January 6, 2022 How do you count what you prevented? What is the value of deterrence? Is a bird in hand worth two in the bush?
'Ciphering' the total value that a fraud investigative unit brings is a unique challenge.
'Ciphering' the total value that a fraud investigative unit brings is a unique challenge. It has many names - Fraud Payment Avoidance (FPA), Fraud Savings, Fraud Detected, Fraud Impact, Fraud Defeated, and so on. Establishing your target is critical to managing for improvement.
This review will explore various aspects to consider when defining your Investigative Unit's Fraud Value Returned.
Tick or Tock: The first question to address is whether your team will count an actually tallied monetary savings or just a 'tick' count of fraud events. Investigative units are split on whether or not to pursue a Dollar Savings number. This is just a matter of defining your starting point for setting your targets. Whichever avenue your team chooses, several other decisions are needed to fully define your fraud impact.
Dollar 1 Fraud: The next step is the 'Money Saved' question. Will a 'dollar saved' or will a 'fraud finding' be your baseline? Did your findings prevent a dollar+ from being paid? What if you proved fraud, but a business decision was made to pay the claim anyway? Does the team take credit for the fraud finding? Or do they only count those findings in which a payment was prevented? There is no 'right' answer here. It is a matter of determining your own baseline. Dollar Saved Credit focuses on the company's bottom line fraud prevention as it relates to payout and profitability; while Fraud Found focuses on the team's effectiveness in finding the fraud, separate from and regardless of whether or not it was paid out. Counting both is of course also an option.
Proof Positive?: Another aspect in your count is where you draw the line on proof of fraud. Are you looking for fraud PROVEN by a confession, admission, or hard evidence? Or fraud INDICATED by strong flags, but not 100% proven. What if a customer withdraws their 1 week after inception claim that was investigated stating the damage was only a couple hundred dollars, but never admits the fraud, nor did the team PROVE the fraud. But the customer withdrew after proof of loss date was requested? Is that enough to 'count' the finding? Did the customer withdraw because they were caught, or because the damage was just a scratch? Again, no 'right' answer on how to count it - but a line that needs to be defined for consistency in tracking.
Policy Fraud? Looking at whether to take savings beyond claims payments is initially a relatively simple decision. Premium fraud typically easily equates to a $1 figure. However, what if the policy was subsequently cancelled by the customer or company? No extra premium was realized? But the risk is off the books. Is that a fraud savings? Beyond that, what if your team finds evidence that the customer was not truthful on the application, but no action can be taken at this point on the policy (many reasons, both business and regulatory, exist that may limit action). These are points that needs to be explored in determining value added by your team.
Non-Fraud Savings: Does your team take credit when they uncover savings not related to fraud? Occasionally a team will uncover something that affects the payout or premium but was not true fraud. For example, they find that the new insured had concurrent coverage with another carrier for a claim payment due to different expiration/ inception dates, but no fraud was intended. Or that a newly minted teenager just got his license, but the insured planned to report him at the upcoming renewal? Fraud or not? Credit or not? Where do you draw the line on savings credit?
Defining a $: For those that track monetary 'fraud savings', where does that dollar amount originate? Many SIU's use the average loss payment for the coverage as their baseline for claims, and average premium for policy. For example if you prevent a Property Damage fraud from being paid, and the company's average loss payment on Property Damage is $3000, then you get a $3000 credit. Other options including an estimated savings by the claim adjuster, using the estimate of bills known to date, or an estimated savings by the investigator. Regardless of which method is chosen, consistency is the key.
The Only Constant is Change: What if I want to change my measure. As we have noted, consistency in measuring your progress is key to managing for improvements. But that does not chain you to one measure or way of measuring. If you do determine a change is in order, making sure everyone is clear on the why and mechanics of the change will pave the way for a productive change in course.
Laying out how you define your team's fraud payment impact involves many choices. As you work through these choice, consider your drivers and targets? Your determination of your team's value should underline and support your goals for your investigative unit as a whole. Think through each question and look to how that decision will support your team's direction. It is critically important to consider what behaviors and actions those decisions encourage when drawing the line. Consistency and communication are the keys once the baseline is set - Ensure everyone is clear on the how's and why's and avenues for follow-up questions.
We hope this review provides information to assist in laying out your team's value added. What other factors do you considering in tracking fraud savings for your team?