Having the right connections can make a big city seem like a small town. Similarly, mass communication and travel has been making the world a smaller place since the 19th century by enabling connections between large numbers of people over large distances. But that’s nothing compared to how living virtually can make a person’s private affairs someone else’s business — For example, the National Insurance Crime Bureau (NICB), which has signed a deal with a Santa Barbara, Calif.-based firm called Social Intelligence to monitor publicly available online information – such as such as public postings on social media networks, blogs, and message forums – to investigate workers’ compensation fraud.

The NICB has licensed Social Intelligence’s Workbench tool which the vendor says enables investigators to quickly identify, aggregate, and analyze relevant, publicly-available online information as an investigation is being conducted. The tool lets investigators capture all desired content in an easy-to-use report, which can be preserved and accessed at a later time, according to a Social Intelligence statement.

When one considers the NICB’s mission, its acquisition of more powerful tools seems like a good thing. The organization is a non-profit formed by insurers and dedicated to fighting insurance fraud and crime, through its own efforts and in coordination with various law enforcement organizations. And while that is a self-interested mission for insurers, it is also in the interest of the public generally. It is also in the interest of insurers’ policyholders in particular, who pay the price for fraudulent claims in premiums that are significantly higher than they otherwise would be. The FBI estimates that property insurance fraud alone costs the average American family $400 to $700 annually in higher insurance premium.

Workers’ compensation fraud has less impact on the average citizen, but its effect on premiums take an economic toll that affects small businesses disproportionately. Tools such as Social Intelligence Workbench make an important contribution in the NICB’s ability to fight the crime, suggests Brian Smidt, vice president, data analytics at the NICB. “The tool’s real-time identity analytics and report building capabilities enable our investigators and law enforcement partners to do what they do best.”

While the world will be a better place if the NICB’s investigators do their job even better, their use of social media analytics has potential implications for how the general public perceives the insurance industry’s respect for their privacy.

In considering those implications, it’s vital to recognize that none of the information the NICB accesses through Social Intelligence’s technology is private in a formal sense. The company’s Social Media Analytics Engine and Workbench only accesses information that is publicly available. However, that qualification won’t necessarily persuade people that their insurer isn’t “spying” on them. Consider an analogy to the CCTV cameras that are in many locations in the U.S. and even more heavily used in other countries, such as the U.K. What one does in the street is different than what one does behind closed doors, but until recently there was a reasonable expectation that one’s public behavior was not being scrutinized, at least in the absence of disorderly conduct. And in cases where it was scrutinized – say in the case of a private investigator working on a divorce case – the subject of the scrutiny was still likely to feel violated.

Much of people’s virtual activity may in fact be conducted behind closed doors, but to the extent it may find itself in an online space categorized as “public,” it becomes an open book. Some people say that if one has nothing to hide, they shouldn’t mind scrutiny. But more people are likely to think of increased surveillance of virtual public places the way they do about the proliferation of CCTV surveillance: as a Big Brother-like intrusion, a kind of creeping totalitarian vigilance of heretofore personal matters.

Virtual surveillance may be more subtle and less obviously intrusive because of its automated character. But subtlety is part of the problem too. Everybody can see the CCTV cameras. The operations of virtual surveillance are stealthier. They also represent a case of technology getting ahead of psychology and culture. Like squirrels not smart enough to simply get out of the way of an oncoming car, people don’t automatically know how to evade virtual surveillance. Those who have seen pictures of workers’ comp claimants caught doing something they shouldn’t have been able to do may reasonably ask: Who is stupid enough to expose themselves that way? But even very intelligent people can fail to think through the implications of their casual personal communications in channels felt to be more private than they actually are. Consider former Congressman Anthony Weiner, who broadcast compromising pictures of himself on Twitter.

An Issue of Perception

The issue is not a legal one, but rather one of perception and public relations. Prudence requires individuals to be more circumspect about their public online activities than they might have thought necessary. But that itself can cause for resentment. People are put to more trouble, and they may rationally worry that innocent activities could be misinterpreted and require them to defend themselves, potentially at great cost.

But what are insurance companies to do? Fraud is an $80 billion problem in the U.S. alone, not counting what it costs to prevent and punish it. Insurers need to use the means available to them to fight fraud, and as Social Intelligence CEO Max Drucker reasonably says, “Social media investigations are invaluable in preventing fraud, waste, and abuse.”

Social media surveillance presents an example of how the insurance industry’s opportunities and costs are amplified in the Information Age. More data can mean greater precision in underwriting and fraud detection, but more precise pricing won’t benefit every policyholder and more intrusive scrutiny of public activities isn’t likely to win hearts and minds, even as it reduces premiums. The best that insurers can do is to use the tools available to them while working harder at informing the public about the very real benefits of fraud prevention and of the social benefits of insurance in general.