Fault of Fortune

JYOTI KHETARPAL

Most economies around the world were facing problems at the time of this case. Big corporations were suffering steep declines in revenue, and the service industry was hit hard on the bottom line as turnovers dropped. Management started pressuring their sales teams to meet unbelievably high targets, insurance companies included. Organizational leaders had started resetting their budgets for the next couple of years based on this downtrend, and layoffs were commonplace.

Sean was born and raised in a small town. He had been a below-average student since childhood. He was brought up in a large family and received little individual attention. His family was so preoccupied with meeting their daily needs that his below-average school performance was hardly noticed. He had a chance to get a basic education, and that was enough for him and his family. Neither his academic performance nor his family encouraged him to attain a professional degree.

After he finished high school, he could not find a job anywhere in his hometown, but he had to support his two youngest siblings and his elderly parents. Even the most basic, entry-level positions he applied for had steep competition due to the economy, and Sean's poor grades in school knocked him out of the running quickly. He searched for almost a year before deciding to start looking in towns and cities nearby. Finally his father asked one of his brothers to help his son in the job hunt. Sean's uncle, Oscar, was an insurance policy advisor with the county regulator, and he had a great network of connections in corporate insurance. With his uncle's help, Sean finally landed a job at Credentials, a well-respected insurance company, as an insurance agent for medical policies.

The Ethical Dilemma

Sean was also a below-average performer at work. He was always low on the bell curve and didn't earn performance bonuses. Although he managed his workload somehow, everyone expected him to be the first one asked to leave if Credentials had to lay off employees. So when, as the global economic downtrend worsened, management at Credentials was ordered to reduce its workforce by 100 employees, no one was surprised that Sean's name was on the list. However, his manager, Derrick, knew about Sean's personal situation and felt uneasy about laying him off. Sean had a large family to look after. By that time he had a wife, three kids and two elderly parents depending on him.

Derrick was unsure of what to do. Sean had been hired on the request of Oscar, a senior figure in the industry. Derrick thought of a way out by giving Sean three months to improve his performance as a special case. Derrick set certain monthly goals for Sean to achieve in order to save his job, and he categorically told Sean the implications of not achieving these goals.

After hearing that he had three months to save his job, Sean desperately started chasing clients, but with little success. At the end of first month, when Sean could not meet his first month's target, he got panicky and started to think of unconventional ways to improve his performance. He took a day off to brainstorm. He left his house early in the morning and went to a secluded park to clear his mind and focus on his job, which was not possible at home with so many family members around. When he returned that evening, his wife noticed his expression, which had been troubled when he left that morning, had become calm. He smiled and told her not to worry because he had thought of a way to fix the problem.

The next morning Sean was completely recharged and ready for a day at work. After reaching the office, he piled all of Credentials' policy and procedure manuals on his desk and started reading them in detail while making notes in his personal diary. He also prepared a list of doctors who could refer him to their clients and a list of potential clients from Credentials' database. Then he started visiting doctors.

Sean made a unique proposal to doctors, and they found it hard to refuse. He said that if the doctors would advise their clients to switch their medical insurance to Credentials through Sean, he would ensure their medical claims were approved. The doctors had to make small changes in their diagnoses to make the medical claims fall under Credentials' approved list. He lured doctors with more clientele and promised to share a part of his commission with them.

When he started visiting potential clients, Sean promised them complete health insurance coverage, even if they had certain diseases that Credentials would not cover. The clients not only liked his idea and signed with him but also referred him to many other clients.

Sean's clientele base increased quickly. Many customers moved from other insurance companies to Credentials due to Sean's new approach. He assured clients that, come what may, he would make sure their claims were approved.

The Consortium and Its Needs

To fulfill his commitment to clients, Sean had to create a consortium of doctors. To cover all types of medical claims, he connected with doctors from specialty hospitals to small nursing homes and everything in between.

Sean gained knowledge of approved diseases and treatments through Credentials' policy manuals and then shared the information with his network of doctors to ensure a mutual understanding of what could be billed on their medical claims. He not only advised doctors to manipulate their diagnoses, but he also made his clients get treatment from a few select doctors who were part of his consortium.

Sean had become smart enough to maintain a database of all his clients, doctors and their claims, and he also maintained a timeline of when medical providers could submit claims for smooth sailing.

Sean created a situation that he thought was favorable to Credentials, definitely to its clients and clearly for the doctors. Credentials' clientele grew as Sean recruited more individuals with his incentives. His clients were happy to receive treatment and have their claims approved. Doctors were getting clients through Sean just by manipulating their diagnoses a little bit. As promised, Sean was also sharing a part of his commission with doctors. In few instances, he was even sharing a small percentage of his commission with clients who promised not to present any claims in near future. It seemed like a win-win situation for all the parties involved, but it was impacting Credentials' revenue terribly.

The Reservations

Sean, with the success of his scheme, kept promising his clients unconventional offerings. His performance records were showing drastic improvement. Derrick was surprised by Sean's sudden and extraordinary performance. He not only retained Sean but gave him tougher targets to achieve. Sean was able to meet Derrick's higher expectations, and within one year he earned a high-performance award.

Nevertheless, Derrick had doubts. He reviewed Sean's client lists and number of claims versus policies ratios. Everything seemed in order, but he had reservations. Derrick could not understand how a below-average performer started beating the top performers at Credentials. He noticed that Sean began checking Credentials policy manuals more often, while other employees rarely looked at them.

The Investigation

Derrick had the responsibility of heading his department with integrity. Though apparently Sean's achievement was beneficial for the company, Derrick wanted to be completely satisfied with the process Sean had adopted to achieve targets.

Derrick called me to get my opinion on the situation. I owned and operated an independent consulting and investigation firm and had handled insurance fraud cases in the past. Derrick explained what was going on and his apprehensions about Sean's performance. After few queries, I suggested two steps. First, give Sean the benefit of the doubt because at times people under certain pressure can turn around after performing poorly. Second, make Derrick's most trustworthy employee, Chris, receive training from Sean to better understand his way of soliciting clients. Derrick liked the idea and told me that he would call me later, if needed.

One week later, I got a call back. Derrick explained that Sean treated his colleague Chris well and explained to her importance of visiting clients personally. However, he did not take Chris into his client meetings but made her wait outside. According to Chris, Sean also visited doctors regularly and made her wait outside during these meetings too.

When Derrick asked Sean's reason for leaving Chris out of his client meetings, Sean said he did not like to share his way of interaction. He said Chris was smart enough to overtake Sean in getting new clients if she knew his communication strategies and, if that happened, how could he know his job was secure in the future? Moreover, Sean said he was not mentored and guided by any senior sales associates when he learned how to solicit new clients. Why should Chris enjoy a benefit he didn't get?

Derrick also asked Sean about visiting doctors regularly, but Sean explained it logically. He said out of his targets, he achieved a 60 percent success rate with those who were present at a doctor's clinic or at some hospital for treatment without a policy. He said when someone falls sick and has to pay hefty bills, they realize the importance of purchasing a medical policy. Although Sean's logic was acceptable, it raised further doubts. I asked Derrick to send me Sean's resume and his appraisal documents from the past few years. I also requested a list of his clients and details of his approved claims. Derrick provided all the documents and also dug up a list of clients and doctors who were involved in Sean's insurance claims.

My team reviewed the documents and prepared an analysis of Sean's performance over the years. I asked them to support the analysis with his clients and claims data as well. The analysis revealed the expected, sudden spurt in Sean's performance after the threat to his job. The number of claims under him had also increased manifold, while he maintained permissible limits set by Credentials.

We short-listed a few doctors and claimants from the compiled list. After preliminary inquiries, I figured these people would not reveal anything about their relations with Sean. But there was no harm in trying, so I told two of my investigators to speak with a few randomly selected doctors and clients. And as expected, none said anything except “Yes, Sean is a medical insurance agent from Credentials.” The symmetry of responses made us believe that they were scripted.

Veracity Test

My team had prepared a list of the options we had to reach to a conclusion in this investigation, and we organized a brainstorming session to ascertain the best suitable alternative available. We commonly sat down for sessions like this to hash out different plans and collectively decide on the best approach.

While we were running through the options, one of my junior employees, Nancy, peeked in through the conference room door. We generally advise other staff members not to disturb these intense discussions, but she seemed to be in hurry, so I went out to talk to her. She asked me for early leave, and I joked that she should put on some makeup because she was probably going to meet her fiancé. Nancy said that she had to visit her insurance agent to purchase a family medical policy, and the agent just moved up her appointment time. I gave her permission to leave early and suddenly realized what a great opportunity Nancy had just given us.

I asked her not to buy the policy that day as I had better options for her. I dismissed the brainstorming session to explain Nancy's new role in the investigation.

I described our investigation into Sean to Nancy and asked her to contact him for a quote on a similar medical policy. I instructed her to ask for as many benefits as she could get from him while maintaining the confidentiality of the case. I told her if he was convincing, she could even purchase a policy through him and I would reimburse her.

Nancy understood her role. She knew that with her help we could reach a conclusion in the case, and my company was ready to bear complete medical insurance cost for her family because of her contribution. Nancy prepared a spreadsheet of all the options she received from agents from Credentials and other insurance companies. Whereas other agents openly offered benefits to her over the phone, as if they knew the benefits by heart, Sean was more reserved. Nancy was surprised that he did not explain the benefits over the phone but insisted on a personal meeting.

I advised Nancy to be on alert and try to remember verbatim what Sean suggested, because she had to submit a written report on the meeting. Nancy met Sean in the lobby of a hotel to discuss the options. She was blown away by the benefits he offered her.

Too Good to Be True

Nancy said that Sean not only offered discounts from his commission but promised to get her medical claims approved if necessary. He had a list of approved diseases and a strong network of doctors to manipulate diagnoses. While doctors were treating one disease, they were writing claims for another close disease on the approved list to have it cleared smoothly for medical claims. In order to maintain his claims ratio, Sean also manipulated the timing of claims. This way he was able to pass along no-claim benefits to his clients and then have their claims reimbursed by Credentials at a later date, with the help of the doctors.

Nancy said that Sean had the air of a simple, kind man from a small town. She said you would never think he would try to do anything deceptive by the way he carried himself. Sean first presented the various benefits offered by Credentials' policies and then explained the extra benefits of signing a policy with him. Nancy feigned ignorance to the plan, so Sean had to explain the complete process to her.

Sean told Nancy that he had a panel of doctors who worked closely with him, which allowed him to get all his claims approved whenever necessary. Nancy told him that she preferred to be treated by her family doctor. Sean, eager to accommodate, asked Nancy to give him the contact details of her doctor so that Sean could add him to his panel.

I asked Nancy what her family doctor was like, and she assured me that he would never agree to Sean's unscrupulous ideas. I told Nancy not to pursue the case any further with Sean and to take the medical policy from the best suitable agent she liked.

I set up a meeting with Derrick so I could fill him in on the developments. We talked about Sean's unethical approach to signing clients, and Derrick confirmed that it was completely unacceptable under Credentials' codes of ethics and conduct. Unfortunately, we knew that none of Sean's doctors or even clients would divulge anything about the process to us.

On my suggestion, Derrick asked everyone on his team, including Sean, to submit a schedule of their meetings and locations at the beginning of each day for a week as an audit exercise. Derrick then asked a few of his trustworthy agents to relocate some of their client meetings to places where Sean was scheduled to meet his clients, but for the other agents to arrive shortly before Sean would. Sean was aghast at the presence of his colleagues and their potential clients at his designated meeting places. In that week, his performance dropped radically.

After analyzing the data of that week, we decided to conclude the investigation quickly. By that point we understood how Sean had improved his performance, and we had analyzed Sean's personality traits. He had one of those manipulator personalities, and the fear of losing his job did not make him a better or more honest worker; it made him a worse person.

The Interview

Derrick and I decided to speak with Sean directly. We took him to a conference room with closed-circuit cameras. He seemed very reserved at first, until we asked him to tell us how he had improved his job performance. Sean proudly dedicated his turnaround to his hard work and spoke in glowing terms about how his confidence and diligence made him successful.

When we told Sean that we thought there was another angle to the story, he was quiet. He did not expect us to know anything about his scheme. We explained precisely what he offered to his clients and then asked him if such a sales pitch complied with Credentials' ethics and value statements. Sean did not utter a single word.

We asked Sean to accept his guilt, but initially he denied the allegations. He said his jealous colleagues had been spreading lies about him. When we asked why his performance fell drastically the previous week, he could not offer a reason. We told Sean that we knew about the consortium of doctors helping him and had spoken with some of them. When cornered with a few clients' names as well, Sean confessed to the fraud.

Sean told us in detail the method he had adopted and gave us a list of the doctors on his panel. He agreed to help the investigation against the doctors; he knew his career was finished, and it would be better to support the investigation than try to hide his fraud. While the doctors argued that Sean's scheme did not benefit them, Sean provided proof of how he provided new clients for the doctors and evidence of how they tweaked their diagnoses to submit false claims. At the conclusion of the investigation, Sean was jailed for one year. The doctors on his consortiums were suspended for two years each with heavy penalties for breaching their professional code of conduct.

All the pending claims brought up by Sean's clients were put on hold and investigated individually to segregate false claims from genuine ones. Not to our surprise, more than 90 percent of the pending claims were false. Sean's clients who submitted false claims were also charged with fines.

In light of Sean's situation at home, Credentials' management hired his wife to support the family after Sean was let go. Nina was unaware of Sean's fraud and was shocked when she learned about it. Credentials wanted to set an example for their employees, so after Nina passed the test to qualify as an insurance agent, she was promoted from an administrative position to an insurance agent.

Credentials also started a severance fund for future layoffs. Management knew that layoffs were unavoidable, but they also realized the importance of supporting employees in their hours of need.

About the author

Jyoti Khetarpal is an India-qualified Chartered Accountant (CA) with over 15 years of corporate experience with such reputed organizations as Dun & Bradstreet and American Express. Ms. Khetarpal has been instrumental in outlining risk management methodology, analytics and assessment. As the managing partner of bRiskCheck, she is a risk mitigation and management advisor to PEs, venture capitalists, banks, other investors and corporate. She is a regular writer in international publications and a speaker with international organizations.