalities in each country.
We look forward to working with you as we continue to monitor trends and develop tools to help defeat fraud.