By Nathan Conz, Insurance & Technology

A recently released report from research and advisory firm Celent suggests that many insurance companies aren't taking full advantage of technology when it comes to fighting fraud.

"There really isn't much excuse for an insurance company to not be using some of these technologies depending on how big they are and what the extent of their exposure is," says Donald Light, Celent senior analyst and author of the report.

Despite the fact that insurers have started to put more resources into fraud mitigation technology, Light says that the traditional "red flag" method — where adjusters use predetermined lists of about 30 circumstances to gauge if a claim may be fraudulent — is still over used.

"Red flags are one of the more traditional or legacy methods of identifying fraud. The problem is they rely totally on experience and distilled best practices. They're limited in terms of being able to scan the totality of the claims and discover complete sets of fraud methods," Light says.

Meanwhile, several newer techniques — predictive modeling, neural networks, profiling and identity matching — have gone underutilized. "These are all established technologies that have been around for years," Light explains. "Some have been used in other parts of the insurance enterprise, but only fairly recently have been brought to bear on fraud."

One of the most difficult aspects of insurance fraud mitigation is knowing when to refer a claim to the SIU (Special Investigations Unit) and when not to. Too few referrals, and fraudulent claims go unchecked. Too many, and lawsuits and poor public relations problems can persist.

The newer technologies, in part by employing business rules and workflow design, can create more-accurate fraud scores that go beyond the 20 or 30 red flags that a typical claims adjuster would be equipped with. Scores at certain levels would trigger deeper investigation or SIU referral.

"There are a lot of technologies out there that can make the identification of potential fraud much more sophisticated and fine-grained, and can make the subsequent investigation of those fraudulent claims much more effective through the application of more powerful tools," Light says.

The full report, Insurance Fraud Mitigation: Beyond Red Flags, is available on the Celent Web site.

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