The insurance industry is undergoing many positive fraud fighting developments. Most organizations are undertaking progressive measures. However, compared to other types of business, it still pays off for fraudsters to commit insurance fraud; as the sanctions are far from a threat (i.e. chances of being caught and the sentences given).
From fraud detection to fraud prevention
If fraud is proven or high risk is determined, the policy gets cancelled in most occasions. Nevertheless, a fraudster is often able to apply for an insurance at a different insurance company at the very same day and could get accepted. To shift focus from fraud detection to fraud prevention requires greater fraud awareness across the entire organization.
A mature organization needs overall support to effectively prevent fraud, not only commitment from C-level or empowerment of the claims and SIU departments. Whether embedded in the internal IT systems or documented somewhere on paper, every prospective insured should be assessed on the risk they bring. After acceptation it is vital to keep track on fraud and prove fraud suspicious cases within the insurance portfolio. By using proactive monitoring of current customers and risk profiles, preventive measures can be taken in time, in case of changing risks.
New risks for new channels
It is vital for insurance companies to be effective in fraud detection. The efforts to map and mitigate risks for the traditional channels are increasing. The approach for a new channel, such as digital, incorporates new risks to cope with. Nowadays, a growing number of insurance companies offers insurance through an online sales channel. It is important to take a close look at the risks related to such a channel. An open door at the underwriting department results in portfolio growth. On the other hand, it means that bad risks, such as defaulters, multi-claimants or fraudsters can easily enter the books. This could later have a negative effect on the loss ratio.
The claims department has to be on track once high risks are in the portfolio. Claims that require further attention or active follow-up should be quickly identified. Investigating ‘false positives’ imposes an investment in time and costs. An essential aid for an effective follow-up could be the deployment of a Special Investigations Unit (SIU), which most insurers have in place.
Quality over quantity
Most insurance companies focus on the growth of their portfolio and less on its quality. It is important to have a clear picture of potential customers before they enter the portfolio. Insurers should decide on the amount of risk they are willing to take in and to have the ability to create pre-determined risk profiles and adjust continuously. This way, insurers keep control over their portfolios and maintain the optimal balance between quantity and quality.
Fraud priority throughout the organization
Looking at the indicated levels of awareness and maturities of the organizations, fraud awareness usually is the highest in the claims department. Underwriting is the runner-up. The gap with other departments is significant. In order to fight fraud effectively, it is critical to establish fraud awareness throughout the entire organization.