In the fight against fraud, insurers face various challenges. One of the problems that insurers identified in the Insurance Fraud & Digital Transformation Survey 2016 is the quality of data. Some challenges are found in the lack of international uniformity in how data is stored and the changing manner of how internal registration systems are used over time. The influence of bias or prejudice should also not be underestimated.
The biggest fraud challenges for insurers are related to data: issues with data protection and privacy (36%), inadequate access to external data sources (36%) and problems with internal data quality (30%).
Insurers’ biggest challenges in effectively responding to fraud (%)
Source: Insurance Fraud & Digital Transformation Survey 2016
Access to external data
Insurers would be able to fight fraud more effectively if access to external databases would be easier. Information from external sources may present a more comprehensive picture, thus providing good and sound arguments for acceptance, rejection or perhaps adapted conditions.
External sources comprise, for example, information from a chamber of commerce, payment morale or payment behavior and claims history, as well as demographic data and vehicle records.
Whether or not it is allowed to use external data varies per country. Looking at Europe, privacy laws are becoming less lenient and the use of external data becomes a more sensitive issue. In Scandinavian countries a credit check is fairly simple, in Norway and Sweden tax returns are even public. In those countries, transparency comes before privacy. However, in Central and Middle Europe privacy of data is stricter.
A more complete picture
Every insurer rightly treasures the information about its clients. Much is known about their possessions, their value, how long someone has owned them and what claims occurred over the past years. When applying for new insurance, external data can complement the picture. Take, for example, solvency, the history of an object (e.g. a vehicle) that is to be insured for the first time, or the claims history with other insurers.
It may well be that an exemplary client with property insurance has quite a different history with his vehicle insurance, including dubious damage claims, elsewhere.
External data in the underwriting process
External sources may be even more important in order to make a good assessment of applications for new clients. Fairly general information can complement the supplied data to present a more comprehensive picture. This might be information about a vehicle, a credit check or demographic data about the neighborhood, such as the degree of urbanization, burglary statistics of the types of homes in the area. Often it is not enough in itself to draw decisive conclusions, but it can point to a certain direction for further communication with the applicant and for weighing the risks.
From fraud detection to fraud prevention
All the acquired information can be put into the insurer’s database and adds value to the internal data. This makes it easier to verify claims, and enables an insurer to prevent fraud and high risks from entering the portfolio; allowing them to approach fraud in a proactive manner.