Identity Resolution Daily

Several recent items in the news highlight the fact that insurance fraud continues to be a drain on society, both in the US and the UK.

In the UK, Legal and Medical reported that four people had been arrested in an insurance fraud scheme that involved staged car accidents, a common technique.

Allianz insurance alerted Merseyside police about a number of suspicious motor insurance claims in 2005. This led to the arrest of three men and one woman. . . . Detective Inspector Alyson Wilson of Merseyside Police’s Force Operations Unit said: “This is an unscrupulous crime that affects the premiums paid by the public and impacts on the whole of the motor insurance industry.”

We previously linked to an article in the Little Falls Times that had this to report about the financial impact of insurance fraud:

Insurance fraud costs Americans at least $80 billion a year. If this illegal activity were a legitimate industry, its profits would exceed Toyota, IBM, Wal-Mart and Microsoft. If measured by sales, insurance fraud would crush Johnson & Johnson, Proctor & Gamble and Coca-Cola among many more of the Forbes Global 2000.

The article goes on to state that “approximately 25 percent of insurance premium dollars going toward the effects of fraud.” In fact, we estimate that the cost of insurance fraud (plus retail fraud) adds up to over $600 per year for every American household, a number we like to call the “fraud tax“. You can bet that if the guys and gals up in Washington D.C. decided to levy a $600+ tax on every household that people might get a bit upset. Yet the fraud tax is hidden in the cost of premiums and the cost of goods so we don’t even notice it. But, believe us, it’s there, and it’s impacting each and every one of us. I mean, what would you do with an extra $600? That’s almost enough to buy two iPhones.

WSAZ.com recently reported on an insurance fraud case that involved arson.

Two Huntington have pleaded guilty to insurance fraud, arson and other charges. The West Virginia Insurance Commissioner says that 29-year old Richard E. Sturgill and 43-year old Jeffery Maynard, entered the pleas in Wayne Magistrate Court back on October 30. . . . The release says both conspired to burn a vehicle owned by Mr. Sturgill on March 18, 2007 and then filed a false insurance claim for the loss. . . . The Insurance Commissioner added, “Automobile insurance rates are affected by criminal acts such as these and we are committed to investigate and prosecute individuals who try and use insurance as a means of personal profit, while other customers pay for their acts”.

When you add arson to the mix, you’re not only costing people money but you’re also risking lives.

From the Little Falls Times article:

[Frank Henry, special investigations manager for One Beacon Insurance] said. “Staged auto accidents and arson can cause innocent people to be killed or seriously injured. Workers’ compensation costs are encouraging businesses to relocate out of state. Insurance fraud is a crime, a crime punishable by law.”

Another recent article in the UK’s Oldham Advertiser cited a new method that the insurance industry is using. It’s called voice recognition analysis (VRA), and it’s based on military interrogation techniques. The VRA systems detect “stress patterns – such as hesitation or changing of answers – in the voice of callers to indicate whether they might be lying.”

VRA is an innovative approach to insurance fraud and would seem to have significant benefits. But with more and more people filing claims online, insurance companies desperately need a way to analyze data, both structured and unstructured, to find suspicious patterns that might indicate fraud. Identity resolution (or entity resolution and analysis as Gartner terms it) provides this capability along with the ability to apply domain specific rules and automatically feed the results back into business processes.

We need to repeal the fraud tax on every American household. Insurers have a responsibility to their customers to use all reasonable means to address insurance fraud. Mihar Pandya, Allianz Insurance Fraud Manager, states it best:

The industry should be united in its efforts in disrupting this activity. In addition to working with the Insurance Fraud Bureau, the industry must continue to invest in its own fraud management strategies in order to remain effective in countering this threat.

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[Daily Post from Infoglide Software] 17 Percent of the Insurance Industry Moves into the 21st Century

“If time is money and insurance fraud is estimated to cost $80 billion a year why don’t more insurance companies use real-time databases?”

InsideUF - To catch a thief: UF research team leads world in study of retail crimes

“‘We’re looking at people very involved in highly organized retail crimes,’ Hayes said. ‘We want to determine the dynamics of these groups. We want to know how they are recruited and trained, where they steal and who bails them out of jail.’”

BTNonline: Industry Voices Secure Flight Concerns

“The government’s latest passenger prescreening program, Secure Flight, is moving toward a final rule, but industry representatives and privacy watchdogs said the Transportation Security Administration first must address concerns about cost, travel supplier compliance and the accuracy of program watchlists.”

BBC World Service: Dirty Money

“The tale may sound far-fetched, too Hollywood to be true, but it’s the life that Ken Rijock lived for a decade. He started his career as a commercial and banking lawyer, but soon became a money launderer. He estimates that he helped launder at least $200 million for approximately 30 clients before finally being caught.”

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“If I can identify [fraud] and get the claimant into the office for an interview within the first seven days, then the perpetrator and his cohorts don’t have a lot of ’skin in the game,’ so to speak.”

That’s Dennis Parker in Insurance and Technology, talking about the insurance industry’s need for speed in identifying potential fraudulent claims. Formerly with Infoglide Software, Dennis is now an insurance marketing manager at SPSS.

Dennis and his team at SPSS use their predictive analytics solution with its advanced statistical and data mining techniques to detect patterns and anomalies and generate predictive models that identify claims that warrant further investigation. Part of SOSS’ automated claims fraud detection platform is powered by our Identity Resolution Engine which has the ability to identify similar identities and relevant relationships. Combined, these two solutions help insurance providers to bring a fraudulent claimant in before too much time elapses.

Why is that important? According to the I&T article, it’s because “most fraudulent claims that are defeated are not denied by the insurer, they’re dropped by the insured. Fraudulent claims are more likely to be dropped earlier in the process because the perpetrator has less invested in the outcome.”

The problem is, according to another I&T story, “only 17 percent of insurers currently utilize advanced IT tools to detect fraudulent claims.” Instead, I&T reports that:

• Almost EVERY insurer has a Special Investigations Unit (SIU)

• MANY use basic scoring algorithms to flag claims

• SOME use real-time databases to look for multiple claims.

If time is money and insurance fraud is estimated to cost $80 billion a year why don’t more insurance companies use real-time databases?

Unfortunately, the culture of the insurance industry still greatly relies on the humans manning the claims departments and SIUs to sift through claims and make the final call to launch an investigation.

“It’s like playing six degrees of Kevin Bacon, but in a much larger scale.”

That’s director Dave Porter of UK-based Detica, maker of information intelligence software, in a ITBusiness.ca article about the perils of too much data shielding criminals from detection. Earlier this year, thanks to speed and accuracy, Detica’s modeling and data analytic solution helped bust 74 people in a organized crime insurance fraud ring.

But as Dave notes that with “most banks and insurance companies such a task is done manually with teams of two to 20 personnel looking sifting through daily transactions and deciding which ones could be questionable and then conducting further investigation. The work could take anywhere from two days to several weeks.”

In the 21st Century, two weeks is too long.

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[Daily Post from Infoglide Software] Resist the Urge to Merge Purge Data

“Mr. Jonas published a great post yesterday comparing identity resolution against match merge, merge purge and list de-duplication systems that is a must-read for the CIOs doing all the hefty lifting in financial services, government and insurance industries. (Note: identity resolution is called “entity resolution” in IBM parlance.)”

GovernmentExecutive.com: Privacy advocates wary of data ‘fusion centers’

Riegle called the initiative ‘a novel and different approach to information-sharing’ and said privacy was a top concern when each center was formed. Wobbleton said transparency is a core part of the mission. ‘We do not want to mess this up,’ he added.”

Washington Post: Patriot Act Provisions Voided

“In a case brought by a Portland man who was wrongly detained as a terrorism suspect in 2004, U.S. District Judge Ann Aiken ruled that the Patriot Act violates the Constitution because it “permits the executive branch of government to conduct surveillance and searches of American citizens without satisfying the probable cause requirements of the Fourth Amendment.”

Leadership Journal: Privacy And Security

Writes Michael Chertoff in the DHS blog: “But what about the tension between privacy and security? Is it true that whatever we do to strengthen our security must be at the expense of privacy? It is not. Our efforts to secure our homeland need not harm our privacy. Rather, in many cases they can actually strengthen it. […] Privacy and security are fundamental rights and we will continue to defend both in our post-9/11 world.”

EFF: “Secure Flight” Returns, Lacking Privacy Protections

“When it enacted the Privacy Act in 1974, Congress sought to restrict the amount of personal information that federal agencies could collect and, significantly, required agencies to be transparent in their information practices. The Privacy Act is intended ‘to promote accountability, responsibility, legislative oversight, and open government with respect to the use of computer technology in the personal information systems and data banks of the Federal Government[.]’ Adherence to these requirements is critical for a system like Secure Flight.”

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Surely you’re aware of Jeff Jonas, identity resolution’s poster boy and first real celebrity. Mr. Jonas is the chief scientist behind IBM’s Entity Analytic Solutions (EAS) and the founder of Systems Research & Development (SRD). He’s a media magnet who’s been featured in CNN, Forbes, Newsweek, NPR, Time and Wired. While he hasn’t quite made it to the cover of People Magazine yet, he was recently sought out by an NBC affiliate in Philadelphia to comment on the plot of the new NBC show Chuck.

Mr. Jonas published a great post yesterday comparing identity resolution against match merge, merge purge and list de-duplication systems that is a must-read for the CIOs doing all the hefty lifting in financial services, government and insurance industries. (Note: identity resolution is called “entity resolution” in IBM parlance.)

For example, when two insurance companies get the urge to merge, they always run into data compatibility issues when they begin to look at the databases they have currently have in place. For claims and underwriting purposes, data synchronization is not a luxury — it’s essential to the daily flow of business.

Back in August when Dutch AEGON acquired the life insurance operations of U.S. investment bank Merrill Lynch in a $1.3 billion in cash deal, our own Glenn Hopkins commented

“Instead of implementing a master data management program, I know that AEGON would be better served — and save lots of capital — if they bolted an identity resolution solution onto their existing architecture. And instead of merging or purging all the identities both companies possess, an identity resolution solution can sift through all the information and keep it all in its native formats for future use.”

The always eloquent Mr. Jonas extends this argument further in his post, Entity Resolution Systems vs. Match Merge/Merge Purge/List De-duplication Systems.

If it’s not too late for AEGON, they should consider Mr. Jonas’ reasons below to avoid a “ground up reload”:

• Batch versus real-time

• Snapshot in time versus perpetually current

• Data survivorship versus full attribution

• Data drifting versus self-correcting

• Single version of truth versus every version of truth

• Outlier attribute suppression versus context accumulating

• Binary list processing versus “n” data source ingestion

• Limited scalability versus massive scalability

Please read the post in its entirety for a full explanation of these points and you’ll see why we agree with Mr. Jonas’ conclusion below.

“Entity resolution systems are best suited for real-time missions where processes require access to the most accurate and most current view of that which is knowable [to the enterprise].”

To conclude this post, we’d like to point out to insurance execs that there are other business applications to consider, as mentioned by Glenn in his post on the AEGON merger last month:

“With mergers and acquisitions, there’s always customer overlap issues in any industry. In the insurance industry, with some customers attempting to defraud insurers by using multiple identities, it’s critical to the bottom-line to cross-reference multiple identity records against not just watch lists but also the following business applications:

• Automated fraud detection

• Underwriting risk management

• Enterprise identity management

• Transactional CRM

• Compliance

• Background checks

• Producer risk assessment”

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[Daily Post from Infoglide Software] Much Ado About Ahmadinejad. But What of the Other 3,100 Iranians in the US?

“Unless you’ve been living in a cave (a real cave, not the wired data center that Bin Laden apparently occupies), you’ve probably seen all the hoopla surrounding Iranian President Mahmoud Ahmadinejad visit to the U.N. and his lecture at Columbia University. Instead of one Iranian who’s hard to miss, perhaps we should be more concerned about the 3,100 Iranians who’ve legally entered the U.S. in the last six years under the Diversity Visa Program (DV)….”

Little Falls Times: Campaign under way to combat insurance fraud

“Insurance fraud costs Americans at least $80 billion a year. If this illegal activity were a legitimate industry, its profits would exceed Toyota, IBM, Wal-Mart and Microsoft. If measured by sales, insurance fraud would crush Johnson & Johnson, Proctor & Gamble and Coca-Cola among many more of the Forbes Global 2000.”

Yuma Sun: Target employee arrested on suspicion of theft of store goods

“As an employee of the loss prevention section, Bratcher said, Reynoso allegedly knew how to disable the electronic sensor that sets off an alarm when someone walks out the door with an unpaid item. ‘I don’t even think they were hiding it in some cases,’ Bratcher said. ‘When the guy who’s watching the (security) camera is the one who’s stealing it … The accomplice would come to the store in some cases while the security guy would … if need be, disable the security system. They would roll stuff right out the front door.’”

Wall Street Journal: Surveillance Showdown

“Would any sane country purposefully limit its ability to spy on enemy communications in time of war? That is the question Congress must answer as it takes up reform of the Foreign Intelligence Surveillance Act (FISA) this week. Privacy activists, civil libertarians and congressional Democrats argue that both foreign and domestic eavesdropping must be subject to judicial scrutiny and oversight, even if this means drastically reducing the amount of foreign intelligence information available to the government, without ever acknowledging the costs involved. It is time the American people had an open and honest debate on the relative importance of privacy.” (Subscription required.)

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[Daily Post from Infoglide Software] Merger Mania Will Slow Down. Or Not.

“So will M&A activity continue its record pace or will it decline? No one knows for sure. What I do know is that whether through leveraged buy-outs or M&A, when two companies come together, there will be massive database compatibility issues.”

PodTech.net: Identity Management in Homeland Security

“Identity management isn’t just about network access anymore. It’s quickly become one of the most important aspects of overall homeland security. In this mini-Webumentary, I talk to several experts about the role of identity management in homeland security and where the technology is going in the future.” [vidcast]

Washington Post: DHS Ends Criticized Data-Mining Program

“The Secure Flight program to screen domestic air travelers was blocked by Congress after it acquired live personal data for testing. That program has since issued a privacy impact assessment, dropped use of commercial data such as personal credit card histories, and will begin tests this fall.”

American Civil Liberties Union: ACLU Demands Shutdown of Unlawful Passenger-Tracking System

“ATS ranks citizens using unknown but inevitably imprecise algorithms and draws from databases with known errors. Even security officials, including the Secure Flight Working Group, have said they cannot determine who will be a threat from the characteristics ATS uses.”

FCW.com News: Info-sharing architecture framework released

“Federal information sharing now has an enterprise architecture framework. The Program Manager for the Information Sharing Environment (PM-ISE) issued Version 1.0 of the Enterprise Architecture Framework (EAF) for the ISE Aug. 30. ‘The vision for the ISE is to create a powerful national capability to share and search terrorism information across jurisdictional boundaries,” the framework document states.’”

Guardian Unlimited: Migrant Cash Is World Economic Giant

“Counterterrorism officials say al-Qaida and other groups are financed in part through informal money transfer networks called hawalas. Governments and the International Monetary Fund have been working to regulate those.”

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By Glenn Hopkins, Director of Financial Services

The headline in today’s Hartford Courant reads Aetna Widening Expatriate Work, with its acquisition of Bermuda-based Goodhealth Worldwide. But with the subprime loan crises making havoc out of everyone’s M&A plans, the headline could well have read, “Last Acquisition of 2007.” But that all depends on who you believe.

Over in the U.K, this cheery headline — UK Mergers And Acquisitions At All Time Record — is offset with a bit of gloom at the end of the article:

“With lender liquidity tied up in the U.S. sub-prime sector, and ongoing extreme inter-bank lending, businesses will be likely to face a brick wall when presenting extension plans to bank managers for the foreseeable future. And with the full extent of the subprime market yet to be clarified, it is unlikely that the situation will change any time soon.”

In the U.S., the Gray Lady points out, “What a difference a credit crunch made. After comprising 47 percent of deal volume in the United States in May, private-equity deals represented a mere 7 percent of overall deal value in August.”

But that’s the private equity market. For public companies, reports AP, “the four-year bull market has enabled U.S. companies to build record cash stockpiles, with Standard & Poor’s 500 components now sitting on about $600 billion. And, sluggish market periods make it more difficult for companies to raise earnings by organic growth alone - forcing them to make acquisitions.”

So will M&A activity continue its record pace or will it decline? No one knows for sure. What I do know is that whether through leveraged buy-outs or M&A, when two companies come together, there will be massive database compatibility issues.

Here’s Dennis Zeleny in Forbes, stating the obvious:

“Mergers and acquisitions activity continues despite the fact that about three-quarters of mergers don’t work out as well as planned. CEOs and leadership teams who do succeed in making mergers work realize one important thing: getting the combined company to function and execute after the deal is done is almost always more difficult than making the deal in the first place.”

Function and execution will be critical for Aetna when they get an under the hood look at Goodhealth Worldwide’s architecture. Aetna will want access to all of Goodhealth Worldwide’s data and if they attempt a master data management program, the capital costs alone could very well push this deal into the three-quarters that don’t work out category.

Instead, I’d recommend that Aetna simply enhance their existing architecture with an identity resolution solution. With an identity resolution solution, there’s no need to merge and/or purge all the identities both companies possess, when you can easily sift through all the information and keep it all in its native formats for future use.

To the outside eye, it appears that all the usual product, personnel and culture issues that can plague an M&A have been worked out between Aetna and Goodhealth Worldwide. According to Martin Garcia, group managing director of Goodhealth Worldwide, “We see AGN’s [Aetna Global Benefits] acquisition of Goodhealth as a defining moment for us. Our respective business models, product structure, market presence, high-quality service delivery and corporate cultures complement each other very well.”

Martin, if there’s an issue with database compatibility as I predict, please send me an email.

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[Daily Post from Infoglide Software] Reverse Money Laundering: When Clean Money Goes Dirty

“Banks have a tough job to do. To stem the flow of dirty money to drug dealers and terrorists, U.S. banking regulators currently hold financial institutions responsible for customers that attempt to turn ill-gotten gain into clean cash. And soon, if a new bill makes its way through Congress, banks will also have to account for “reverse money laundering” — i.e., when clean cash ultimately funds dirty deeds.”

News Leader: Fraudbuster helps keep insurance costs low

“When she first tells people what she does, Gajda faces a stigma from people who assume she’s part of a corporate ploy not to fulfill insurance claims. But eventually, she said, people realize her job actually helps keep insurance costs down. The National Insurance Crime Bureau, a nonprofit group founded by the insurance industry, estimates that insurance fraud costs Americans about $30 billion a year. This equates to $300 in higher insurance premiums for the average household.”

CNNMoney.com: Downey Savings to Strengthen its Bank Secrecy Act/Anti-Money Laundering Program

“Downey Financial Corp. has announced today that its subsidiary, Downey Savings and Loan Association, F.A., has consented to the issuance of a cease and desist order by its federal regulatory agency, the Office of Thrift Supervision (OTS), as a result of certain concerns of the OTS relating to Downey Savings’ compliance with the Bank Secrecy Act.”

Bankersalmanac.com: New survey finds compliance costs remain high for banks

“As anti-money laundering (AML) regulation continues to grow, the cost of conducting KYC checks on new counterparties and dealing with remediation remains a major factor facing banks, according to new findings released today by Bankersalmanac.com. In a survey aimed at people working within the financial services sector, a quarter of respondents confirmed that it takes them a month or more to collect KYC (Know Your Customer) data from other banks.”

CFE2: Organization Warns Stored Value Industry Future Regulatory Actions Will Require Significant Effort

“‘It is clear that the stored value industry is in for a major wake up call. While most stored value products are issued by regulated financial institutions, the majority of marketers and resellers operate largely outside of a regulated framework. These marketers and resellers include both mom and pop operators as well as big box retailers. Given the risks associated with money laundering and terrorist financing, financial institutions, marketers and resellers should anticipate significant regulation in the near future,’ said Jesse Torres, Executive Vice President of TomatoBank, N.A. and Committee Member of the West Coast Anti-Money Laundering Forum.”

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[Daily Post from Infoglide Software] Insurance Companies: Here’s an Easy Way to Save a Half Million Dollars

“If Humana had only had the ability to tap into the data they already had in house, they could have saved themselves from a half million dollar fine, not to mention the bad publicity.”

Christian Science Monitor: Shift in Pentagon’s security-privacy balance?

“While many security experts argue that the amorphous nature of the terrorist threat demands a comprehensive response, they also question the advisability of casting a wide net that infringes on Americans’ privacy rights.”

BloggingStocks: Best Buy (BBY) clerk steals $13,000 in store gift cards

“A sales clerk at the nation’s largest consumer electronics retail chain was arrested recently for using fraudulent credit cards to purchase over $13,000 in legitimate gift cards. The credit cards were actually obtained from another party, but using them to buy gift cards constituted third-degree larceny.”

EDP24: Police target young shoplifters

“We won’t forget and we will tell your future boss. That was the stark warning from police last night to children intent on shoplifting in the region’s retail capital. […] The crackdown - which has already seen shoplifting in the city halve in just two weeks - warns young people that a moment of madness for the sake of a CD, some clothing or cosmetics will lead to an “embarrassing ordeal” and land them with a criminal record.”

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