“Fraud is a challenging problem. Its economic effects are significant- less financially stable and profitable companies, worse public services, diminished levels of disposable income for all of us, charities deprived of resources needed for charitable purposes. In every sector of every country, fraud has a pernicious impact on the quality of life.” As stated in “The Financial Cost of Fraud Report 2015” published by PKF Littleton.
According to the report, expected losses can be up to 6% of operational income. Reasons are found in the increase in computer and app usage and making contact less personal and controllable. Further, greater complexity of processes and systems makes it easier for fraudsters to find their way through the mazes. As an aftermath of the financial crisis, the financial pressure on individuals is high as well, especially in environments where people feel they need to keep up with social standards.
Prevent rather than cure
Although fraud increased in the past few years, so did the efforts to do something about it. Fraud is now taken seriously and is a C-level priority for many organizations. The top level is now shifting focus from fraud detection to fraud prevention. The costs are measured and steps to prevent fraud at the front door are taken.
For insurance, this mainly imposes fraud prevention measures at the claims and underwriting
departments. Traditionally in most companies these departments operate separately from each other to avoid potential conflicting interests. However, cooperation is crucial for optimal fraud prevention. Improved risk assessment at underwriting means less chance of fraudulent claims within the portfolio. Feedback from filed claims to underwriting also helps in gaining insight to potential risks -enabling anticipation to these risks. and a healthy balance between risk, insurance premium and payout.
To accurately work on fraud prevention, it is important that awareness also spreads beyond claims and underwriting departments. In order to fight fraud effectively the fraud approach and policy should flow through the entire organization. Besides C-level commitment, fraud prevention trainings across the organization help. In contrast, fighting fraud in most cases is not yet one of the topics to which the personnel are measured. KPI’s should include anti-fraud targets in order to raise the bar.
Reducing fraud pays off
Fraud is the last great unreduced business cost. Once the extent of fraud losses is known, it can be treated
like any other business cost. Join forces by sharing data, but also by working together on investigations and learn together. Not only internally, but also between organizations. To learn together about the latest schemes, to make sure that the industry stays ahead of the fraud game.
Now is the time to take anti-fraud efforts to a higher level. Insurance companies must focus more on portfolio quality instead of quantity or volume solely. It all comes down to profitable portfolio growth. Why would sincere customers have to bear for the risks brought in by others? In the end, it is also the society that suffers from fraud.
Source: PKF Littlejohn