Claims fraud costs society billions

Air date: 7/12/23
Record date: 6/30/23

Delpha DiGiacomo, Director of Zurich Claims Investigative Services, talks about the shift in social attitude towards insurance fraud claims and the effect it has on society.

Guest

Delpha DiGiacomo
Director of Zurich Claims Investigative Services
Zurich North America

Delpha DiGiacomo is an accomplished insurance leader with over 20 years of experience in the Property & Casualty space. She has worked with fraud investigations teams for the last 15 years and currently leads Zurich North America’s Claim Investigative Services.  Delpha is a member of the International Association of Special Investigations Unit Professionals and is the newly appointed Vice Chair for the Coalition Against Insurance Fraud’s Government Relations Sub Committee.

Host

Stephani Gordon
Future of Risk podcast co-host

As part of Zurich’s Communications team Stephani Gordon finds and shares stories by asking questions that connect people with ideas to pique curiosity and broaden awareness and create communities. Fondly considered a compassionate interrogator, she has had roles coaching and supporting executive communications for the CEOs of Zurich North America and Zurich Canada, has lead C-suite video production and has connected employees with corporate strategy through storytelling and engagement. Stephani is currently one of the hosts of Zurich North America’s Future of Risk podcast. She unabashedly spends too much time on TikTok in the guise of “anthropological study.”

Episode transcript 

STEPHANI GORDON: Hi, my name is Stephani Gordon. I'm one of the cohosts of the Zurich Future of Risk podcast. If you are new here, you should know that Zurich is a property-casualty insurance company. So, that means we insure hospitals, banks, veterinarians, auto dealers, companies that make shoes, and people who are in the process of building bridges. A lot of different things that aren't personal lines of insurance, and I give that introduction today because I'm joined by a colleague who's going to talk to us about insurance fraud in the United States. What it is? Who does it? Why they do it and the impact that it actually has on everyday citizens. So, with that, Delpha DiGiacomo is Zurich North America's Director of Claims Investigative Services. Welcome.

DELPHA DIGIACOMO: Thank you for having me, Stephani.

GORDON: So, Delpha, you serve on the board of an insurance coalition that recently published a report about fraud, and you're going to reference that pretty extensively, I think today. So, can you give us a little context about that report to start and the coalition?

DIGIACOMO: Sure. So again, thank you for having me. I was recently appointed as Vice Chair of the Coalition Against Insurance Fraud's Government Affairs subcommittee. The Coalition Against Insurance Fraud has been around for about 30 years, and they support the fight against fraud on the consumer and insurer side. It's really the only group in the United States that brings together consumer advocacy and insurance companies. So, prior to that, I was part of the coalition. I've had a seat in that subcommittee for about 11 years, and I personally have been in the fraud investigative industry for about 15 plus years. I don't want to date myself or anything, but it's been a while. So, on the coalition, they do a lot of research and they look at it both from the consumer and the insurance company perspective. This particular study that you mentioned just came out hot off the presses last week, and it's called "Who Commits Insurance Fraud and Why."It addresses the social attitudes around insurance fraud and I personally think it's a pretty big breakthrough study. It included work and was done in partnership with Dr. Kelly Richmond Pope, who is a professor, researcher and forensic accountant. Fascinating person. She does a lot of research into insurance fraud and the attitudes and behaviors that are tied to insurance fraud. So, if anybody has a chance to go get the study and read it, it's a pretty cool read. It's not just your standard issued boring insurance paper. It actually talks a lot about how people perceive fraud, what happens if they get caught. She actually interviewed folks that have been convicted of insurance fraud and what they thought about what happened to them post-conviction.

GORDON: Very cool. Thank you, and I did have an opportunity to review the report and I agree it was fascinating to read. So, with that as some background, why don't we talk about the thing that people are going to wonder first. Which is, how does the cost of insurance fraud impact me, particularly if it's related to property or casualty insurance? I mean, I'm just a citizen. In other words, why should an average person care about whether or not people are defrauding big insurance companies?

DIGIACOMO: I think that gets to the crux of the study, but maybe we take a step back and look at what actually is insurance fraud, because I think that's part of the opportunity. People use that word and they don't really know what it means. So, insurance fraud, if you want to define it, it's really intentionally providing false or misleading information or excluding or omitting information when engaging in any sort of insurance transaction. So, for most folks out there, you're going to think about, I just got my auto insurance, and so the purchase of the policy is a transaction, but so is filling out the application. So is adding a driver or excluding a driver. If you're in worker's compensation, so is adding an employee or excluding an employee or explaining to the carrier what types of employees you have. Are they administrative or are they doing labor? So, all of those things are part of the insurance transaction and ultimately what insurance fraud is about is some level of financial gain. Whether it's because you are excluding or adding information so that you don't have to pay as much. Or worst-case scenario, it's a claim and the claim didn't actually happen, but somebody's going to get paid out on that claim. Which is really what a lot of the investigations are about.

GORDON: Or it didn't happen the way they said it happened.

DIGIACOMO: Or it didn't happen the way they said it happened. Something happened but they're nowhere near as injured as they're claiming. There’s just a gamut of things that happen that kind of drive that. So really, if you think about insurance fraud, it's not a victimless crime. So, to your point of how does it affect me because I'm a consumer? First of all, the first thing that happens is insurance costs go up. So, you have a claim, somebody pays that claim, it's a legitimate claim, it should get paid, it should be processed. That's what the insurance is there for. But now you have a series of claims that didn't happen, didn't happen as described or exaggerated, have factors in there that maybe through no fault of the person that's injured have some element of fraud. Medical fraud is a real thing. That cost causes the value of insurance to go up.

GORDON: So, a business’s insurance premium goes up as a result of a lot of claims. Okay.

DIGIACOMO: Exactly, the same way it happens in personal. To me there's a trickledown effect that affects that. If a business policy goes up, that's going to affect how many people I can hire. It's going to affect the services I can provide. I may trickledown that cost in the value proposition that I give my customers. So, maybe it's a little more expensive, but ultimately when bad things happen like insurance fraud; it can cause businesses to close down. There's this thing now called social inflation, and basically, it's where you have a trial or an event that the value of that trial is overstated by the jury. So, the jury has a chance to decide how much you're going to pay out on the trial and it’s based on their perception. This is a big insurance company and therefore they have a lot of money. So, I'm just going to make sure that this person gets paid and they get paid a lot and it's over exaggerated. They are no longer focusing on the value of that loss and what that means. So, I'll give you a clearer example. You have a slip and fall, you have a hip injury, it's somebody that's going to take a while to recover. You know, that could be a couple of million dollars in today's world. Now you have a jury that decides, no, this is not just a couple of million dollars, it's a hundred million dollars. All of a sudden that value goes up really high, really fast based on people's perception of what the value of the case is versus the evidence presented. Now, that can ruin a business. That can put a mom-and-pop shop out of business.

GORDON: So, you've got someone who is, let's say, take an easy one in a restaurant or a hair salon or something like that. Nefarious intentions says that they have a slip. Say that they're injured, etc. Their goal is really to try and get something out of, like you said, a big nameless insurance company with deep pockets, right. So, they can afford it. It's a victimless crime. So, Let's say that claim then gets denied because the insurance company doesn't think it's a legitimate claim. That's when it might go to trial. And you're saying that we're seeing a change in the sympathetic factors of the jury that's not just awarding what we would consider to be the typical claim to that, but now it's something, and I heard this phrase, tell me, “nuclear verdicts,” right?

DIGIACOMO: Yeah. 

GORDON: They're explosive in other words because there's so much out of alignment with the actual claim itself and then that cost gets passed down.

DIGIACOMO: This has been going on for years. This is not something new. I revert back to early in my career. I think everybody will remember that there was a case with a fast-food chain where somebody spilled coffee in their lap and there was this huge verdict out there. That is now the norm. That is what we're seeing, it's not shocking anymore to see that. Whereas, back in those days, everybody was aghast with how much for some spilled coffee. Nowadays that's, “Oh yeah, of course they did. They should have been more careful.”

GORDON: But then to your point, those costs then get passed onto the consumer, which brings us full circle back to your original point. Then that costs goods and services to go up, or it can cause a business to go under. Then everyone who was employed there has lost their livelihood, etc. So, there is actually, I think I've seen a calculated per person, per US citizen cost that insurance fraud impacts people on an annual basis, right?

DIGIACOMO: Yeah, and there's a bigger number, it’s 308.6 billion a year.

GORDON: That is billion with a B?

DIGIACOMO: Billion with a B.

GORDON: Wow

DIGIACOMO: So, just think about our economy and what's going on with the economy. Then put that number on top of that. So, you want to talk about inflation. This is something that affects that as well.

GORDON: So... go back to the insurance industry just a little bit... Are we seeing some changes in the patterns of fraud? I'm specifically interested in, anything around. Did Covid start to change things?

DIGIACOMO: I don't know that Covid changed things so much as it made it more obvious because we had a lull where everybody was home. You were either working from home or you may not have been working or were unemployed. Now we're coming back and we continue to come back at different levels. I don't think everybody is fully back yet. It just depends on where you are and your situation. Really, what Covid did was highlight what has been happening and actually put a magnifying glass on top of it so that we can see its frequency much more clearly. Where we had the spirit of lulls, now we're back and it feels very salient. I think the study kind of covered a really interesting aspect of it, which is what are the attitudes and behaviors that people have? It was a question that needed to be asked. We've asked it through the coalition in the past. I think people are more apt to answer surveys now, and we had a lot more compliance in the survey process. So maybe we talk a little bit about that. To give a backdrop let’s talk about the folks that are in the United States. 50.7% of people are under the age of 40, which is going make sense in the information that I'm about to share.

GORDON: Okay

DIGIACOMO: 84% of Americans do consider that insurance fraud is a crime, but that means that 16% do not. That's a lot of people.

GORDON: Yes

DIGIACOMO: So that starts showing that shift in social attitude. The problem is that we had about 11.6% of folks say they would absolutely do it. They wouldn't think about it twice

GORDON: If they thought they couldn't get caught?

DIGIACOMO: If they thought they couldn't get caught, they'll absolutely do it. They would just be opportunistic about it, which is a shift. Opportunistic fraud is part of what fraud groups investigate but it's not as often as organized. There's usually a pattern of behavior that you're looking at. Opportunistic tends to happen, consistently in personal lines, but it's going up and it's starting to really show up in commercial lines.

GORDON: We are seeing that 16% or even that 11% that say they absolutely would commit fraud if they thought they could? Are you seeing that spread broadly across demographics by age? Or is that your point in telling us about the age dynamics in the US right now?

DIGIACOMO: It is my point. There is an age gap there. So based on the study, the folks under age 45 were more apt to have a relaxed attitude around insurance fraud and committing insurance fraud. So, there was a really interesting question. The question was, I definitely would submit a worker's compensation claim for an off-work recreation injury. That's something that we would investigate all day. People between the ages of 25 and 34, 18.4% said they absolutely would.

GORDON: Wow people! That's almost 20% said yes.

DIGIACOMO: It gets worse because people between the ages of 35 and 44, 22% almost 23% said that they would as well. So, what does that mean? That's our workforce. If the social attitude is, I could just do it if I could get away with it. Then I'll just go ahead and yeah, why not? Well, that's insurance fraud. It means there are resources that the insurance company is going to use to investigate that. We can't catch everything. We try really hard. All carriers try really hard because this, for us, this is a consumer protection issue. We are here to protect our insureds and part of that is investigating these cases. Things happen, maybe we can't prove it. Maybe there's not enough evidence and that happens. Now we're paying that claim. The more frequency that occurs the higher the value of claims goes up. That just add to that cost of medical care, cost of prescription, the cost of transportation to a doctor. All of those things have gone up and they've gone up significantly in the last two years. Then we're talking about add this, the cost of a claim that maybe shouldn't get paid but may be missed or will get paid even with everybody having the best intention and the best work out there. Now you're talking actual cost to a consumer.

GORDON: Right and to your point, we see that trending upward. Does this study, or do you have any thoughts about what's happened in that generational divide that's made those sounds like under 45 now, half the US population? What's happening socially that you think is impacting that dynamic?

DIGIACOMO: You know, we had Dr. Pope speak at the coalition. They had a meeting and she came and spoke about the study and she talked about some of the interviews that she did. She actually had interviewed some of her students at the university she teaches at. I will say that what was surprising is that most folks that she talked to, based on that conversation and that talk that she gave really didn't have a reason. They just say, “Well, you know, it's okay so long as I don't get caught.” They hadn't thought through the later consequences. There was a gap there in understanding bad action equals consequence, which equals potential punishment. There was a gap there. In retrospect, as we think about this part of it, I think we all have a duty to kind of start talking about, “Hey, by the way, ethically there's good and bad behavior.” We really should go back in and address that with folks in those demographics.

GORDON: That's fascinating. Are there some identifiable trends in terms of different types of insurance frauds? So, at the top of the conversation I said, Zurich is a property casualty insurer. So, we're not looking at the personal lines, but when we look at property cargo, marine, and auto. You mentioned work comp.

DIGIACOMO: Yes

GORDON: What are some of the trends that you're seeing, Delpha?

DIGIACOMO: During Covid, we saw all the cargo parts on the side of the road and we heard about trains getting broken into and things being stolen. Well, that has actually not stopped. Even though loads are moving, cargo's moving, there is a continued higher frequency of what they call “pilfering,’ which is breaking into the transportation back cargo piece and taking things. There is still a very high frequency of the total trailers being stolen. In general, these are groups that tend to be organized and they are sophisticated. They will track your cargo; they will know the routes and they will pursue that. That’s a big trend. There's also a trend in cargo transportation called “double brokering.” It's very interesting. You watch reality TV where folks are bidding for cargo and then they win the cargo and then they do the transportation Right? Well, in that bidding process, somebody can bid and then after they win the bid, they put it back out to bid. So, a second bidding is happening. So, you go online, you see the cargo, you're like, yeah, I can handle that load. You start bidding against each other. It's a short bid. You win and then you get the papers and you go to the location. They match your paperwork, they look alike, everything's fine. You're going to take this load, you drop it off, the drop off is fine. There is supposed to be this transfer of money and it doesn't happen. Now you filed a claim against your insurance company, saying you did not get paid for your load. Okay, and we can't subrogate against these people because they've disappeared. Well, worst case is that there's this double brokering and it's because they were never the owner of the load. In the meantime, in another state, in another location, the people that owned that load have now filed the claim because the load is stolen and it was never delivered. Now we can't find that driver either. That's two insurance claims in one. So that's a pretty big trend going on right now. It's a hot topic in the transportation industry.

GORDON: Never would've guessed.

DIGIACOMO: Yes, we don't live in that space. Auto staged accidents have always been huge and for commercial insurance, it's the use of rental trucks. Name any company that will rent you a truck. They take that truck and then an accident happens, but it's a caused accident. They use that truck to create the accident so that the people in the car (You can see that I am doing the hashtags) “are injured.” The injuries claim that's higher than it is and all of a sudden, the company that insures that truck is paying out on an accident that was done on purpose.

GORDON: So, it's staged.

DIGIACOMO:: It's staged. It's real in the sense that there's damage and sometimes there isn't even damage. So, it's real in the sense that something happened but it was on purpose. It is not an accident.

GORDON: Very interesting.

DIGIACOMO: Also, I mentioned a little earlier, medical and medical fraud. That is the bulk of that 300 plus billion number that we talked about. The majority of this comes from medical fraud and people don't tend to think about the property and casualty industry as having to deal with medical cost.

GORDON: Right

DIGIACOMO: But workers' compensation is that if you're in a car accident, that injury is covered by your vehicle insurance. If it's a fleet vehicle, it's covered by the fleet insurance for that vehicle. So, if you're at fault, then also the liability side is covered by that insurance. So, if you slip and fall in a business, the general liability side does have a medical piece. In property and casualty, we're really aware of the cost of medical and over billing. What they call “upcoding,” which is taking a medical code and using a higher value code to get more money back. There are all kinds of schemes that are happening and unfortunately, we're seeing some of it from the medical community. I'm not saying that all claims are fraud and that everybody is claiming fraud. Not by any stretch of the imagination do I think that. To the contrary, I've worked in the insurance industry for over 20 years and I can tell you that the majority of claims are real. The majority of injuries are real. The amount of work we see is a fraction of the claims that happen, but that fraction is costing 300 plus billion dollars.

GORDON: Well, just like in society, right? You can say not every citizen is a criminal or a thief or has intentions of committing a crime. The small percentage of those who do can wreak havoc on the security and sanity of a community. You know because it doesn't take a lot to be disruptive to that point.

DIGIACOMO: I do want to tie that back to the social attitudes. Yes, those numbers were not very large, 11%, 16%, 21%, but take that and put it against the 300 plus billion in cost. Now, what does that number look like in five years if we don't self-correct as a society and ensure that we have clarity around what is good behavior, what is bad behavior, what is in between behaviors that's acceptable versus not acceptable.

GORDON: Right

DIGIACOMO: It's just a very interesting proposition, which makes my job really interesting. I get to work with people and people's behaviors. I think the last one was workers' compensation and we talked about medical fraud. That's a pretty big piece.

GORDON: Just to clarify, that's not just an individual committing fraud. It sounded like what you were saying is this could be organized through doctors or hospitals or pharmacies, etc. That's where you see some of that fraud. Like you were talking about up upcoding, I think you said?

DIGIACOMO: Yes

GORDON: That's not an individual that's medical personnel or what have you.

DIGIACOMO: I think that's the worst scenario too because somebody could be truly hurt at work. They didn't fake the injury and now they're going to a doctor that is supposed to be taking care of them. That person may be to some extent taking care of them, but then submitting billing to the insurance company to up the price or up the service so that they get paid more. There was a question asked in the survey, and it was very disturbing to me to see that response. The response was, “I definitely would help a medical provider bill an insurance company for treatment that I did not receive.” That was the response from the segments.

GORDON: How many people said they would do that?

DIGIACOMO: Segments of 18 to 24 participants, 21% said they would. Between the ages of 25 and 34, it was 17.6%. Between the ages of 35 and 44 was 22.4%. That's incredible to me.

GORDON: We've lost a moral compass.

DIGIACOMO: Something happened that people think this is okay. Listen to this drop, now you get to the 45 to 54 age group and it's only 5% and 55 to 64 is 1.8%. That's not dissimilar with the other questions and answers.

GORDON: Wow. So that's really a distinct divide. So, I jumped in. You were going to go to the fourth area in terms of trends that you're seeing.

DIGIACOMO: So, we talked about workers' compensation a little bit and that's just medical. I think the bigger issue right now and the bigger question is AI. Everybody knows AI from the sense of ChatGPT…enhance your pictures…create pictures. Yet, imagine this, AI or artificial intelligence is smart enough to create an MRI that is ultra-realistic and we just talked about medical fraud.That is what keeps me up at night right now. What is next on the horizon is how the bad actors are going to use those capabilities to commit new insurance fraud in different ways that are less detectable. For me and my team, we really and truly believe our job is to find solutions for that. Have the best technology for that and make sure that we are supporting our claim partners in their investigations. This isn't coming, this is here. I think everybody and we'll use this example. I think everybody saw on Twitter, the image of the Pope wearing a puffer jacket. Everybody was like “that's a great puffer jacket.” Well, guess what? That was a deep fake. That was not a real picture of the pope wearing a jacket. That jacket, that's not a real jacket. Nobody makes that Balenciaga jacket. It's not real. They don't make it.

GORDON: Wow

DIGIACOMO: They just instructed AI to create it and it did and we believed it.

GORDON: So, the future is here and it looks pretty scary. You guys are going to try and stay ahead of anticipating all the various different forms that this could potentially take because some people are just going to look to make trouble. Right?

DIGIACOMO: Yeah. That's the job and it's pretty eye opening. Now, think about what we just talked about in the study and the lack of social compass. So, think about that and now who's using AI.

GORDON: Right

DIGIACOMO: I want to put it out there. I am not saying young people are bad people. I think young people are awesome and they're smart enough, good enough and all of those things. The social compass piece is troublesome based on this study. Again, those were small percentages but when you put it against the dollar value of fraud, that's a problem.

GORDON: It might just point to the need for more education.

DIGIACOMO: Yes

GORDON: You know, if people truly do believe it's a victimless crime, if they don't make a connection between the cost of fraud for big insurance companies that are frequently, especially personal lines of insurance, are painted as deep pockets and uncaring, what have you. If they're not making the connection between committing fraud with that and the impact that it actually has on society. So maybe it's an opportunity to do some education with generations that just might not be aware, might not have all the information they need.

DIGIACOMO: Absolutely right and that was my biggest takeaway from the study. It was unstated but it was clear that we all, both insurance companies and citizens alike, regular citizens that may not work in an insurance company, have a duty to really take a step back and understand what is insurance fraud? How does it affect us as people. I may work for an insurance company, but I'm a consumer too. I'm buying insurance. I'm going to businesses that buy insurance because they're required to. So, you know, it affects all of us. So, my biggest takeaway was that there's a need for further education, which is why I'm glad we're doing this podcast. I hope it's received well. I think it's an important conversation to have because the new social attitudes are there and that was the other bigger takeaway. I had no idea the social attitudes had changed so much and fraud's not going away.

GORDON: Unfortunately.

DIGIACOMO: So, I would happily transfer to the claims department and just handle claims and help people. That's where I came from but it's not going away. We have a need for people that are doing fraud investigations and help protect our consumers from fraud.

GORDON: Delpha, it's a sobering topic, but I very much appreciate you taking the time to come and have a conversation and share the results of this really interesting study. The trends that you're experiencing in the industry and potentially some next steps that we can do as an industry to help educate the public about the issue. So, thank you very much.

DIGIACOMO: Thank you for the opportunity

GORDON: Thank you for listening to Zurich's Future of Risk podcast. We hope you've taken away something useful and interesting from our conversation today. We look forward to bringing you more great content soon. Thank you.

 

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