INTRO
Innovation and digitization are disrupting the insurance industry in good ways, setting a new norm that’s enabling the industry to be even more responsive to customers’ needs. Unfortunately, the acceleration of digital processes that began well before the pandemic also provides opportunities for fraud.
Insurance fraud makes difficult business conditions even more challenging. It erodes the capital needed to pay legitimate claims. At a time of economic headwinds, inflation, and other pressures, fraud is effectively an additional tax on every policyholder.
The good news is the industry is embracing technology and artificial intelligence to improve fraud detection and prevention. As a result, the insurance industry will continue to fulfill its mission of protecting individuals and businesses and making them more resilient.
Sean Kevelighan
President and CEO
BY THE NUMBERS
Insurance professionals
took our survey
Countries represented
worldwide
Participants see
fighting fraud as a priority
Of claims suspected
as fraudulent
Conducted fewer inspections
due to COVID-19
Prioritize digitalization
in fraud-fighting
PANDEMIC
Pandemic accelerates digitalization
COVID-19 will have a lasting impact on insurance, in large part because the pandemic has accelerated digital processes. Our prior biennial survey, released in 2020, showed the shift to remote work and digital transactions increased workloads, reduced fraud inspections and resulted in more cases of suspected and proven fraud. While these trends are continuing, insurers also are better positioned to take advantage of digital tools to combat fraud. One change since the prior survey is an increase in the percentage of claims suspected as fraudulent. In 2020, insurance professionals suspected 18% of claims might contain fraud. In 2022, however, that suspicion rose to 20%.
The top changes COVID-19 forced on insurance organizations, according to respondents, included:
• Focus more on digitalization
• Increased checks for suspected fraud
• Reduce costs
• Adjust pricing
• Leverage more data for risk profiling
• Rethink underwriting standards
FRAUD DETECTION
Fraudsters remain creative
During 2021, fraudsters continued to perpetrate schemes against insurers. Some of the most common insurance claim schemes, according to survey respondents, were:
• False injuries
• Nondisclosure of relevant information
• Staged accidents
• Multiple claims for same incident
• Malingering in workers comp claims
Some of the more unusual fraud schemes in 2021 included:
• Roofers causing damage to support full roof replacement
• Identity theft to file unemployment claims
• Self-inflicted personal injuries
• Theft of a food truck that didn’t exist
Accidents unfortunately happen, but respondents found multiple cases of individuals intentionally harming themselves, such as cutting off fingers, to file insurance claims. In other cases, claimants alleged the coronavirus had contaminated their vehicles and demanded insurers pay for a full cleaning. Creativity and persistence in claims fraud is an ongoing problem for insurers. For 41% of survey respondents, keeping up with modern fraudster modus operandi was their greatest challenge in effective responding to fraud. Other fraud-response challenges included data protection and privacy, cited by 37%, and poor internal data quality, 37%.
FRAUD DETECTION
Mixed approach to fraud detection
When it comes to detecting fraud, 100% of survey respondents have mechanisms in place to identify potentially fraudulent claims. But only 62% employ a fraud detection technology solution.
What are the top fraud detection tools among insurance organizations? Respondents listed a variety, including:
74% EXPERIENCE OF STAFF
60% AUTOMATED RED FLAGS / BUSINESS RULES
53% EXTERNAL SOFTWARE SOLUTIONS
47% HOMEGROWN SOLUTION
42% PREDICTIVE MODELS / AI
The least-used tools included:
29% SOCIAL MEDIA ANALYSIS
21% IMAGE ANALYSIS
16% DATA VISUALIZATION / ANOMALY DETECTION
10% TEXT MINING
8% GEOGRAPHICAL DATA MAPPING
DATA
Data crucial in fraud fighting
Having the right data in the right place, and in real time, is essential to improving fraud detection. With many Insurers utilizing digital processes for almost all of their operations, the ability to see real-time data identifying potential fraud is hugely beneficial across the policy lifecycle – from first-party policy requests, to underwriting, and of course as claims are reported.
The difficulty is harnessing timely data to respond quickly when fraud is detected. Our past biennial surveys indicate insurance professionals have struggled with inadequate data – either poor-quality internal data or limited access to external data sources.
The data points on which insurers rely most to identify fraud, according to the 2022 survey, are:
78% INDIVIDUAL CLAIM HISTORY
69% FRAUD CASES
50% POLICY HISTORY
49% CLAIM HISTORY ON OBJECT
48% EXTERNAL DATA
A surprising statistic from the current and prior surveys is a relatively high number of insurance organizations that do not use fraud metrics. 37% now said their organization could improve its fraud-fighting efforts by measuring fraud metrics. It’s hard to manage, let alone mitigate, fraud when organizations do not measure it. Among external data sources, the most popular types used for fraud detection were:
65% LOSS HISTORY
62% FRAUD LISTS
55% VEHICLE HISTORY
52% SOCIAL MEDIA
50% IDENTITY VERIFICATION
50% ONLINE SEARCH
50% SANCTION / POLITICALLY EXPOSED PERSON LIST
TOP 3 CHALLENGES IN FIGHTING FRAUD
31% KEEPING UP WITH FRAUDSTERS MODUS OPERANDI
26% DATA PROTECTION & PRIVACY
21% INTERNAL DATA QUALITY
46% INTERNAL DATA QUALITY
38% DATA PROTECTION & QUALITY
37% INADEQUATE ACCESS TO EXTERNAL DATA
45% INTERNAL DATA QUALITY
34% INADEQUATE ACCESS TO EXTERNAL DATA
33% COOPERATION WITH OTHER INSURERS
SOFTWARE
Challenges and benefits in fraud detection software
Survey respondents have differing views on the challenges and benefits of fraud detection software solutions. Top challenges in implementing fraud detection software include:
56% TOO MANY FALSE POSITIVES
52% POOR INTERNAL DATA QUALITY
41% LIMITED IT RESOURCES
29% HARD TO MEASURE ROI
29% POOR DATA INTEGRATION
On the other hand, respondents also see significant benefits in fraud detection software, including:
59% IMPROVE LOSS RATIO
53% STAY AHEAD OF DEVELOPING FRAUD SCHEMES
52% INCREASE INVESTIGATOR EFFICIENCY
46% IMPROVE ANALYTICS
43% INCREASE REAL-TIME ANALYTICS
CONCLUSION
"We recognize the challenges and opportunities facing insurers in their efforts to combat fraud throughout the entire policy lifecycle – from quoting to underwriting to claims. When insurance is more transparent and everyone can pay fair premiums that aren’t inflated by the real costs of fraud, businesses and individuals can thrive and achieve their dreams. We believe insurance is a beautiful thing."
Jeroen Morrenhof
CEO & Co-founder
About FRISS
We’re an international and fast-growing group of talented people driven by passion, focus and dedication to make TRUST, not distrust, a default setting in the insurance industry. At FRISS, we feel comfortable by being ourselves and we have full confidence in our knowledge & expertise. We continuously invest in people, technology, processes, and epic office parties. This helps us to further develop, sustain and innovate our business.