On November 17th FRISS published the report of its “Insurance Fraud & Digital Transformation Survey 2016”. The survey was conducted by FRISS to get direct input on trends, challenges and the current state of the insurance industry. Input was provided by 160+ insurance professionals from 25+ countries.
Current market state
The insurance industry is undergoing many positive developments within both fraud fighting and digital transformation. Most of the insurers questioned for this study are starting to undertake progressive measures, or have already set the first steps. However, in order to stay ahead in dynamic times and to sustain for the future, it is time for insurance companies to convert words into deeds.
Data is biggest fraud challenge
This study indicates that the biggest challenges in effectively responding to fraud are related to data. Protection and privacy (36%), quality of internal data (30%) and access to data sources (36%) require serious attention in the fight against fraud. Moreover, external data sources are perceived as an important aid. External data provides a more comprehensive and objective picture of, for example, an incoming claim or insurance application at underwriting.
Digital transformation: insurance is a follower
Online channels are booming. The majority of insurance companies (65%) offer insurances through an online sales channel. However, online is not about to emerge much further in the next 12 months. If you compare the online evolvement to several other industries, the insurance market is a ‘follower industry’.
Mobile apps mainly used for claims and customer service
The same goes for mobile apps, provided by 53% of the insurers, which are merely used for claims and customer service at this point. At most insurance companies, mobile app users cannot yet apply for a policy through the application (only at 34% of the insurers). Furthermore, 47% of the insurers use predictive analytics. Mainly for pricing and underwriting but it is also well applied to claims and fraud detection.
Telematics not widely implemented
Not yet widely embraced is the use of telematics (25%). This is remarkable, as the topic has a high attention and discussion rate. Insurers use telematics most often for risk-based pricing and to stimulate safe driving behavior. Gaining claim information is not a priority. Using data from telematics to better assess and verify claims is also not a common practice. Might this be a missed opportunity?
Fraud requires both priority and engagement
Insurance professionals value fraud priority with a 7 out of 10 on average. This leaves room for improvement. Claims and underwriting receive the highest fraud priority, but at the same time still lack engagement. Sales and digital departments lack both priority and engagement, which is an alarming signal given the rise of online sales channels. The go-to market strategy and approach of online differs from traditional channels. Online may attract a different kind of audience, accompanied by different types of risk. For those channels, fraud prevention is crucial.
Prevent rather than cure?
Most organizations actively work on fraud management within the portfolio. However, a significant share of the insurers rather prevent than cure as an additional fraud approach. The balance between portfolio quantity and quality is essential for a healthy situation. Unfortunately, covering risks in premiums is common practice for some insurance companies.
Fighting fraud is a manual operation within many organizations (44%). Thus, fighting fraud can be a time consuming and error prone process. Organizations with an automated solution (48%) are usually more effective at fraud investigation by directly recognizing claims that need further attention or require active follow-up. Chances of detecting fraud and limit false positives to a minimum could be higher when detection methods are automated.
It is important for insurance companies to become effective in fraud detection. An essential aid for an effective follow-up could also be the deployment of a Special Investigations Unit (SIU). 65% of the insurers already have such a unit in place. This does not automatically mean that 35% is not involved in active investigation. Insurers could also cover such tasks in current operations.
Fraud concerns the entire organization
Empowerment of the SIU and C-level commitment form the basis for improving fraud awareness and maturing the organization. In order to fight fraud effectively, it is vital to establish fraud awareness throughout the entire organization. Looking at the indicated levels of awareness and maturity at insurers, fraud trainings focus mainly on the claims department with underwriting as a runner-up. The findings show that the fraud awareness gap with other departments is significant (e.g. sales, product, digital, online).
Jeroen Morrenhof, FRISS CEO, states: “Given the amount and diversity of insurance professionals who responded to the survey, we feel that this report gives a realistic overview of the state of the market as it is today. We hope to raise the level of fraud awareness, as this is a key element in supporting an honest insurance industry.”
The full report is available for free. Download it here.