Taking the Offensive: The latest round in the war on fraud

By Barbara Aarsteinsen, editor, ci – Canadian Insurance Magazine

(reprinted with permission from the March 2002 issue of ci – Canadian Insurance Magazine)

The bad news is that everybody’s fears about fraud have been confirmed.

Even though the number of auto collisions in Canada has been declining, personal injury claims are on the rise, with as many as 26 per cent containing some elements of fraud. In a ground-breaking independent national study completed last fall, the first of its kind in this country, the Canadian Coalition Against Insurance Fraud discovered that the property and casualty industry paid out a total of $2 billion for private passenger accident benefit (AB) and bodily injury (BI) claims in 2000 alone, of which an estimated $500 million worth contained some form of fraud.


Invoking Isaac Newton: Kinematics analysis for accident reconstruction and fraud detection

Revisiting the Scene: New generation software enhances accident reconstruction

Provincial breakdowns from the survey, which was based on a review of 4,066 randomly-selected closed-with-payment claims from 14 insurance companies, are just being released by CCAIF.

It was found that about 37 per cent of all AB/BI claims in Ontario in 2000 contained elements fraud, representing a total cost of $219 million to $327 million. Some 37% of AB claims in Manitoba and Saskatchewan showed signs of fraud, costing $36 million to $59 million annually. In Alberta, some fraud is involved in 23% of personal injury claims, for a total cost of $34 million to $51 million.

The numbers aren’t crunched yet for the Atlantic region, and B.C. and Quebec didn’t participate. However, CCAIF believes there’s no reason to expect that their experience is much difference that the provinces already studied.

The numbers are staggering but the good news is that putting a price tag on the fraud issue is raising public awareness. To make any inroads, the p&c industry has to convince Canadians that insurance cheats and scamsters are indeed criminals, that fleecing an insurer is more than a matter of a little moral fudging and that everybody takes a hit one way or another, not just big companies with presumably deep pockets.

Quantifying the problem also underscores the need for more resources to carry the fight forward. There are still a lot of complaints that insurers aren’t serious enough about cracking down on fraud, that they have gotten into the habit of settling instead of fighting questionable cases in order to contain costs. As the market hardens and the belt-tightening gets more severe, that’s even more of a concern.

But as the magnitude of the challenge takes shapes, there is now more than ample justification to invest more in the battle against fraud. It’s clear that the bad guys have established a beachhead and somebody better draw the line before they gain any more ground.

“When we released the national numbers there was a bit of a surprise,” says CCAIF director Nancy Tibbo. “Being Canadians, we like to think that we live on a higher moral ground than our American counterparts. Our numbers are not as high as they are in the United States but they are certainly high from an average Canadian’s point of view.

“One of our biggest battles is convincing people that insurance fraud is in fact a crime and, you know, it’s an uphill battle,” says Tibbo. “This gives us a tool to have another look at what perhaps the industry as a whole, in collaboration with its stakeholders, should be doing in order to combat this serious problem.

“Education and training are paramount to solving this problem and the more education and training we can provide, on behalf of the industry and all of our stakeholders, then the more we can certainly make a dent in the problem.”

With some hard numbers now in hand, Tibbo says CCAIF is going to spend the year ahead working on some concrete measures. More studies will no doubt be undertaken in the future but the group is anxious to build further on the foundation it has laid.

CCAIF plans on revising its fraud indicators manual, making it more accessible and user-friendly. Specific types of fraud will be focused in on. As well, the organization also intends to add personal injury scenarios to its Great Canadian Scruples Challenge, an ethics test designed to analyze the attitudes of Canadians towards insurance fraud.

CCAIF also wants to develop some healthcare procedures, so that medical personnel can be on the lookout for signs of fraud. And it has has renewed its alliance with Crime Stoppers and is aiming to make tip takers better equipped to deal with alerts relating to personal injury fraud.

This year will also see a big leap forward at the Investigation Services Division (ISD) of the Insurance Bureau of Canada. Since 2000, ISD has been revamping its database and major strides are expected as information gathering and sharing procedures are streamlined and new data mining capabilities are added.

“I remember many years ago talking about how this industry collects more information probably than any other yet most of it stays hidden in the bowels of companies,” says IBC executive vice president and chief information officer Terri MacLean. “But things have changed a lot, particularly within the last four years, and the timing is good for us now. We are going to really move forward.”

ISD started out by instituting electronic filing of claims loss information in 2000, doing away with paperwork that was previously submitted by insurers and input laboriously by hand, an expensive and time-consuming process. Then the division started working on significantly broadening the kinds of information that it collects and finding ways to better collate all the data that is amassed by it and various other industry players. Customers were also given the ability to access the database electronically via the Internet, using a service called WEB MCI.

When the Insurance Information Centre of Canada (IICC) merged with the IBC last July, “we decided to take a better look at how information was being submitted by the industry to different databases for different purposes,” explains MacLean. “We realized that the automatic claims exchange process that had been developed for the investigative side could be used for whole variety of purposes.

“The IICC merger has enabled us to really take down the walls between the investigative side and information side and to take advantage of some things happening in other departments,” said MacLean. “We’re bringing all the pieces together.”

The next step, now underway, is testing software that is expected to take data mining to a whole new level. As MacLean points out, “once you have all that information at your fingertips, you want to dig in and get a look at it.”

Right now, for example, a search on a particular case might yield previous claims made by the claimant in question. With the more sophisticated software, a search should help find other associations and patterns instead of just exact matches, MacLean explains. For instance, there may be no previous claims in a claimant’s name but perhaps there are half a dozen cases associated with that person’s home address or phone number or employer.

Two brands of software are currently being tested and ISD expects to make a choice sometime in the spring.

The more advanced software is expected to be a big boost, in particular, to ISD’s ring investigation unit, which focuses on premeditated fraud. In the year ahead, she expects the unit to get additional investigators as well as analysts who will provide data mining support. Further down the road, the goal is to launch units across the country.

Premeditated fraud is committed when a person knowingly defrauds an insurer, and would include staged accidents, for example. Opportunistic fraud, on the other hand, is undertaken when an individual inflates an otherwise legitimate injury for personal gain, and would include, for instance, an exaggeration of medical expenses.

“When you talk about opportunity fraud, the person who wouldn’t ordinarily think of themselves as doing anything illegal, that’s been around for a long time,” says MacLean. “We’ve made some progress there and people are coming to understand that there is something wrong with that. But what we’re really concentrating our efforts on is organized fraud, intentional efforts to defraud a widespread group of companies.

“That is what really shocks me – to the amount of this type of thing that’s going on, the impact it has on the industry, and how it’s tied to all other kinds of criminal activity like drug trafficking and weapons offences.”

To better support investigators, MacLean also wants to take a leaf out of the public insurers’ book and, emulating Manitoba and B.C., lobby for prosecutors at the provincial level who would be dedicated to handling insurance fraud.

“One of the problems we have is that even if we package all the material and bring it to police and they lay charges, we don’t always get prosecutors made available to us, they don’t always pursue things as strongly as we would like, and the penalties aren’t strong enough to be a deterrent to others,” points out MacLean.

Manitoba Public Insurance, for example, has funded a special crown prosecutor who looks after its fraud cases and also provides training in fraud detection to claims staff. Meanwhile, the Insurance Corporation of British Columbia has three such prosecutors. Last year, their work resulted in 59 convicted defendants, $186,950 in fines and $202,061 in restitution.

“I don’t think the problem is going away but we are making headway,” says Ross Pattee, senior manager of ICBC’s fraud prevention and investigations department. “We’ve had a very aggressive anti-fraud program for quite a few years and what we’re seeing is that while fraud has not been reduced, our ability to combat it has been significantly enhanced.

“We’ve made huge efforts to build systems at front-end that allow us to identify potential fraudulent files so that we can focus on higher-risk areas more quickly,” he explains. “Word is basically out now that if you attempt to perpetrate a fraud against ICBC and you’re caught, then we’re going to deal with out very aggressively. And that’s paying off.”

When its investigations yield results, ICBC tries to publicize its success as widely as possible to help underscore the message that it means business, Pattee says. Indeed, in the wake of a local front-page story or television news report on some crackdown by the public insurer, guilty parties often voluntarily own up to their transgressions.

“People are coming forward on their own to fess up and that’s quite rewarding,” says Pattee. “Typically, I get a call from a lawyer representing a ‘hypothetical’ client, who wants to avoid criminal charges or civil fraud action.

“There’s no doubt that we’re having a deterrent effect and that’s the best way to deal with fraud – at the front-end, so that you don’t have to allocate huge resources to chase cases down. Chasing files is only a band-aid solution.”

ICBC has also invested some seven years of effort into building its data mining capabilities, which puts it “quite a bit ahead” of ISD, says Pattee. The insurer has a special fraud analysis unit composed of computer experts, mathematicians and statisticians who have combined and adapted a variety of software programs to allow access to ever-growing amounts of data and help in the detection of suspicious patterns and areas of risk.

“It’s taken a lot of time, a fair bit of energy and a fair bit investment to get to where we are,” he says. “But we now have an amazing ability to pinpoint high-risk areas. There has been tremendous progress. This is the way of the future.”


Invoking Isaac Newton

Kinematics analysis applies the laws of physics to accident reconstruction and fraud detection

By Barbara Aarsteinsen

Mark Edwards and Lee Thistle have no doubt that advancing technology can help revolutionize the fight against AB/BI fraud. However, the veteran accident investigators find acceptance of new high-tech tools slow in Canada and the pace of change sluggish.

Their consulting company, Mississauga-based TSI Solutions Inc. tried to market a sophisticated data mining tool called InfoGlide, which enables cross-searches of information data in multiple databases from a variety of sources, helping to alert claims investigators and auditors to the kinds of tends, patterns and anomalies that often signal fraudulent activity. They were very keen on the data mining product but they found marketing it a hard sell.

“The reaction of the industry was very, very lukewarm,” says Thistle, TSI’s chief operating officer. “It wasn’t seen as much of a priority. People were not ready for it.

“We think it’s a missed opportunity, ” he says. “But the profit picture isn’t the best and returns on equity very low, so the attitude is let’s make do.”

So, TSI Solutions has given up on InfoGlide and is putting the focus on in-depth investigation techniques and a form of analysis known as occupant kinematics, which studies the movement of vehicle passengers involved in collisions. The idea is to figure out whether the dynamics of a low-speed collision, based on the laws of physics, could have actually produced the types of injuries sustained or claimed to have been sustained by insurance claimants.

According to kinematics principles, there are predictable occupant movements when a crash occurs, compounded by the angle of impact and force involved and affected by particular circumstances such as the type of vehicle or vehicles in question as well as seatbelt usage, air bags, headrests and seating positions.

Invoking basic physics, Thistle and Edwards explain that for every action there is an equal but opposite action. In a collision, the opposite of what happens to the vehicle involved happens to its occupants. The car slows under the people inside it, which means that the occupants speed up in relation to the vehicle. The way that that occurs influences how injuries take place.

If a car runs into the back of a bus, for instance, the occupants should not experience whiplash. Whiplash occurs when the lower body accelerates forward, or tries to, while the head remains stationary. If you rear-end another vehicle, your lower body and head will move forward while your body is restrained by your seatbelt. Your head continues moving forward and down until stopped by your chest and there is no over-extension of the neck.

“Certain things happen when two vehicles collide,” says Edwards, president of TSI. “The occupants move in specified direction, depending on the point of impact. “There are scientific expectations.”

Elizabeth Cummins Seto, a Hamilton lawyer who represents insurers, says she has used kinematics analysis “to very good effect” in many settlements.

“It’s very useful in getting plaintiffs to take a closer look at their case and counsel to consider how far they want to push things,” says Seto, who was formerly a claims adjuster. “It’s a matter of seeing how the physics add up – the laws of physics are immutable and if you’ve got them on your side, that’s strong evidence.”

According to George Bearse, who has dealt with more than 2,000 auto accidents while on the job as a police officer and insurance investigator, accident reconstruction, including kinematics analysis, is the “only thing that works consistently and presents very well.

“It’s hard to fight a case on the meds,” says Bearse, “You end up having one expert doctor against another expert doctor and they kind of cancel one another out. It’s a no-win situation. You have to try to stop a case early and, for efficiency and to give a fair and complete picture of what happened, we’ve found that the best thing is to re-engineer the accident.

“Everybody is hurting on costs but if we can stop some of the money going out the window on bad claims, then there will be a better arena for reinvestment.”



Revisiting the Scene

New generation software takes accident reconstruction to a new level

By Barbara Aarsteinsen

More sophisticated data mining is just one of the new weapons that technology has bequeathed to insurance fraud fighters. Increasingly sophisticated software programs are also taking the practice of accident reconstruction into new realms.

“Some of the computer applications available now can really take analysis further,” says Peter Williamson of Ottawa-based Williamson Forensic Consulting. “In some cases, you can speed up analysis while in complicated cases you may spend just as much time as before but you can experiment with a lot more possibilities and that makes your results more credible and expert.

“Once you’ve used this kind of product, you don’t want to go back.”

Williamson, an engineer, relies on PC-Crash, an accident simulation program that he helped test when he worked for Vancouver-based MacInnis Engineering Associates , the company that has North American rights for the product.

He says that PC-Crash is “a very powerful tool” that allows him to evaluate a wide variety of collision information, letting him experiment with hundreds of combinations of different parameters when he analyzes an accident, carrying out thousands of calculations within minutes as he tries to determine if a crash could actually have happened in the way that the participants involved maintain. That analysis can then be used to generate an animated version of the events that have been reconstructed.

“Generally speaking, animations are pretty good for settling claims,” says Williamson. “The claimants see it and realize where they stand and think again about going to court.”

Take a case that Williamson worked on when he was out west with MacInnis Engineering. In this instance, four claimants making soft tissue injury claims said they were involved in an accident in a residential neighbourhood. They maintained that they were passing through an intersection at 50 kilometres an hour when they were hit by a red car that ran a stop sign. The driver of that red car ran away from the scene, leaving his vehicle, which turned out to be stolen.

The left front of the claimants’ car and the right front of the red car were damaged. There was no other body damage, but the left wheels of the claimants’ vehicle were damaged from sliding sideways into a curb. Two rim imprints were found on the curb on the southwest corner of the intersection and police on the scene reported that the claimants’ car came to rest at the southwest corner of the intersection.

After testing a multitude of scenarios using PC-Crash, Williamson determined that there was no way that the accident could have happened as the claimants alleged. If the crash had transpired as the claimants described, the front corners of their vehicles would have collided and then the back corners would have collided, with the cars then traveling out in a southeast direction.

After analyzing countless scenarios, what PC-Crash worked out from the evidence was that given where the two vehicles ended up after the crash and taking into consideration the curb marks and wheel damage, the claimants’ car was probably stopped in the intersection when the red car then smashed into it – a staged collision.

“I would have been hard-pressed to have proved what happened without PC-Crash,” says Williamson. “I would have had suspicions but they would have been harder to verify.”

PC-Crash was developed by Dr. Herman Steffan, a collision reconstruction engineer and a mechanical engineering professor at the University of Graz in Austria. MacInnis Engineering was granted the distribution rights in North America, South America and Australia in 1995 but it spent some time carrying out tests of the product on its own to make sure that the product could do what it promised.

“When you can show somebody what happened in the kind of detail that we can with this program, it rules out a lot of possibilities,” says William Cliff, a principal of MacInnis Engineering. “When the other side sees the strength of your evidence you can often nip cases in the bud.”