After a lifting accident, a warehouse worker submits a claim for a back injury. The forms have been filled out completely, the incident report agrees with the supervisor’s version of events, and the kind of injury is typical for the job. However, a check of the records reveals that there have been two other similar back-injury claims submitted to two different employers in the last three years. Does the adjuster settle the claim by the scheduled date, or is the case referred to the Special Investigation Unit for a more detailed examination? This decision, which is normally made within the first 48 hours, decides whether or not the claim is settled in three weeks or takes three months to resolve.
Claims investigation services were designed precisely for situations like this. Eventually, every claims operation will need a clear criterion stating when a file should move from standard adjustment to a full insurance claims investigation, and that criterion must be based on documented rules rather than on instinct. The National Association of Insurance Commissioners’ Model #901 states that the criteria for referring a case to an SIU must be objective and in writing, not left to an adjuster’s discretion. If the threshold is set too low, the SIU will be overwhelmed with cases while honest claims remain behind; if it is set too high, fraud will go undetected, and in either case the cost will affect the loss ratio. This guide explains what claims investigation services really do, the signs that indicate the need for escalation, and how the process should proceed from the initial intake to resolution.
What Are Claims Investigation Services?
The work involved in claims investigation services consists of the organized activities carried out by an insurer, its in-house Special Investigation Unit, or an external investigative partner when a claim raises a question that cannot be settled by routine adjustment alone; this includes verifying the facts of the loss, checking the claimant’s and the provider’s history, and collecting documented evidence to back up the coverage decision. The more general term for this type of work is “insurance claims investigation”; “claims investigation services” refers to the actual execution of this work, regardless of whether it is carried out internally or by means of a specialist partner.
Not every unusual detail in a claim means it needs a full investigation. Sometimes a claimant may get a date wrong, a detail may not match, or a repair estimate may be slightly higher than expected. In many cases, the adjuster can clear these things up by asking a few follow-up questions. Claims investigation services are generally brought in when there are several warning signs and the claim needs a deeper review. That could mean checking databases, speaking with people involved, visiting the site, or carrying out surveillance rather than handling everything over the phone.
Why Escalation Criteria Matter
Research carried out by Ethos Risk Services shows that complex claims, which require a more in-depth investigation, can use up to 30% of a claims team’s resources while bringing about only about 8% of the premium revenue. It is precisely because of this imbalance that claims investigation services need carefully devised escalation criteria rather than simply making referrals.
The greater risk to notice is under-referring, because any claim that ought to have been referred for investigation but wasn’t ends up being paid out as though it were genuine, whereas the cost of over-referring is less obvious and is more evident in the length of the cycle time rather than in the headlines. According to industry advice from fraud examiner Barry Zalma, the appropriate referral rate is between 3% and 10% of claims. If an operation is running significantly above that range, it is probably bringing clean claims into investigation queues that should have been settled on schedule. The Coalition Against Insurance Fraud has also discovered that 2% of policyholders admit at some point to misrepresenting information to an insurer, and this is one of the reasons why the pressure to escalate never completely goes away.
A genuine return on a well-managed investigation function can be achieved. According to several SIU studies, including one by Ethos Risk, the return is about $10 for every $1 invested in investigation, although this return is based on investigators spending their time only on claims that truly warrant it, not on pursuing every borderline case that could have been resolved by a follow-up call.
The Claims Investigation Process
When a file requires more than a routine adjustment, the defined claims investigation process goes through six steps.
- Initial report and screening: The initial report and screening involve the adjuster recording the loss and then checking it against the standard rules and various database checks, such as ISO ClaimSearch and the carrier’s own record of claims.
- Red flag identification: The adjuster or an automated model identifies red flags such as the policy timing, the claimant’s claim history, inconsistencies in the documentation, or the claimant’s behavior not matching what is described about the loss.
- Initial review: A supervisor or SIU liaison examines the flagged claim and determines whether a single follow-up question is enough to resolve it or whether it needs to be formally escalated.
- Escalation decision: The decision regarding escalation is that if the red flags match the carrier’s established referral criteria, usually involving two or three indicators that are in agreement, the file is sent to the SIU or to an external investigative partner.
- Formal investigation: There is a formal inquiry, and as part of this the investigators collect evidence such as recorded statements, examinations taken under oath where this is allowed, surveillance, reviews of medical or repair records, and background checks on the claimant or the providers concerned.
- Resolution and documentation: The claim is settled, denied, or referred on the basis of legal or regulatory action, and the investigation file is kept in order to back up the decision should it ever be challenged.
At the stage involving the escalation decision, the claims investigation services either provide real value or become a bottleneck, this depending on the clarity of the referral criteria.
When Should a Claim Be Escalated for Further Review?
Since no one red flag is enough to prove fraud, claims investigation services look at a number of indicators in various categories. Most insurance companies only proceed to a formal investigation if they have at least two or three flags that agree.
| Red flag category | What it looks like | Example |
| Policy timing | Loss reported shortly after binding or right before a coverage change | A homeowner’s policy binds, and a water-damage claim follows eleven days later |
| Claim history | Similar losses filed across multiple carriers or employers in a short window | A back-injury claim filed with a second employer within three years |
| Documentation inconsistencies | Mismatched dates, altered invoices, or repair estimates that don’t match the described damage | A repair estimate for damage inconsistent with the reported collision speed |
| Provider or claimant patterns | The same clinic, repair shop, or attorney appears across an unusual share of flagged files | A medical provider linked to several prior SIU referrals |
| Behavioral signals | A claimant who is unusually calm about a large loss, or unusually resistant to a recorded statement | Refusal to schedule an examination under oath without explanation |
| Operational complexity | Multiple policies or carriers tied to one loss, or a catastrophe-driven volume spike | A CAT event generating claims faster than standard adjustment can process them |
Operational complexity does not indicate fraud at all; it is in fact a resourcing issue. A claim can be completely legitimate and yet require investigation-level resources since there are multiple carriers involved or because a disaster has caused a sudden increase in the volume that standard adjusters cannot handle. The criteria for escalation should take into account both reasons why a claim needs a more in-depth review are suspected fraud and operational complexity since a typical adjuster does not have enough bandwidth or the necessary specialized skills to deal with it alone.
What a Full Claims Investigation Actually Involves
Once a claim escalates, claims investigation services draw on a different toolkit than a standard adjuster uses day to day:
- Statements recorded and examinations given under oath, being taken in order to create a formal, sworn record of the loss.
- Surveillance is primarily employed in cases involving injuries to check the seriousness of the disability claimed against the claimant’s real activities.
- Checking the medical or repair record by verifying the treatment or repair history as stated in the claim file.
- This includes carrying out database and background checks, such as those conducted through ISO ClaimSearch, searches of public records, and a review of the claim history with previous carriers.
- The assessment of property, in particular in the case of large-loss and catastrophe claims where the valuation is in question.
- Analyze the provider and the network to see if a clinic, a repair shop, or an attorney turns up more frequently in the other flagged cases.
No method by itself can be used to confirm a case; instead, the investigators compile a file from a number of such sources and use the totality of the evidence to decide whether a case should be covered, and it is precisely because of the quality of the documentation that the difference lies between a denial that can be defended and one that is later overturned or challenged.
Standard Adjustment vs. Escalated Investigation
| Basis | Standard adjustment | Escalated claims investigation |
| Who handles it | Claims adjuster | SIU or specialized investigator |
| Trigger | No red flags, documentation complete | Two or more concurring red flags, or operational complexity |
| Typical tools | Policy review, standard documentation check | Recorded statements, surveillance, database checks, EUOs |
| Typical timeline | Days | Weeks, sometimes longer for complex or CAT-related files |
| Documentation standard | Standard claim notes | Detailed, defensible file built to withstand legal challenge |
Companies that record this distinction and train their adjusters to apply it consistently are able to keep their claims investigation services concentrated on the claims that actually require such investigation, rather than making an excessive number of referrals out of caution. For details regarding how a standard claim is handled during review in the absence of any red flags, see Techsurance’s claims adjudication guide.
In-House Claims Investigation Services vs. Outsourced Support
The insurer almost always retains the decision as to whether or not the claim is fraudulent. What differs is the person or people responsible for the amount of work involved, such as preparing files, making requests for records, carrying out database checks, and reviewing the documentation, since this sort of activity accounts for most of the time spent on an investigation.
| Factor | Fully in-house | Outsourced investigative support |
| Coverage or fraud determination | Made by the insurer’s adjuster or SIU | Stays with the insurer’s own team |
| Records requests and database checks | Compete for the same investigator hours as case decisions | Handled by a dedicated support team |
| Handling claim volume spikes | Fixed headcount, backlog grows during a CAT event | The support team flexes with volume |
| Specialized skills (surveillance, EUO prep) | Requires in-house specialists or outside vendors, either way | Bundled into the outsourcing relationship |
| Turnaround on file prep | Depends on current caseload | Governed by agreed service-level targets |
It is in this context that claims investigation outsourcing and the more general field of insurance claims outsourcing come into play. When an external partner is responsible for claims investigation outsourcing, they generally carry out records requests, database checks, and file assembly, thus allowing the in-house investigators to use their time on interviews and making judgments rather than on paperwork. The same applies to claims processing outsourcing and claims management outsourcing throughout the entire claims file, not just in the area relating to investigation: a specialist insurance KPO partners take on the repetitive, high-volume aspects of insurance claims processing so that the in-house staff can focus on the claims and referrals that actually require a trained eye.
When insurers are choosing a partner to carry out insurance claim investigation services or any aspect of claims investigation outsourcing, they should follow the same level of due diligence as that outlined in Techsurance’s guide to selecting an insurance outsourcing partner, that is, verified insurance-specific experience, written service-level agreements, and a track record of being able to scale up during periods of increased claims.
KPIs That Show the Escalation Process Is Working
| KPI | What it measures | Why it matters |
| SIU referral rate | Share of claims escalated for investigation | Should sit in the 3% to 10% industry benchmark range absent an unusual claim mix |
| Referral-to-confirmed-fraud ratio | Accuracy of escalation criteria | A low ratio suggests thresholds are too loose |
| Average investigation cycle time | Speed of escalated claims | Should be tracked separately from standard adjustment cycle time |
| Overturned or challenged denial rate | Defensibility of investigation files | High rates point to documentation gaps, not necessarily bad decisions |
| Cost per confirmed fraud recovery | Efficiency of the investigation function | Ties investigative spend to measurable dollars recovered |
Monitor the track referral rate and the claims investigation services KPIs according to the claim mix rather than using a fixed percentage. A carrier that writes more workers’ compensation or catastrophe-exposed property will naturally have a different baseline than one that mainly writes standard auto.
Common Mistakes in Claims Escalation Decisions
Even well-designed claims investigation services run into the same operational mistakes repeatedly:
- Depending on a single red flag, a single inconsistency usually does not warrant a full investigation, and the majority of defensible referral criteria call for two or three indicators that agree.
- Lacking written criteria and leaving the decision to the individual adjuster. The NAIC Model #901 has been developed since regulators consider referral standards to should be objective and documented rather than based on instinct.
- The same way that suspected fraud is handled, operational complexity is increased. Investigative resources are needed for a multi-carrier property claim or for a sudden increase in claims caused by a catastrophe for reasons that are different from those relating to a suspected staged loss, and treating both situations in the same way delays the processing of claims that were in no way suspicious.
- Failing to provide the SIU with adequate resources in relation to the number of referrals. If a carrier extends its screening model without at the same time increasing its investigative capacity, it simply shifts the bottleneck downstream.
- Even when claims are cleared, documentation should be omitted. A file that has had an investigation cleared still requires a documented explanation for this, both for audit reasons and in order to counter a later bad-faith claim.
Where Techsurance Fits
Techsurance provides U.S. insurers, MGAs, and TPAs with the operational aspects of claims investigation services, without itself taking over the responsibility of determining coverage or fraud. This involves carrying out records requests, conducting database and claim history checks, reviewing the documentation, and preparing the files for referral to a SIU or for legal support. The aim is simple: return the hours that in-house adjusters spend on routine work. They can focus on putting together files for the interviews and judgment calls that actually require a trained investigator. Those insurers considering insurance claim investigation services, claims investigation outsourcing, or more extensive insurance claims processing support can look at the comparison between in-house and outsourced models on Techsurance’s in-house versus outsourced operations breakdown or see how the overall claims administration process applies to files that are centered on investigation.
The Escalation Decision Is What Matters Most
The technology used for claims investigation services, database checks, predictive scoring, and case management can certainly help, but it is not what makes the process effective. What matters more is having clear criteria for deciding when a claim needs more than routine adjustment. When those criteria are documented and applied consistently, and the investigation team is staffed according to the actual number of referrals, the process works as it should. Claims investigation services can focus on the files that genuinely need a closer look while allowing straightforward claims to move forward without unnecessary delays.
FAQs
What’s the difference between claims investigation services and standard claims adjustment?
Standard adjustment handles cases in which the documentation is complete and there are no red flags; claims investigation services become involved when a claim requires the use of dedicated insurance claims investigation resources, database checks, interviews, surveillance, or examinations under oath, since these things are not part of a routine adjuster’s process.
How many red flags does it take to escalate a claim?
There is no fixed number, but generally the various carriers only proceed to a formal investigation when they have at least two or three red flags that are consistent with each other, rather than doing so on the basis of a single inconsistency.
What percentage of claims typically get referred for investigation?
Industry benchmarks typically place SIU referral rates within the range of 3% to 10% of all claims; therefore, a carrier that operates significantly above or below this range should be examined to see if its escalation criteria are properly calibrated.
Does outsourcing claims investigation services mean giving up control over fraud decisions?
No. The coverage or fraud determination itself almost always stays with the insurer’s own team. What typically moves to an outside partner through claims investigation outsourcing is the supporting work, records requests, database checks, and file preparation that consumes investigator time without requiring the final judgment call.
Why do regulators require documented escalation criteria instead of adjuster discretion?
The NAIC’s Model #901 requires SIU referral criteria to be objective and written down. This protects policyholders from claims being escalated based on inconsistent or subjective judgment, and it gives insurers a defensible record if a denial or delay is ever challenged.
