The Fraud Detection Threshold

In today's über competitive insurance marketplace, property and casualty insurers must sometimes sacrifice accuracy at the altar of customer service.   Claims handling becomes a process to be streamlined, automated and maximized, especially for large companies.  Such companies make attractive targets for petit fraud, however, because their expedited underwriting and claims processes can allow fraudulent claims of the smaller variety to go undetected.  Smaller particles through a larger sieve, so to speak.  

Perhaps that's what Sidney Edwards of Buffalo, New York, was counting on.   He reportedly:

• took out a homeowners policy on a Kenmore, New York home that he didn't own,
• provided Allstate with a fictitious bank account number for payment of the policy premiums,
• submitted a claim for damage to the home's undamaged garage door,
• received a check -- most likely not to the insured location's address -- from Allstate for $1,600,
• called Allstate to complain that he had not received Allstate's claim payment check,
• received a second check for $1,600 from Allstate, again probably not sent to the insured address, and
• cashed both checks at a local store.

Investigation by the New York State Insurance Department's Insurance Frauds Bureau revealed that the home's actual owner did not know Edwards and was unaware that he had used the address to obtain a homeowners policy.  But consider the opportunity for fraud that presented itself to Edwards:  an underwriting process that did not initially verify ownership; an accounting system that perhaps did not quickly enough flag the policy and submitted claims; and a claims process that did not include an actual inspection of the loss and permitted the issuance of not one but two claim payment checks, presumably sent to other than the insured address, that could be cashed at other than a bank. 

Maybe it was Edwards' greed in requesting a second check that caused Allstate to take a closer look at the claim.  In insurance fraud work, the maxim "pigs get fat, hogs get slaughtered" is often apropos.  Something Edwards did tripped the fraud detection threshold, leading to his eventual arrest.  What I wonder, though, is whether Edwards came up with this idea all on his own, or had he learned of a similar hit and run from someone else? 

Fast, cheap, good.  Can have two but not all three.  In project work, and in insurance fraud detection.