About ISO - National Council of Self Insurers

Beating Workers’ Compensation Fraud
With Technology
NCSI 2009 Annual Meeting
May 18, 2009
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Agenda
•
Workers Comp fraud overview
Fraud Stats
– Types of Fraud
– Fraud in the News
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•
Current anti-fraud efforts
Fraud Awareness
– Fraud Enforcement
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•
Tools for fighting WC fraud
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WC Fraud Indicators – Red Flags
Industry-wide Databases
Public Records
Data Analytics
Scoring/Predictive Analytics
Premium Audit Model
New tools for fighting WC fraud
Legislative Update - Medicare Secondary Payer Reporting
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Workers Compensation Fraud
• Workers Comp fraud costs $6 billion per year.
Coalition Against Insurance Fraud
• One in three adults in U.S. condone exaggeration of
claims.
Insurance Research Council
• Studies show that 10% of P&C claims and 36% of BI
claims involve fraud or inflation of otherwise
legitimate claim.
USAA Magazine
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Workers Compensation Fraud Types
• Employee/claimant fraud
• Provider fraud
• Employer (premium) fraud
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Workers Compensation Fraud Types
• Claimant fraud
– False or exaggerated injury claims
– Claims for injuries not received on the job
– Collecting benefits while working other jobs
– Reduction in workforce results in increased
workers comp claims
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Workers Compensation Fraud
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Workers Compensation Fraud Types
• Provider fraud
– Exaggerating treatments for minor injuries
– inflating and
– billing for treatments not provided
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Workers Compensation Fraud Types
• Employer premium fraud
– Under-reporting payroll amounts
– Misrepresenting job classifications
– Misrepresenting employees as independent
contractors
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Industry Anti-Fraud Efforts
• Fraud awareness
• Investigation/enforcement
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Fraud Awareness
• Industry Awareness
– Fraud training for adjusters/underwriters
– Support for industry-sponsored organizations
• Public Awareness
– Insurers/state funds
– Coalition Against Insurance Fraud
– NICB
– State Fraud Bureaus
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Fraud Enforcement
Example: State Fraud Bureau Activity
California District Attorneys’ WC Fraud Program
Fiscal Year 2006-2007 Summary
• 549 arrests
• Prosecuted 1,115 cases with
1,224 suspects
•
•
499 convictions
Restitution of $24,953,650
ordered; $8,639,562 collected
•
Total chargeable fraud was
$260,292,381
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New Tools for Detecting Fraud:
Data and Analytics
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Tools for Combating
WC Fraud
Fraud Indicators
“Red Flags”
Data Analysis
&
Visualization
Industry-wide
Databases
Scoring/
Predictive Analytics
Public Records
Case
Management
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WC Fraud Indicators – “Red Flags”
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WC Fraud Indicators – “Red Flags”
Claimant Fraud
Claimant was a seasonal worker at the time of the injury
Injury occurred shortly after hire
Notice of Injury occurred after employee was terminated
Claimant immediately secured attorney representation
Delay in reporting injury to employer
No witnesses to injury
Claimant has visited multiple medical providers in
connection to the injury
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WC Fraud Indicators – “Red Flags”
Provider Fraud
Treatment regimen is inconsistent with injury severity
“Cookie cutter” treatments and billing records
High incidence of drug prescriptions
Claimant immediately secured attorney representation
Delay in reporting injury to employer
No witnesses to injury
Claimant has visited multiple medical providers in
connection to the injury
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WC Fraud Indicators – “Red Flags”
Employer (Premium) Fraud
Inability to verify tax/unemployment reports
Insured refuses or delays access to records for audit
Claimants not reported on entity’s unemployment returns
• Multiple related businesses operating from same address
Insured selects a lowest-rated classification for exposure (e.g., oil or
gas lease work vs. oil or gas well drilling)
Certificates of Ins. issued without corresponding payroll or
subcontractor expense
High experience modifications with low premium exposure
Excessive use of “independent contractor” classification when
experience rating
Equipment and vehicles not consistent with job classifications
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Industry-Wide Databases
Fraudsters are often repeat offenders!!
• Looking at activity across both insurers and lines of
business can add perspective about claimants,
providers and employers
– Claims activity by employees
– Billing activity by medical providers
– Policy activity by employers
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What is ISO ClaimSearch?
Background
• ISO ClaimSearch
– the first and only all-claims
database for the property and
casualty industry
– helps improve the claims
handling process
– provides state-of-the-art
resources used to
fight fraud
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ISO ClaimSearch
Database Content
Casualty
Property
Auto
> Workers Compensation
> Homeowners
> Theft
> Automobile Liability
> Medical Payments
> Personal Injury
Protection
> Auto Medical Payments
> Homeowner’s Liability
> General Liability
> Disability
> Personal Injury
> Employment Practices
> D&O / E&O
> Fidelity and Surety
> Farm Owners
> Fire
> Allied Lines
> Commercial
> Ocean Marine
> Inland Marine
> Burglary and Theft
> Credit
> Livestock
> Theft Conversions
> Shipping & Assembly
> Salvage
> Impound
> Rental Vehicles
> Export
> Vehicle Claim System
> Int’l Salvage &Thefts
Volume: Over 602 Million Claims*
*11% annual growth rate
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ISO ClaimSearch
Membership
Casualty
Property
Auto
Self-Insureds
650
8
15
TPAs, IAs, MGAs
480
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1,760
1,450
1,246
State Funds
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Accident/Disability
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1
Types of Companies
Insurers*
•The insurance companies represented in this slide are responsible for approximately 94% of the
annual DWP in the United States
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ISO ClaimSearch
Core Services
• Claims Inquiry†
– Single Party and Two Party
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–
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Searches
OFAC LookUp
IQ Download (New Data Initiative)
AMA Physician Search*
– License Plate Reader*
Core Service for Insurance Companies. Optional Service to all others
*Restricted to NICB members
†
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ISO ClaimSearch
Output – Match Reports
New Format for Universal Format Members
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Industry-standard red flags
Date of hire/termination/lay-off to date of loss (Workers’ Comp.)
Day of loss – Monday/Friday; Day after holiday (Workers’ Comp.)
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Public Records
External data can help complete the picture!
• Public records
– Individual information
– Business information
• Criminal and Civil records
• Professional licenses
• Vehicle records
– Registration information
– Motor Vehicle Reports (MVRs)
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Data Analysis and Visualization
Technology can help make sense of large data
sets!
• Improvements in data storage capabilities
• Better off-the-shelf and custom software tools
• Data visualization software
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Data Analysis and Visualization Tools
A picture is worth a thousand words!
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Claim Scoring / Predictive Analytics
Claim
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Scoring/Predictive Analytics
• Automation of “red flag” rules
• Scoring of individual claims with industry data
• Advanced analytic methods to identify fraud
patterns
– Regression analysis
– Social network analysis
– Text mining
• Many WC applications:
– Claimant fraud
– Medical provider fraud
– Employer fraud (including premium audit)
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Advantages of Predictive Modeling
over Rules-based Systems
Predictive Modeling can …
• More efficiently examine more possible predictors
• Take into account interactions between predictors
• Give different predictors different relative importance
• Efficiently examine and use all the historical data available
• Result in superior predictions!
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Premium Audit Model Development
• By combining historical audit results with additional
data and advanced predictive modeling techniques,
an accurate prediction of net AP/RP can be
developed for each WC account.
Historical
Audit
Results
External
Data
Resources
Expert
Insurance
Risk
Modelers
Accurate Prediction
of Audit Results
Advanced Analytics
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Premium Audit Model Development
• Example inputs to the model
– Comparison of class codes and business SIC
– Comparison of payroll size and length of time as a
business entity
– Comparison of payroll to sales, SIC, and geography
– History of large APs for a particular producer
– Consistency of accident descriptions and class codes
– Hospital beds per capita
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Implementation
•
The Premium Audit model can be used to
optimize three operational areas
Decide which accounts to audit based on expected
additional premium generated (where allowed by
state rules)
2) For those accounts that are audited, determine the
most efficient allocation of mail, telephone, and
physical audits
3) Optimize the order of audits so that the largest
premiums due are collected first
1)
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Summary
• Workers compensation fraud is a continuing
•
•
problem for companies and society
New tools are available to help combat WC fraud of
all types
Take action now to stop WC Fraud in your
organzation
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Legislative Update
• Medicare Secondary Payer Reporting
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Medicare Secondary Payer – Section 111
Requirements
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•
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The Medicare Secondary Payer legislation, section 111, requires
insurers and self insurers (Responsible Reporting Entities) to report
all claims involving Medicare- eligible claimants to the Center for
Medicare and Medicaid Services (CMS).
Lines of business include Workers Comp, Liability and No-Fault
claims, considered “Non-Group Health Plan” (NGHP).
Quarterly reporting involves all Medicare-eligible claimants
– Recurring payments (WC and no-fault): report at first
payment or acceptance of coverage and at end of “ongoing
payment responsibility” (ORM)
– Single payment liability claims: report only at settlement,
judgment or award by Total Payment Obligation to the Claimant
(TPOC) date
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Medicare Secondary Payer – Section 111
Registration Overview
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What is a Responsible Reporting Entity (RRE)?
A responsible reporting entity is that company that assumes the risk of
paying the insured or claimant medical benefits or compensation for an
injury for which the company or their insured is legally obliged to respond
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What companies are RREs?
– Insurers
– Self insurers (assume risk for line of business or state)
– Companies with self insured retentions under which the
company pays the insured or claimant for loss.
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Medicare Secondary Payer – Section 111
ISO Estimated Deliverables
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Testing on new CMS fields with ISO
May, 2009
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Assist companies with CMS testing,
including Acknowledgments & Rejections
and Query file
July, 2009
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Companies start production reporting
and querying to CMS
Final production deadline for all
companies
October, 2009
January 1, 2010
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Questions?
Thank you for your time!
John Swedo
Vice President Claims – AISG Group of ISO
(201) 469-3100
jswedo@iso.com
www.iso.com
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