New insurance report: Real time data is a very big asset in fighting fraud

In a recent study by FRISS, a global implemented AI powered fraud, risk and compliance solution provider for P&C insurance companies, the challenges and opportunities facing insurers in their efforts to combat fraud throughout the entire policy lifecycle are highlighted.

The study gathered input from over 400 insurance professionals worldwide and provides insight into topics such as fraud schemes, data challenges, process automation and more.

Respondents have differing views on the challenges and benefits of fraud detection software solutions. The common theme is the data challenge; from underwriting to claims to special investigations. The difficulty is harnessing data to respond quickly when fraud is detected.

FRISS’ past biennial surveys indicate that insurance professionals have struggled with inadequate data – either poor-quality internal data or limited access to external data sources.

Highlights of FRISS’ 2022 Fraud Report

Key findings of the fraud study include:

The Pandemic accelerated digitalization

COVID-19 will have a lasting impact on insurance because it has accelerated digital processes. According to EY and Aite-Novarica, insurers must address their technology debt by digitizing core processes, migrating to the cloud and embracing flexible sourcing models.

Insurers are using a multilayered approach to minimize their risk of fraud, and improving protection at the front door at underwriting is definitely an area of focus. However, insurers also are better positioned to take advantage of digital tools to combat fraud end-to-end.

Fraudsters remain creative

Exactly how much fraud impacts the industry is hard to pinpoint, however according to the Coalition Against Insurance Fraud, in the US alone, fraud steals at least $80bn every year from consumers. Creativity and persistence in claims fraud is a serious threat for insurers.

Fraudsters continue to perpetrate schemes against insurers and inevitably work to exploit emerging system gaps, continuing to drive up the cost of insurance for honest consumers.

For 41% of respondents, keeping up with fraudster modus operandi was their greatest challenge in responding to fraud. The top fraud schemes that saw an increase in popularity are claiming false injuries, nondisclosure of relevant information and staged accidents.

The industry agrees fraud accounts for about 10% of all claims cost. However, one change since the prior survey is an increase in the percentage of claims suspected as fraudulent.

In 2021 the suspicion of claims containing a potential element of misrepresentation or fraud rose to 20% – a rise predicted by FRISS in the previous report.

Data crucial in fraud fighting

Having the right data in the right place, in real time, is essential to improving fraud detection.

With many insurers utilizing digital processes for almost all of their operations, the ability to see real-time data identifying potential fraud is hugely beneficial across the policy lifecycle – from first-party policy requests, to underwriting, and of course as claims are reported.

The difficulty is harnessing timely data to respond quickly when fraud is detected. FRISS’s past biennial surveys indicate insurance professionals have struggled with inadequate data – either poor-quality internal data or limited access to external data sources.

This year, amongst the top challenges in fighting fraud again where data protection and privacy, internal data quality and inadequate access to external data.

Optimization is upon us

The future of fraud detection lies in the use of advanced technologies to support real-time, large-volume, and highly precise modelling for claims and underwriting fraud. Fortunately, respondents do see significant benefits in fraud detection software. These include:

  • Improve loss ratio, cited by 59%
  • Stay ahead of developing fraud schemes, cited by 53%
  • Increase investigator efficiency, cited by 52%

Hybrid work model vital to combating loss

A hybrid approach of human expertise and predictive models will be essential in preventing losses. This will reduce the costs of underwriting and claims handling by removing needless and error prone steps, and enables discovery of suspicious behavioural trends in data.

This not only can augment the results of the existing data, it would give insurers an advantage when identifying the ever-changing fraudsters. Because FRISS believes that when insurance is more transparent and everyone can pay fair premiums that aren’t inflated by the real costs of fraud, businesses and individuals can thrive and achieve their dreams.

More trends can be found in the complete 2022 Fraud Report. Download the full report here.