Insurance Fraud Report
Emerging Trends, Threats, and Risks to the Global Insurance Industry in 2024
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Introduction
"Efforts to fight fraud continue across the globe. Every insurer shares the responsibility to help detect and prevent fraud among its policyholders and claims. And each year, the fight changes as new risks and technologies are introduced.
Insurers are deploying new methods to detect and prevent fraud while still using many traditional investigative measures. But impressions on fraud detection are changing as technology keeps pace and new tools and solutions are introduced.
Changing risks means insurers must change, as well. Solutions that can drive results when it comes to predicting and preventing fraud are crucial. Stay ahead of fraud by facing the challenge with education, tools, and solutions."
Shane Riedman, VP and General Manager at Verisk
Insurance fraud costs the US $308.6 billion dollars every year through higher premiums and elevated medical and legal costs. Broken down further, the FBI estimates P&C insurance fraud to be around $40 billion annually. It is estimated that the cost of casualty fraud adds another $6.8 to $9.3 billion to auto casualty losses every year. For Workers’ Compensation, claim and premium fraud is estimated at $34 billion annually.
Following these numbers, it comes as no surprise that managing fraud within the insurance industry continues to be a global priority for stakeholders in the insurance industry. Insurance costs have been on the rise in recent years due to many different macroeconomic factors — and fraud only adds to the costs. Insurers must do all they can to mitigate and manage fraud in the insurance business.
Fraud Mitigation as a Priority
Respondents were asked to rate the way their organizations prioritize fraud mitigation on a scale from 1-10 (with 10 being the highest response). This same question was asked on our last survey in 2021, as well.
In 2021, respondents rated their organizations' fraud mitigation efforts as an average of 7.7 on the 1-10 scale. In 2023, however, that response was an average of 5.9 on the same 1-10 rating scale. Respondents may have less faith in current fraud prevention efforts due to many different reasons.
Effects of Global Cost of Living Crisis on Insurance Fraud
The IMF reports most countries are still facing elevated headline and core inflation. This drives up the cost of food and energy to even greater levels, putting many people around the world into crisis.
When people are pushed into extreme situations, they may take desperate actions to protect their families, including committing insurance fraud. Motive is one part of the fraud triangle and when people attempt to justify their actions, they may decide to pad an existing claim or fake a loss to defraud their insurer.
69% of respondents felt there was a rise in staged claims resulting from the global cost of living crisis. Other issues like an increase in exaggerated claims and new innovative fraud schemes also were significant considerations for respondents. Interestingly, 10% felt there was no change in fraudulent claims based on this factor.
The Effects of Natural Catastrophes on Fraud
We asked respondents about how natural disasters in their regions affected insurance fraud, with interesting responses. Across the world, 63% felt fraudsters took advantage of the higher volume of claims reported after natural disasters. 62% had seen exaggerated claims following catastrophes, and 49% of respondents noted new fraud schemes developing in the wake of natural disasters.
Some regional differences exist in how respondents viewed the effects of natural disasters on fraud. For example, in the Netherlands 18% of respondents did not think natural catastrophes had an impact on fraud, but they see new fraud schemes developing after disasters. In Spain and LatAm, 16% of respondents did not see fraud impacts from catastrophes. One possible explanation is that fewer natural disasters on a grand scale have affected these regions as compared with other parts of the world, which could make fraud related to disasters seem insignificant.
During catastrophic events, high frequency, low severity claim scenarios like food spoilage, vandalism, and theft losses may be exaggerated. These claims may be handled by less experienced adjusters — or simply overwhelmed adjusters working cat duty — and fraudsters know a percentage of these fraudulent claims will be paid.
63%
Felt fraudsters took advantage of the higher volume of claims reported after natural disasters.
62%
Had seen exaggerated claims following catastrophes
49%
Noted new fraud schemes developing in the wake of natural disasters
Awareness of the Consequences of Fraud
We asked respondents if they believed people in their country were aware of the consequences of committing insurance fraud. Globally 61% of respondents do not believe people in their country are aware of the consequences.
Some of the reasons respondents speculated that people lack awareness of these consequences included general ignorance of the impacts of fraud, a lack of communication from the insurance company or the regulatory agency about the consequences, and moral justifications about insurance companies having excess resources that policyholders are entitled to.
Some US and Canadian respondents felt the repercussions of committing fraud in their respective countries were not serious enough to act as deterrents. In other localities, respondents felt insurance fraud was considered a trivial matter, even by prosecutors.
Percentage of Applications Containing Fraud
Underwriting applications, MTAs, and renewals in their region contain some element of fraud
31%
21%
4%
31% of respondents believe it's between 6-10%
21% put that number at 1-5%
4% of respondents feel the number is below 1%.
Percentage of Fraud Detected in Applications
49%
12%
49% of respondents believe the percentage is between 1-5%.
12% put that number at 6-10%
Ways to Prevent Fraud
There are various methods and applications in use today to help detect and prevent fraud at all levels of the insurance lifecycle. Some of these include human intervention, such as through employee awareness of red flags. Other ways to detect and prevent fraud include through technical means, and by using technology to help identify and mitigate fraud.
Preventing Application Fraud
Companies across the globe are implementing tools to help prevent application fraud. About three-quarters of respondents confirmed their companies have implemented fraud prevention training (78% of respondents), have underwriting guidelines (65%), and have a process in place to analyze claims history (75%) to help prevent application fraud.
49% of respondents also deploy other fraud prevention efforts like identity verification and 53% use document verification. 39% of respondents reported using some form of machine learning or AI to detect application fraud. This is an area likely to continue growing as more technology becomes available, but current limitations to the technology and availability could be limiting its use. More education on how AI can help to prevent application fraud could help its adoption rates.
Results of Efforts to Prevent Application Fraud
When asked about the results of application fraud prevention efforts, most respondents (70%) agreed that increasing company-wide awareness of fraud schemes was the top result. This correlates with the fraud education and training efforts reported by most respondents as their top prevention method.
Preventing Claims Fraud
Similar to preventing application fraud, the majority of respondents (82%) noted their firms relied on fraud awareness training to help prevent claims fraud. About half of the respondents said they also used tools to match data and cross-reference information, along with mining social media and analyzing claimant behavior. Only 4% mentioned having no mechanisms in place to prevent claims fraud.
Results of Efforts to Prevent Claims Fraud
More than half of respondents (60%) said that increased awareness was a positive result of their efforts to prevent claims fraud, which correlates to the fraud awareness training programs the majority have implemented. About half (48%) of the respondents felt the quality of their referrals to SIU had improved while 40% agreed that they had noted efficiency gains since implementing claims fraud prevention mechanisms.
Fraud Prevention and Detection Platforms
Respondents were asked several questions about their fraud prevention and detection platform, starting with whether they have one. 35% of respondents reported using an external solution and 28% had a homegrown solution. 28% of respondents reported having no solution in place at all, and about 5% relied on point solutions to fill their needs.
35%
28%
28%
5%
35% of respondents reported using an external solution
28% had a homegrown solution
28% reported having no solution at all
5% relied on point solutions to fill their needs
The debate continues between building or buying a fraud detection and prevention platform. Building a homegrown solution can be costly, especially if the firm does not already have IT teams and technical resources in place. Beyond the initial build, the firm must be prepared to maintain and update the solution, which can become time-consuming.
Buying a solution has become a popular option for many firms because most solutions are configurable and affordable. Some can be implemented and deployed much faster than building a system, with little maintenance effort since updates come directly from the builder.
The fact that 28% of respondents reported they do not have a fraud prevention and detection platform in place shows the gaps that exist for many firms. Detecting and preventing fraud at the application level and through the claims lifecycle is imperative for any insurer, regardless of size. Fraud costs insurers and policyholders time and money, which means investing in efforts to mitigate fraud is critically important.
Since many firms are already educating their employees about fraud detection and awareness, deploying a platform to help identify potential signs of fraud sooner in the claims or application process may be the next step in fraud mitigation efforts.
Satisfaction With Fraud Detection and Prevention Platform
Following up on our last question, we asked respondents who have a platform in place to rate their satisfaction with their solution on a scale from 1-10 with 10 being the highest response. The average responses ranged from 5.3 – 7.6. This shows there is room for improvement, even though some respondents are quite satisfied with the solutions they have in place.
Technical Solutions in Place to Detect Fraud
Various technical solutions have been deployed by respondents in an effort to fight fraud. The most common method, reported by 64% of respondents, is the use of automated red flags through business rules. The next most popular technical solutions included predictive models, image analytics, and data visualization to detect anomalies, all used by about 30% of respondents. Some respondents are also using text mining, social media analysis, video analysis, and voice analytics in their fight against fraud.
Interestingly, an average of 19% of respondents confirmed they use no technical solutions to help detect, prevent, or mitigate fraud. This could be due to a lack of awareness of how these types of tools can help when deployed along with an employee education program.
Some of the tools being used by respondents have changed over the last few years. For example, more insurers are using image analysis now (32%) compared with two years ago with only 21% were using the technology. Similarly, data visualization is now used by 30% of respondents compared to 16% two years ago. An average of 25% of respondents now use geographical data mining compared to 8% just two years ago.
These changes may signal how companies are diversifying their fraud prevention and detection efforts through the use of more technical solutions and tools. As more tools become available, adoption rates may continue to increase.
Tools Used to Track Fraud Cases
Tracking and investigating cases where fraud is suspected is important. Insurers must be compliant with regulatory requirements and continue to provide customer service while investigating possible instances of fraud. This means it is imperative to have a way to track possible fraud cases.
We asked respondents about the tools and processes they employ to track and investigate possible cases of fraud in their firms. Almost half (48%) of respondents use a specific case management system while an average of 42% reported having a core system in place.
An average of 30% of respondents rely on Excel while 25% use a shared drive to track their potential fraud cases. With this many respondents relying on Excel or a shared drive, it raises privacy and data security concerns. These programs are potential weak links for an organization when it comes to security. These solutions also may not comply with most privacy regulations — but having a secure case management solution solves that problem.
30%
An average of 30% of respondents rely on Excel
25%
25% use a shared drive to track their potential fraud cases
Challenges Related to Fraud Mitigation and Management
As important as mitigating and managing fraud is, there are still challenges insurers must face in the fight against fraud.
Greatest Overall Challenges in Managing Fraud
The top concerns centered around data this year. As global data privacy and usage laws have tightened, firms in all industries must take more care with the data they keep, analyze, and share. This challenge is echoed in fraud prevention efforts as insurers struggle to stay compliant and keep data secure and private while also investigating possible fraudulent activity.
Respondents said the biggest challenge they face in effectively responding to fraud is internal data quality, mentioned by 61% of respondents, followed closely by access to external data (53%). Another 40% of respondents mentioned data privacy and protection, so it seems respondents are aware of the shortcomings of not having a dedicated case management solution in place.
Respondents did not seem concerned about budget or resources, as those challenges were the lowest overall percentages. Data quality is a much larger concern this year than in the 2022 survey when only 21% of respondents mentioned it as a top challenge.
2024
61%
Internal data quality
53%
Access to external data
40%
Data privacy and protection
2022
31%
Keeping up with the Fraudsters' modus operandi
26%
Data protection and privacy
21%
Internal data quality
2020
46%
Internal data quality
38%
Data protection and quality
37%
Inadequate access to external data
2018
45%
Internal data quality
34%
Inadequate access to external data
33%
Cooperation with other insuerers
Challenges of Implementing Fraud Detection Software
The top three challenges respondents noted when implementing fraud detection software were limited IT resources, poor internal data quality, and a high number of false positives. Given the respondent's concerns about data quality, it makes sense that a high percentage rated poor internal data as a top challenge when implementing fraud detection software. Without quality inputs, the output cannot be top quality.
The top global concern is limited IT resources, which could be a challenge with a traditional IT build. But now low-code/no-code solutions are available that can be deployed without an expensive or timely IT build. Anyone on the team can make changes and work with the fraud detection software, virtually eliminating the worry about a costly IT build.
Top 3 challenges in implementing fraud detection software:
Limited IT resources
Poor internal data quality
High number of false positives
Improving Fraud Mitigation and Management
We asked respondents what they would like to see their organizations implement to take the next step in fraud detection and prevention. 59% of respondents want to see their organizations implement an automated fraud detection tool. The respondents, who manage fraud every day, see the value in a tool that provides automated fraud red flag detection and management.
Respondents had some other ideas on ways to improve fraud mitigation and management efforts in their organizations, including by exchanging data with other carriers, sharing knowledge between departments, and improving the measurement of fraud metrics.
A full 42% of respondents suggested offering counter-fraud training. While respondents agreed that fraud awareness training was prevalent among their organizations, this suggestion was still mentioned by close to half of respondents, perhaps suggesting that fraud awareness training should be updated and improved to include counter-fraud measures along with awareness.
Benefits of Implementing Fraud Detection Software
Globally, respondents named several benefits of implementing fraud detection software:
Improved loss ratio
Increased portfolio quality
Improved analytics
Staying ahead of developing fraud schemes
Ensuring consistent screening
Improving the loss ratio was named as the biggest benefit of implementing fraud detection software in their organizations, closely followed by increasing portfolio quality. Almost half of the respondents also mentioned improving analytics, staying ahead of developing fraud schemes, and ensuring consistent screening as benefits. There are regional differences, however, as respondents from the Netherlands strongly favored the improving portfolio quality as the greatest benefit from implementing fraud detection software.
Data Used to Detect and Prevent Fraud
We asked the respondents what type of data their organization uses to help detect and prevent fraud. Most (85%) use claim history and two-thirds use claim documents and policy documents, as well. In Spain and Latin America, documented fraud investigations are the most widely used data to help detect and prevent fraud.
Close to 4% of respondents did not use any type of data to help detect and prevent fraud. This surprising answer could indicate a lack of awareness about how using past data can help identify fraud red flags and potential future fraudulent activity.
External Data Used to Detect and Prevent Fraud
We drilled down deeper into the types of external data respondents reported using to help detect and prevent fraud and found that loss history (53%) and vehicle history (56%) were the most common answers except in the Netherlands where fraud lists (71%) are favored and Spain and Latin America where the top response was identity verification (64%).
Fraud Stories From Around the World
Respondents shared the most common fraud scenario they have encountered in the last year, as well as the most unusual. The most common types of fraud were claimants exaggerating claims, misrepresentation, and staged losses. Respondents also frequently listed false statements, identity theft, falsification of medical records, and rate evasion.
As for the most unusual, respondents listed many different policy and claim fraud scenarios, including:
Most unusual fraud scenarios:
Conclusion
"Fraud remains a top priority for everyone in the insurance industry across the globe. Fraud costs policyholders, insurers, and society a significant amount every year, so finding ways to fight fraud is imperative.
As new technologies are introduced to help in the fight against fraud, insurers and others in the industry must also embrace a culture of change to continue moving forward. New technologies can thrive in environments where people learn and grow together with the technology, making the most of both humans and machines.
By combining the latest in fraud prevention and detection software with education and awareness programs, insurers can contribute to the fight against fraud — protecting policyholders, society, and the bottom line."
Jeroen Morrenhof, CEO and co-founder of FRISS
