Zalma’s Insurance Fraud Letter – April 1, 2019

More Insurers Adopt Advanced Analytics to Combat Growing Insurance Fraud

  Zalma’s Insurance Fraud Letter, Volume 23, No.7 

Some of the articles you can read in this issue of ZIFL follow.:

The Coalition Against Insurance Fraud: WASHINGTON, March 27, 2019 – Traditional anti-fraud technology tools are giving way to advanced analytics as insurance fraud rises, insurers say in a study of insurtech trends.
The biennial study was conducted by the Coalition Against Insurance Fraud, assisted by the analytics firm SAS. Some 84 insurers took part.
The State of Insurance Fraud Technology and infographic.
In response, insurers plan to retool their anti-fraud arsenals with a mix of advanced analytics over the next two years:
   *       Predictive analytics tops the list. Some 64 percent of insurers say they’ll earmark funds for predictive tools. That’s a 45-point spike from 2016, when just 19 percent planned to invest.
   *       Planned investment in link and social media analysis also has grown rapidly, say 43 percent of insurers vs. only 16 percent in 2016.
    *       New on the list: One in five insurers (21 percent) plan to invest in AI in the next 12-24 months.
“Technology is rapidly entering a new era of higher IQ and ability to meet fraud threats that are growing in scale and complexity,” said Dennis Jay, executive director of the Coalition.
“Advanced analytics eclipsing investment in old-school technology signals an industry momentum shift,” said David Hartley, director of insurance solutions at SAS.

“Capabilities like predictive analytics, machine learning and AI deliver much deeper insights than business rules alone.”

Other notable findings:
Types of technology. Automated red flags and business rules remain popular, yet are fading. Predictive analysis, exception reporting, text mining, link analysis and AI are gaining traction.
Tech tools expanding. More insurers have expanded their range of anti-fraud tools – and their ability to detect and investigate fraud. More players are entering the field with new products and services. Access to vastly more public and private data has grown, as well. Some tech costs also have declined with increased competition.
Technology uses. Detecting claims fraud remains the top use of anti-fraud technology, 90 percent of insurers report. Detecting cybercrime also is rising.
Building, maintaining systems. Insurers increasingly are hiring tech consulting firms to build and maintain their anti-fraud systems, the study shows. This coincides with more third-party system providers coming online and prices dropping.
Data sources.
Use of unstructured data is increasing as insurers adopt newer tools to cull for evidence.
Referrals from tech. More insurers favor quality of case referrals their systems generate over quantity. The percent of fraud referrals insurers receive from their systems has stayed steady.
Challenges. Three of four insurers say that integrating data and poor data quality are some of their biggest system challenges. Lack of IT resources also is a problem.
Executive Summary
For the third consecutive time in six years, insurers report increasing amounts of suspected fraud. Nearly three-quarters of insurers that participated in the 2018 survey say fraud has increased either significantly or slightly, an 11-point increase since 2014. Anti-fraud technology is seen as a major weapon to address increased fraud; many insurers use more-sophisticated technology tools and are greatly broadening their tech arsenals.
Insurers rely much less on traditional technologies such as business rules and red flags, and more on predictive modeling, link analysis and exception reporting. A few also employ artificial intelligence.
In the last two years, the technology offerings in the anti-fraud space have increased as new players have entered the field. Sources of data, especially from public sources, have grown as well.
With increased competition and more outsourced services, costs in some areas have declined. This has allowed more insurers to expand their scope of tools to detect and investigate fraud.
Smaller insurers especially have jumped onboard the anti-fraud technology train.
Among other major findings:
*    41 percent say their tech budgets for 2019 will be larger, signaling even greater expansion for the future. Predictive modeling and link analysis/social network analysis are the two top areas where new money will be spent.
*     The use of tools to detect underwriting fraud is growing rapidly as more tools become available, and insurers learn how to integrate them into their underwriting systems.
*     The percentage of referrals insurers receive from their technology systems has not measurably changed in the last two years. This is a somewhat surprising result, given the increased use of technology.
*     Insurers seem to be focusing more on quality of referrals than the number of referrals received as a metric for success.
*     Cyberfraud is an area that many insurers are increasingly focusing on as security concerns by regulators and industry increase.
A Note on Demographics and Study Methodology:
Insurers surveyed for this study include more non-property/casualty (non-pc) carriers than in previous studies. They include carriers that primarily provide life, health and disability insurance. Where significant deviations were found in results, they are noted in the “Other Findings” section. For some 2018 calculations, weighted answers were provided to help make more-accurate comparisons with 2016 data. The sum of many answers is greater than 100 percent due to multiple answers allowed and in many cases, rounding.
Other findings:
*     All areas increased from 2016 to 2018. Nearly 60 percent of non-pc insurers use technology to detect money-laundering schemes. Only 20 percent of pc insurers use tech to uncover such schemes.
*     Use of technology to detect cyber fraud has doubled in two years, likely due to regulatory requirements recently enacted to put such systems in place.
*     Large insurers and non-pc companies are least likely to integrate business rules and red flags into their anti-fraud systems.
*     No non-pc insurer reported using text mining in their technology mix.
*    27 percent of insurers said their systems were built and hosted by outside vendors.
*     Property/casualty insurers are most likely to use third-party data (80 percent).
*     Small insurers are mostly likely to employ social-media data, public records and unstructured data.
*     Only 10 percent of non-pc insurers use unstructured data in their systems.
*    Half of non-pc companies reported receiving less than 10 percent of referrals from their tech systems.
*     29 percent of large companies received 30 percent or more of referrals from their systems, while only 13 percent of small companies did. Large insurers were least likely to build and maintain their systems in house.
*     40 percent of non-pc insurers cited “enhanced reporting” as a benefit, compared to only 13 percent of pc companies.
*     Only 10 percent of non-pc insurers cited “uncovering complex or organized fraud activity,” compared to 35 percent of pc companies.
*    Non-pc insurers seem to have much less problem with lack of IT resources than pc carriers (50 percent vs. 83 percent)
*    However, non-pc insurers more-often cite a challenge with false-positives and false-negatives than pc insurers (80 percent vs. 53 percent).
*    Small insurers were much more likely to say their SIUs could not keep up with techgenerated referrals than larger carriers (50 percent vs. 25 percent).
Crooked Insurance Agent Stays in Jail
It’s Not Nice to Sell Fake Policies and Tamper with Witnesses
Patricia Sledge created fake AFLAC policies and claims and profited, as an agent of AFLAC, in amounts exceeding four million dollars. She was caught, tried before a jury, convicted and sentenced.
In United States of America v. Patricia Diane Smith Sledge, No. 17-50363, United States Court of Appeals for the Ninth Circuit (March 11, 2019) Sledge appealed from her jury conviction and sentence for mail fraud, in violation of 18 U.S.C. § 1341, and witness tampering, in violation of 18 U.S.C. § 1512(b)(3). Sledge, a sales associate for American Family Life Assurance Company (“AFLAC”), orchestrated a large-scale insurance fraud scheme.
There was sufficient evidence to support Sledge’s two witness tampering convictions. The statute prohibits, among other things, attempting to “corruptly persuade” a witness to lie to investigators. This language encompasses non-coercive attempts to persuade witnesses to lie to investigators. Viewing the evidence in the light most favorable to the prosecution, a rational trier of fact could have found that Sledge attempted to corruptly persuade the two witnesses to lie to investigators.
The district court did not abuse its discretion by admitting Exhibit 1, a spreadsheet summarizing the insurance policies and claims generated by Sledge that AFLAC identified as fraudulent. AFLAC analyst Susan Gonzales testified that she created the spreadsheet, which pulled data from an AFLAC database of policy and claims information, at the request of an AFLAC investigator as part of the company’s internal investigation. Contrary to Sledge’s contention, Gonzales had personal knowledge of the spreadsheet as its creator. Gonzales’s lack of personal knowledge about whether the summarized policies and claims were in fact fraudulent affects the weight of Exhibit 1, not its admissibility.
Further, admission of Exhibit 1 did not violate Sledge’s Confrontation Clause rights because the spreadsheet was not based on any hearsay from the AFLAC investigator. Gonzales only mentioned the investigator to explain why she prepared the spreadsheet (i.e., its effect on the listener), not for the truth of any statement by the investigator.
The prosecutor did not engage in misconduct by referring to Exhibit 1 in closing argument. The record shows that the prosecutor correctly described Exhibit 1 as summarizing the policies and claims that AFLAC had identified as fraudulent. Moreover, aside from AFLAC’s identification, there was independent evidence in the record supporting the notion that the policies and claims listed in Exhibit 1 were in fact fraudulent.
Finally, during sentencing, the district court did not clearly err in finding that the amount of loss attributable to Sledge’s fraudulent scheme was over $4.1 million, resulting in an 18-level enhancement under. Likewise, the court did not clearly err in ordering restitution of over $4.1 million under the Mandatory Victims Restitution Act of 1996.
Sledge defined, by her actions, breach of the covenant of good faith and fair dealing, by cheating her employer, AFLAC, as an agent and claimant. Her jail sentence and restitution order should give her much to think about as she sits in her room at the gray bar hotel.

 The Current Issue Contains the Following  

  • More Insurers Adopt Advanced Analytics to Combat Growing Insurance Fraud
  •  Insurance Fraud Becomes Inconsequential Because of Murder
  • Crooked Insurance Agent Stays in Jail
  • Insurance Fraud – A Crime of Moral Turpitude – Requires Deportation
  • Good News from the Coalition Against Insurance Fraud
  • Health Insurance Fraud Convictions
  • Other Insurance Fraud Convictions
  • Insurance Claims Library
The Zalma on Insurance blog has posted over 2550 digests of insurance appellate decisions and other important insurance materials and articles published five days or more a week and are available at

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© 2019 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at and

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Over the last 51 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

Passover Seder for Americans

Passover is one of the many holidays Jewish people celebrate to help them remember the importance of G_d in their lives. We see the animals, the oceans, the rivers, the Passover Seder for Americans: An All English - Easy to Perform - Passover Seder by [Zalma, Thea, Zalma, Barry]mountains, the rain, sun, the planets, the stars, and the people and wonder how did all these wonderful things come into being?

All Jewish fathers are required to teach their children, at least once a year at the Passover holiday, about the exodus from slavery in Egypt. For American Jews who have difficulty understanding Hebrew and complicated books describing the Exodus, my wife and I wrote this book to use for our own Seder where each member of the family reads part of the book.

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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