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Insurers look to predictive analytics to fight work comp fraud

Insurance companies pay millions of dollars every year for fraudulent workers’ compensation claims. While some may say that faking a work injury or lying about its extent is tantamount to a victimless crime, this is far from the case. The simple truth is that this type of employee fraud winds up costing all policyholders in the form of increased premiums.

However, work comp carriers have gotten decidedly more savvy when it comes to detecting employee fraud. For instance, many are now using sophisticated fraud detection systems based on predictive modeling to help identify those situations where work comp fraud might be present.

Consider the system employed by CNA, a major commercial carrier spanning several sectors, including commercial property, commercial auto, general liability and work comp.

Back in 2008, the company’s special investigations unit -- or SIU -- began experimenting with predictive analytics in an attempt to flag problem claims. While the results of the first few years were mixed at best, the company ultimately found a reliable system through a partnership with the business analytics company SAS, which constructed a fraud detection system back in 2011.

“All the claims we have successfully investigated for fraud were sent to SAS -- our financial data, medical bill data, and our case management system,” said the head of CNA’s SIU unit. “We sent them several years’ worth of data and they built models based on factors that are common to known fraud claims.”

The SIU unit submits all of its open claims data to SAS every week, and the data is returned the following Monday after being run through a complex computer model using a multitude of factors. The claims are actually assigned a fraud score.

“The first area we look at is the claim alerts -- individually scored claims with fraud potential,” said the SIU head. “Our investigators go through these claims, which have not been referred by adjusters. They start with the highest scoring claims and determine if it is appropriate to launch an SIU investigation.”

In the area of work comp, for instance, a work comp claim may be assigned a higher potential fraud score if the work injury in question is a more subjective type of injury such as a lower back or soft tissue injury. Furthermore, if an injury occurs on a Monday morning, it may also trigger a higher score.

It should be interesting to see how predictive analytics in the insurance industry evolves over the next few years.

Workers compensation fraud/employee fraud is a very serious crime. If you suspect that such a crime has been perpetrated against your organization, you should strongly consider speaking with an experienced workers’ comp defense attorney.

Source: Property Casualty 360, “A look inside fraud detection,” Robert Regis Hyle, May 2, 2013

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