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Combating Insurance Fraud Amid COVID-19’s Catastrophic Cascade

How Life and Health Insurers Can Overcome a Potential Recipe for Disaster
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The concept of a catastrophic cascade of failures comes from disaster recovery in networks. When one part of a network collapses, the idea goes, other interconnected parts of the network collapse as well, leaving the network vulnerable to complete breakdown.

It works like a food recipe in reverse: While a recipe builds step-by-step to create a harmonious whole, a catastrophic cascade follows a series of destructive steps leading to chaos.

It is a concept that certainly seems applicable to the COVID-19 pandemic and the unprecedented chain of events accompanying its progression. Ironically, this catastrophic cascade – and the uncertainty, fear, even panic it has engendered – is also the perfect recipe for predatory fraud. 

A Feast for Fraudsters

Let’s follow the recipe:

  • Enter a novel virus, severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2), and a new disease, COVID-19.
  • Add a pinch of anxiety. The new virus appears to be more virulent and deadly than the flu. While particularly life-threatening for the elderly, it is also lethal for some middle-aged victims, and sending many to intensive care with severe respiratory symptoms.
  • Bring the economy to a hurried halt. Looking at past pandemics, countries and municipalities embrace social distancing as a means to slow infections. Businesses are closed and people requested or ordered to stay home.
  • Mix in a plunge in confidence. With businesses closed, unemployment skyrocketing, and trade at a standstill, the stock market drops by the highest percentage since Black Monday 1987.
  • Induce anxiety and panic. Amid civil actions to address a pandemic unlike anything seen since 1918, people fear for their lives and livelihoods and those of their loved ones.
  • Top it all off with predatory fraudsters. Seizing the opportunity, these nefarious actors seek to take advantage of vulnerable people and exposed companies through a variety of schemes.
  • Optional: Launch a robust fraud prevention program. Professionals from all corners of business band together to fight off the predators and protect their companies and clients.

It is of course this last step the insurance industry must focus on now. According to recent LIMRA research, four in 10 financial services organizations surveyed between March 27 and April 1 reported an increase in account takeover attacks (12% had a coronavirus theme) and malicious emails (27% had a coronavirus theme) within the last 30 days.

A Taste of What’s to Come

The ideal ingredients for fraud – fear, uncertainty, a “new normal” – are in place and already triggering malicious activities, most noticeably so far in scam calls or emails and phishing schemes. While we cannot identify all the villains, we know they are out there, and we can keep an eye out for emerging targets and proactively anticipate some of the frauds we will see.

Just a handful of likely schemes to keep an eye out for include:

  • Stimulus check-related scams. The FBI has already reported various instances of stimulus check-related frauds.
  • COVID-19 cure-related scams. Everything from promised hydrochloroquine sales to door-to-door testing for COVID-19 “that will be paid for by your insurance.”
  • Retirement fund-related scams. With the market down in a dramatic fashion, retirees are particularly susceptible to financial fraud.
  • Get-rich-quick schemes. With unemployment and job insecurity high, fraudsters will no doubt entice desperate people with the promise of easy money.
  • Fraudulent life insurance claims. Any event that leads to large numbers of deaths can provide cover to various forms of life insurance fraud.
  • Anti-selection. The current environment increases motivation and opportunities for anti-selective behavior, such as attempting to obtain life coverage without routine requirements, applying for coverage without disclosing medical conditions that place the proposed insured at particularly high risk for COVID-19, or simply seizing an opportunity to misrepresent with little opportunity for getting caught.

And that’s just a start. As the crisis evolves and measures are enacted in response, new opportunities for fraud will arise. (Interestingly, pre-crisis frauds may actually be uncovered: It was the 2008 stock market reversal that exposed Bernie Madoff’s Ponzi scheme.) It is essential to remain up-to-date on existing scams, vigilant in identifying new ones, and proactive in anticipating those yet to come.

Time to Get Cooking

Despite the increased risk, I remain hopeful and confident in our industry’s ability to combat insurance fraud. This crisis has already shown the capacity of the human spirit to persevere and demonstrated our collective tenacity when faced with a shared threat. At RGA, for example, I have witnessed our staff putting in the extra hours and working relentlessly with clients to meet unprecedented challenges. And we are not alone. Professionals throughout the industry are educating one another and sharing best practices in an effort to mitigate growing fraud risks.

Collaboration is the key. Only together can we slow the catastrophic cascade and limit the damage fraudsters are just waiting to inflict. It will take vigilance and cooperation, education and safeguards, time and perseverance – and it must start now.

RGA is eager to know what you are seeing and experiencing. Please share your stories with us and with one another. Let’s work to mitigate the fraud risks we see, uncover the risks we are not yet aware of, and anticipate the many risks sure to emerge. Together we can determine how events unfold moving forward.

To learn more about this year's RGA Fraud Conference and to register, visit the conference webpage, and contact us with your fraud and data privacy questions. 


The Author

  • Mark S. Dion
    Vice President
    Underwriting Education and Training
    Send email >


The COVID-19 pandemic has triggered a cascade of fear-inducing events, and enabled predatory fraud, says RGA's Mark Dion. How can insurers fight back? Collaboration is the key. 

To learn more about this year's RGA Fraud Conference and to register, visit the conference webpage, and
contact us with your fraud and data privacy questions. 

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