The State of Insurance Fraud Technology – SAS Report
Article Synopsis :
Insurance fraud continues to be a major issue impacting every insurance company and virtually every customer as insurers increase premiums to offset fraud losses. The consensus is that suspicious activity is increasing and the tactics used by fraudsters becoming more sophisticated. The fight against fraud is taking place on many fronts, with insurers leveraging technology to combat opportunistic and organized fraud across all lines of business
‘The state of insurance fraud technology’ by SAS and the Coalition Against Insurance Fraud details insurer use, strategies and plans for anti-fraud technologies. Based on a survey of 42 insurers representing a significant share of the property and casualty market, key findings include:
- 95% of respondents use anti-fraud technology, an increase from 88% in 2012. However, less than half use technology for non-claims functions such as underwriting and internal fraud.
- More than half of respondents say the amount of suspicious activity has increased over the past three years while only two percent say it has decreased.
- Two-thirds of respondents use antifraud technology developed by a software vendor.
- 53%of respondents cite lack of IT resources as the biggest challenge in implementing anti-fraud technology.
- The most cited benefits of fraud-detection solutions include more and better referrals, uncovering complex and organized fraud, and improved investigator efficiency.
- A greater percentage of referrals are coming from automated systems than two years earlier.
- The most commonly used technologies employ red flags/business rules, link analysis and anomaly detection.
- 85% of respondents expect funding for anti-fraud technology to increase or remain the same. Link analysis, predictive modeling and text mining are the top three areas for future investment.
The report discusses the relative effectiveness of traditional rule-based fraud detection techniques in light of advancements in technology enabling more robust approaches. While advocating the use of new digital technologies in fraud detection, the report is forthright about the key challenges insurers face in their implementation, including:
- Limited IT resources
- Excessive false positive rates
- Data integration and poor data quality
- Lack of cost/benefit analysis (ROI)
- Delayed claims adjudication
- SIU cannot handle claims volume
Insurers able to overcome the above challenges will enjoy the following benefits from the new class of fraud detection technologies:
- Higher quality referrals
- More referrals
- Complex/organised fraud discovery
- Improved investigator efficiency
- Increased mitigation of losses
- More consistent claims investigation
- Better understanding of referrals
- Enhanced reporting
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Digital Insurer's Comments‘Hard’ fraud (acting deliberately to defraud an insurer) and ‘soft’ fraud (exaggerations and/or outright lies to pad a payout or reduce a premium) cost the insurance industry $30 billion a year. Since 2007, fraudulent claims have increased year-on-year in every major category.
For years, fraud was considered a cost of doing business borne uniformly by all insurers. But with the frequency and magnitude of fraud increasing, the ability to identify and eradicate fraudulent claims becomes a competitive advantage, especially in price-sensitive lines of business such as personal auto. It’s ultimately the policyholders that pay for fraud and carriers able to minimize it are able to minimize premiums as well.
Forward looking insurers have already started using innovative technologies such as social network analysis (SNA), machine learning, drones, and wearables along with big data analytics to detect insurance fraud in near real-time.
Integrating emerging tools and technologies with conventional methods is the winning combination in the war against fraudsters and the race against peers.
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