Insurer vs. Insurance Fraud: Characteristics and Detection

Abstract: Despite the tremendous concern in the insurance industry over insurance fraud by customers, the federal Insurance Fraud Prevention Act primarily targets internal fraud, or insurer fraud, in which criminal acts such as embezzlement could trigger an insurer’s insolvency, rather than fraud perpetrated by policyholders such as filing false or inflated claims—insurance fraud. Fraud committed against insurers by executives and employees is potentially one of the costliest issues facing the industry and attracts increasing attention from regulators, legislators, and the industry. One book includes reports on some 140 insurance executives convicted of major fraud in recent years. This study investigates whether insurers ’ weapons against insurance fraud are also used effectively to combat insurer fraud. Several variables are tested—characteristics of perpetrators, schemes employed, and types of detection and investigation techniques utilized—to compare the characteristics of insurer fraud with those of insurance fraud and also with those in non-insurance industries. A detailed survey of 8,000 members of the Association of Certified Fraud Examiners provides the database; chisquare statistics, the Median (Brown-Mood) test, and the Kruskal-Wallis test were used to measure for significant differences. Most of the authors ’ expectations were supported by the analysis, but some surprises were found, such as the relative ineffectiveness of insurer internal control systems at identifying employee fraud. Internal whistleblowing also was not as prevalent in the insurance industry as in other organizations. Insurers were more likely to prosecute their employees for fraud than were other industries, however. F