The term Social Network Analysis (SNA) is often errantlyassociated with the type of social networking accomplished viasocial media.

Social networking involves building relationships or sharinginformation via online social media apps like Facebook, Twitter orLinkedIn. Conversely, SNA is an analytical approach used toestablish important relationships and links among people, placesand things which might be unknown to insurance personnel at thetime of claim.

The role of SNA in claims

For insurance carriers, the differentiation between SNA andsocial media is an important distinction. Claim's adjusters andinvestigators often examine a claimant's social media activity forinconsistencies and misrepresentations while validating claimsdocumentation. That's proven to be a valuable part of theinvestigation process.

On the other hand, the social networks uncovered when analyzinginsurance claims data are characterized by the people, places andthings in an insurance transaction and the interconnectivitybetween them.

In claims fraud detection, SNA is both an analytical and visualtool that helps discover, analyze, and visualize social networksand expose dishonest actors who are exploiting insurervulnerabilities.

1. Increased view of network activity.

SNA uncovers such things as shared home addresses, businessaddresses, bank accounts, home telephone numbers, cell phonenumbers, automobiles, medical providers, lawyers, repair shops,policy numbers, payments and claims. Having this informationreadily connects individuals who were otherwise not known to have abusiness or personal relationship, which is often indicative offraud.

Absent an effective SNA tool, the links between individuals andentities likely goes undetected given the voluminous amounts ofapplication, policy and claims data routinely collected andprocessed by insurance companies today.

2. Paying claims efficiently.

While the existence of a social network might initially seemsuspicious and indicative of fraud, further investigation maydetermine that the apparent connectivity between certainindividuals and entities is innocuous and easily explained.

That's one of the profitable returns of effective SNA. It helpsbuild a complete real-world, real-time picture of claims activityand slashes claims fraud without hurting genuine customers.

Because regulatory requirements dictate claims processingservice level agreements (SLAs), time is at a premium and thepriorities are to pay legitimate claims faster. SNA snapshotsstreamline the investigative process and reduce money spent on badclaims, while providing a clear picture of social networks.

Avoiding "pay and chase" is imperative. The added network viewhelps adjudicate legitimate claims quickly and intuitively, whilereferring suspicious or potentially fraudulent claims for furtherinvestigation. Paying legitimate claims quickly increases adjusterperformance and customer satisfaction, while simultaneouslydecreasing costly churn and driving down fraud risk.

3. Regulatory benefit.

Strong analytic processes offer significant benefits to insurersbeyond simply identifying connected individuals and preventing thepayment of fraudulent claims.

In most states, insurance carriers are required to completeannual documents which detail their anti-fraud efforts. Aside fromhaving a more proactive, holistic cost saving claims operation,through the use of different tools, insurance carriers have a morerobust story to tell regulators about their anti-fraudprograms.

SNA provides investigators with a visual means of seeingcommonalities between shared data points. (Photo: iStock)

4. Identifying organized criminal activity.

If senior insurance executives were asked how much organizedfraud is committed against their organization and what thecorresponding losses associated with that fraud type are, theylikely wouldn't know.

Effective fraud prevention, however, dictates thatmanagement does know what's going on inside the network and who iscommitting fraud against their organizations. The brilliant Chinesemilitary strategist Sun Tzu said it best with his "know yourenemies" philosophy, and that definitely holds true when it comesto fighting organized ring fraud.

The more you know about groups, their methodologies and attackstrategies, the better positioned your company defenses will be.SNA provides the investigator with a "top down" visualization whichestablishes the commonality between shared data points. Theseconnected data points often signify organized criminal activity,which if undetected, generates large scale losses; diminishingreturn on investment (ROI) and bottom line profitability forinsurance carriers over time.

The technology allows investigative teams to exposesophisticated bad actors and groups that were previouslyundetected, and identify high probability information which isrelevant to the claim.

5. Better data yields better results.

An important consideration in identifying patterns of nefariousactivity and organized crime rings operating in a network isthe volume and quality of data gathered by anti-fraud detectiontools.

While SNA connections are created from existing network data andreal time or batch data fed into the system, the amount and qualityof the data insurers have access to has a definite impact on theability to successfully identify anomalies and connections withinthe claims data.

While adding third-party data sources doesn't solve everything,data enhances the identification of anomalies and generating SNAconnectivity.

In 2015, an Association ofCertified Fraud Examiners (ACFE) article by Clopton, Morrow andHeitger stated: "The proliferation of e-mail, messaging,electronically stored documents and social media not only providesa rich repository of data for social scientists, but also providesa platform for analysis of relationships in fraudexaminations."

6. Technology transition.

Frequently, carriers operate multiple legacy claims systems,which compound the challenges of investigation and impede SNAautomation. Multiple systems decrease adjuster efficiency sincethey add additional steps to effectively adjudicate and payclaims.

Streamlining the investigative process and reducing operationalineffectiveness are important. Automation is critical to achievingSNA and effective fraud detection. Not only does it present aclearer picture, but it reduces the time spent on identifyingsocial networks, increases ROI and frees up staff to perform otherclaims related and investigative functions.

Successful utilization of SNA requires a holistic view, notjust a bottom-line approach to loss numbers. (Photo:iStock)

7. Overcoming resistance.

Despite the move to more technology-based anti-fraud programs,the CoalitionAgainst Insurance Fraud found that as many as one-third ofproperty and casualty insurers surveyed, remain skeptical about itsROI.

It is important to take a holistic view and not just look at thebottom line loss numbers. Automating processes like SNA, frauddetection and case management is not only effective, but is also anintegral part of annual regulatory anti-fraud plan reporting. Itgenerates both operational efficiency and staffing savings whileproducing higher quality data, information and investigativeperformance.

8. Decreased ROI.

It is frequently thought that claims management operationssupported by ineffective analytic tools aren't as profitable asthey can be.

In their 2014 State of Insurance Fraud Technology report, theCoalition Against Insurance Fraud found "about half of the insurers(53 percent) cited lack of IT resources as the stumbling block inimplementing anti-fraud technology."

Understanding what is transpiring in a network and theconnectivity of claimants to other people, places or things that acompany has either already successfully processed or investigatedfor fraud is critical. SNA provides that ability by illuminatingwhat might otherwise go undetected.

The bottom line

Insurance companies are in the business of protecting againstrisk. Part of the risk equation involves paying legitimate customerclaims in an expedited manner. Companies that pay fraudulent claimsbecause they aren't armed with all the information necessary tomake informed claims decisions aren't as profitable as they couldbe.

Further, bad claims practices decrease a company's competitiveedge, resulting in lawsuits, reputational damage and diminishedcustomer and shareholder confidence. These issues draw theattention of regulators and may result in expensive andtime-consuming audits.

When it comes to battling fraud, it's critical to have the righttools in place and SNA is an important piece of the anti-fraudpuzzle.

Dan Draz ([email protected])is a senior business solutions consultant at BAE Systems wherehe focuses on financial crime across a number of different industryverticals. Erin Smith ([email protected])is a business solutions consultant at BAE Systems where shefocuses on fraud in the financial crime and insuranceverticals.