Why Fraud Detection Has Become a Strategic Priority

By Brian Panebianco  |  June 18, 2013

Conventional wisdom holds that adjusters refer roughly 2 percent of claims to special investigations units (SIUs). That may not sound like much and, truth be told, it isn’t. However, that 2 percent has become a new battleground for insurer profitability. In today’s economic climate, fraud prevention, detection, and remediation have gained renewed importance. While the potential for recovery remains low, the prevention of future payments on fraudulent claims has become invaluable. Here’s why:

Investment gains are lower: The days when investment activity could adequately compensate for fraud-related (and other) insured losses are gone — at least for a while. The past five years have been arduous, and the prevailing market volatility means that every gain seems to come with a counterbalancing tough economic indicator. Ultimately, underwriting and claims discipline have become crucial to insurer profitability.

Plenty of room for “growth”: Claims fraud remains high — and continues to grow — as fraudsters adapt to new technology and advances in SIU investigative techniques. While insurers have made considerable progress, there is still plenty of opportunity for carriers to chip away at the tens of billions of dollars in property/casualty claims fraud estimated to occur every year. Even a modest improvement could take precious points off an insurer’s combined ratio.

Measurement silos: SIU metrics tend to stay within SIUs — the implications of investigations rarely bubble up to overall claims department metrics. That’s largely because claims departments focus on preventing future payments on fraudulent claims, which can be notoriously difficult to forecast. Yet the growth of organized fraud — and the increased sophistication of such schemes — has upped the ante for dollars in peril. There’s more capital at stake — and thus more incentive to integrate SIU metrics.

With the investment-based cushion flattening, discipline has become a differentiator. As insurers look for ways to fuel profitable growth, now is the time to turn to SIU. Increased commitment to fraud detection can offset losses and support profitable growth — a benefit that will persist even when the economy finishes turning the corner.


Brian Panebianco

Brian Panebianco is responsible for the research and implementation of innovative ideas to enhance and expand ISO ClaimSearch, the property/casualty insurance industry’s largest all-claims database.