Friss: Fraud Investigations Rising Even as Claims Volumes Drop

June 29, 2020 by

Fraud inevitably rises after natural disasters and during economic downturns. The COVID-19 pandemic has brought both conditions to the entire globe at once.

Fraud-prevention advocates have long been warning about the coming increase in fraudulent claims. Data from Friss, a Dutch tech company that provides fraud-detection software to 180 insurers, suggests that the fraud storm is well underway.

Friss said last week that it has seen a strong uptick in the volume of fraud investigations tracked by its detection software, even though total claims volume is down. In other words, even though there are fewer claims, a higher proportion of them look suspicious.

The company, headquartered in Utrecht, Netherlands, did not provide specific numbers. In a blog post last week, Friss included a graphic that showed a declining volume of claims starting when coronavirus lockdowns began in March and leveling off as lockdowns eased in June. A corresponding line showed the share of claims investigated rising sharply, easing and then rising again. Exact percentages were not revealed.

“As re-opening began, we saw a sharp rise in suspicious cases,” the company said in the post, written by Customer Success Manager Martino Scheepens. “Investigation volumes are now on track to exceed normal volumes.”

An increasing number of investigations doesn’t necessarily mean more fraud. Scheepens noted that carriers are aware of the increased propensity for fraud during economic hardships, so investigation units may be ramping up.

Dan Gumpright, vice president of global products for Friss, said during an interview that the pandemic has changed behaviors so that some claims may look suspicious even if they are valid. For example, it is now common to see a bill for telemedicine services for, say, an ankle or neck injury. Before COVID-19, those injuries would rarely be treated remotely, he said.

Still, not all of the increase in investigations is due to changed practices. Gumpright said the increasing investigations are following a familiar pattern.

“This is kind of similar to what we’ve seen in the past when there’s any kind of financial crisis in the world,” he said.

Gumpright said the coronavirus has both opportunities and motivations to commit fraud. For instance, a towing company suffering from the reduction in vehicle traffic may be tempted to bill for services never provided. Socially distanced medical providers, alone in their offices and proving most of their services by video, may pad their bills with upcoded services.

“Some people see insurance fraud as an easy way out,” he said. “It’s seen as a victimless crime even though we know it’s not victimless.”

Gumpright said some insurers are on high alert. He said Friss is working with one insurer to develop software that will monitor social media to find unapparent connections between all of the people involved in a claim to expose potential scams. He said the initiative started before the pandemic, but COVID-19 made the project more urgent.

Friss isn’t the only vendor sounding the fraud alarm. Data analytics provider Verisk warned earlier this month that the pandemic has created opportunities to commit medical billing fraud and abuse. The company said in April that its data showed a 14 percent increase in claims linked to providers with suspicious billing practices.

Verisk said its Insurance Service Office MedSentry team has identified several COVID-19 medical billing schemes. Among them:

Genetic testing. While there has been some very early research on the relationship between genetic factors and COVID-19 susceptibility and severity, to date there has not been a call from the medical community to conduct such testing in relation to the virus, Verisk said.

Michael J. Smith, executive director of the Coalition Against Insurance Fraud, said the report from Friss is the first “claims-centric” data that he has seen that shows a potential increase in insurance fraud. But he said there are other indicators.

Smith said the number Google searches for “how to burn a car” has increased 125 percent since January. Similar search terms, such as “how to burn a business” also saw increased use.

Smith said he searched Google himself for information on how to commit insurance fraud while preparing a PowerPoint presentation. He found a video that showed how to set fire to a car using greasy potato chips, a nine-volt battery, bare copper wire and newspaper.

Smith said the coalition documented that all types of insurance fraud increased dramatically during the Great Recession. He said the Friss data may be “the tip of perhaps the largest iceberg of fraud ever.”

“We always see a huge spike of insurance fraud following natural disasters,” he said. “With COVID-19 it’s the perfect storm. It’s really like having a global earthquake, wildfire, hurricane all over all at once.”

Smith said the Coalition is concerned because U.S. insurers have not restored fraud-prevention staff and resources to the levels in place before the Great Recession. He said he knows through conversations with investigators in the field that all of them are coping with increased case loads.

Smith said some staff reductions were made because of increased use of fraud-detection software and other automation, but he fears the industry has cut too far.

“What we have seen over the last decade has been across the board, American insurers are downsizing. Insurers like to use the term right-sizing.

“A lot of them have been cutting back on insurance fraud resources because of the use of AI that offsets human costs. But we are in a world controlled by bean counters. Insurers may have cut too deep into their anti-fraud staffing and resources.”