The insurance industry is modernizing fast in numerous ways. Positive developments of modernization can also be found in the fight against fraud. However, insurers face several challenges in effectively responding to fraud. Some of the insurers have already taken their first steps, while most insurers are starting up their progressive programs. To stay ahead in dynamic times and to be sustainable in the future, 2018 is the time to convert words into action.
Fraud Fighting Culture
A fraud fighting culture is key in order to overcome these challenges. Such culture should be fed by senior management. They should get on the floor and praise the ones doing a great job in actually fighting fraud. Also, they should align KPIs. Claim adjusters are usually measured on speediness of handling a claim and on customer satisfaction. If you also have the KPI of trying to find fraud, how well you do that it means, you have to ask additional questions in the process with the customer. That clashes with other KPIs. If you align those, you can achieve a lot.
Organization-wide employee trainings on, for instance, recognizing potential fraud is also not yet a common practice. Claims departments, underwriting departments, special investigations units should all be encouraged. The lower the engagement in the fight against fraud, the more vulnerable insurers are for potential fraudsters to enter the portfolio. More engagement and higher fraud detecting skills contribute to an approach in which fraud can be prevented rather than it needs to be cured within insurance portfolios. Training will also stimulate cross departmental communications, which helps to spread learnings across the organization.
Prevention in the digital world
The insurance industry possesses huge amounts of data. In order to grow portfolios in a suitable manner it is crucial to use for instance the bulk of data that is available and run predictive analysis over these. Insurers with direct channels and, in particular, those with a digital channel, can so guard themselves against high and specific risks, which is essential to achieve profitable portfolio growth. Most of the times, the focus is on growing the portfolio, whilst the risks that enter in the meantime are overlooked. Data cannot only benefit fraud management during the claim process, but can also be valuable during risk assessment at underwriting. The collected information on the insured persons and objects, the claims, and detected fraud helps in making accurate and objective judgements about risks, trends and the value of policies and portfolios.
When doing so, AI and machine learning techniques will deliver actionable insights in the risks associated with a new customer request. This way insurers can directly accept, reject or accept under customized conditions. When automating this process, straight through processing (STP) could be realized wherever possible, which allows insurers’ operations for underwriting to become significantly more efficient.
Being and staying compliant
Being compliant with ever-changing rules and regulations is always a priority for insurance companies. No financial organization wants to consciously or deliberately cooperate in money laundering practices or even terrorism, and that certainly applies to insurance companies. For insurance applications and claims, it is necessary to check whether someone appears on international sanctions lists or on the PEP (Politically Exposed Persons) list.
Unfortunately, new names are added to the sanctions lists after each terrorist attack or dismantled network. The PEP list is directly affected by political appointments and dismissals. Someone who sailed through screening effortlessly a year ago, may cause alarm bells to ring today. Insuring exposed persons can result in high fines or even cause permits to be retracted. Looking at for instance the upcoming GDPR it is wise to prepare. Not only to be compliant, but to stay compliant as well.
Time for action
It is widely known that payments of fraudulent claims have a negative effect on the loss ratio of insurance carriers and on insurance premiums that are calculated to customers. As more and more insurers acknowledge that fraud should be prevented, those who do not put sufficient effort in prioritizing the fight against fraud are about to miss the boat. As the new year has started, the following good intentions apply to insurance companies: move fraud higher up the priority list; enhance fraud awareness; allocate sufficient investments and, most importantly, create a company-wide approach in the fight against fraud. So, what are your intentions for 2018?