RGA's Bob Gooderl and Alex Bunte provide practical guidance on how insurers can prevent fraud in policy administration in today's changing and uncertain environment. The COVID-19 pandemic has not only complicated many basic aspects of policy administration, but it has also opened up the door for fraudsters to invade the process. This article is Part III in a series that addresses fraud prevention during the coronavirus pandemic by following the life cycle of an insurance policy – from application and underwriting through claims.
Attention to detail is the mark of any good administrative team. And though it may be an often thankless endeavor, “sweating the small stuff” keeps the wheels of business moving.
For insurers, this means keeping in-force policies up to date and in good order – a task made much more difficult by the disruption of COVID-19. Not only has the pandemic complicated many basic aspects of policy administration, it has also opened the door for fraudsters to invade the process.
COVID-19 and its many social and economic repercussions have changed the game for life and health insurance policy administrators. Consider this: Regulators have adapted guidelines to help alleviate financial burdens for people in economic distress, requiring insurers to offer extra-contractual, extended grace periods during the recovery and work with customers to make late payment arrangements. Predictably, since insurers cannot lapse policies for delinquent payments, the lapse rate has dropped significantly, forcing insurers to adjust assumptions accordingly. Add to this a range of different guidelines from state jurisdictions and the implementation (or reimplementation) of re-opening strategies in different states. Insurers in the U.S. must quickly adapt to these rapid updates, while often grappling with aging legacy systems. This often means choosing between adjusting policies state by state or taking a broader approach involving the same application in all states or a back-end process. Each option presents unique challenges and distractions from ”normal” day-to-day administration.
Social distancing and stay-at-home measures introduce another set of impediments to business as usual by forcing many companies to initiate their Business Continuity Plans during this crisis. Not only is the company’s entire workforce now working remotely, but customers are also quarantined. Gathering information to execute policy updates – from a change of address to a new beneficiary designation – is too often a far more labor-intensive and creative undertaking that involves the re-examination, or even loosening, of existing guidelines to accommodate a request. Obtaining a signed form or notarized signature from a customer has become more difficult. In response, insurers have turned to alternate forms of authentication and are adjusting processes. As countries, provinces, and states proceed through different stages of lockdown, reopening, and then locking down again, administrative operations are a moving target, changing almost daily.
Businesses and industries distracted by these additional difficulties in performing day-to-day functions become prime targets for fraud.
While much of the attention in preventing insurance fraud is focused on the underwriting and claims processes – and rightly so – in-force policy administration should not be overlooked because often it is the primary line of defense against certain fraud schemes. Even seemingly simple updates such as entering new contact information or changing policy ownership can be part of a scheme to defraud or identity theft.
Perhaps the most important consideration is to make sure people are who they say they are. This is easier said than done: Identity thieves have become much more sophisticated in recent years, and the COVID-19 pandemic has opened up holes in defenses that insurers had come to rely on. For any policyholder request, following established due diligence protocols is essential.
Difficult economic times may cause more insurance customers to access the cash value of their policies, by taking out a loan, cashing out an annuity, or through other means. While insurers should, of course, endeavor to serve these legitimate policyholders as quickly and efficiently as possible, care must be taken to guard against fraudsters. If more people are surrendering policies, try to discover why and look for patterns. If a lot of activity is occurring in a specific block of business, investigate whether there is an opening for fraud that is being exploited. Diligent monitoring of in-force business should remain a priority.
As with any stage in the life of a policy, preventing fraud in policy administration comes down to vigilance – especially right now. All processes should be regularly examined and tested to make sure necessary guidelines, training, and controls are in place and have been adjusted for the changing business environment. Attending to the many little tasks that go into maintaining thousands of individual policies – many of which have been complicated by the pandemic – can seem overwhelming, but failure to do so can lead to bigger problems over the long term.
