Why is Advanced Counter-Fraud Technology Not Top Priority for All Insurers?
Almost 20% of European insurers don’t use technology to assist with fraud detection. In the US, 53% of insurance companies cite lack of IT resources as their biggest challenge to implementing counter-fraud technology.
Within the insurance industry, fraudulent activity is growing in sophistication and continues apace. The insurance industry and their genuine customers are major victims of these crimes - which include staged motor accidents, identity theft, medical, billing and insider fraud - with losses in the UK alone estimated at €1.5 billion per year. Even those organisations that have already employed sophisticated anti-fraud technology and processes must stay alert, as the threat of fraud is constantly evolving. And the onus is on the insurance companies to constantly monitor and adjust their models and responses in keeping with fraudulent activity.
Despite the ongoing threat, very few insurance companies are investing in fully functional state-of-the-art counter fraud technology and teams. In many cases, companies lack the IT resources to comprehensively invest in these advanced counter fraud mechanisms as much as they would like. In fact, in Europe almost 20% of insurers don’t even use any technology at all to assist with fraud detection. Often the reason for this is historical, as traditionally the different business units dealing with fraud in insurance companies – including claims, underwriting and risk – were kept separate, leading to critical intelligence gaps and leaving suspicious activity and patterns broadly undetected.
This can now be combated with technology and advanced analytics but often requires a seismic shift in operations and mentality, as well as a significant investment. However, fighting fraud does pay and there are many benefits to be had from embracing advanced fraud solutions.
Another hurdle to the detection of fraud, in particular in Europe, is the stringent data protection laws which make it difficult for companies to share information across borders; even a multinational is precluded from sharing information between its European locations! This loophole gives fraudsters a carte blanche to file the same claim with multiple insurers in different jurisdictions without consequence because the two companies can’t share data.
Special investigative units (SIUs)- which work alongside claims departments - have proven very effective in the fight against fraud. In the US, they are required by law in almost all jurisdictions. However their absence throughout Europe is notable, as many European insurers see them as a luxury rather than a necessity.
In an environment in which fraudsters are using high-end technology and making use of loopholes in data protection laws to their advantage, it is critical that insurance companies invest in highly effective counter-fraud systems. The deployment of advanced analytics along with the outsourcing of special investigative units (SIUs) proactively combat fraud, improve business results, and reduce loss while maintaining a positive customer experience. In a survey among European insurers in 2014, 57% of those using analytics had seen “detected fraud” increase year on year compared to only 16% in those with no solution or business rules only.
One of the main keys to success is early detection. By deploying advanced analytics, insurers can be given the capability to detect fraud before unnecessary payments occur and can even in some cases encourage fraudsters to abandon their plans. Analytical fraud models and rules are applied in real time to recognise patterns and halt suspicious activity as early as point of sale. This allows the counter fraud team or SIU to respond quickly to suspicious patterns and invest their time in the high risk transactions that have been identified. In addition, unique analysis capabilities can enable them to build “watch lists”, make deeper enquiries into suspicious activities, build compelling cases and ensure the recovery or denial of payment.
Many fraudsters are already using advanced technology to carry out their crimes, so shouldn’t all insurers be prepared to fight fire with fire? ********************************************************************** Are you interested in being able to quickly distinguish fraudsters from your valued customers? Do you want to reduce the volume of false positive fraudulent claims? Would you like to employ enterprise intelligence to continuously adjust your operations and stay ahead of trends?
For more information on IBM’s counter-fraud solutions, contact Aideen Keenan, IBM Global Business Services DS, [email protected]
Sources: http://www.computerworlduk.com/news/it-vendors/insurers-losing-billions-from-fraud-through-lack-of-technology-3581817/ The State of Insurance Fraud Technology, Sep 2014, Coalition Against Insurance Fraud http://www-03.ibm.com/security/counter-fraud/solution/index.html http://www.globaloptions.com/sites/all/themes/globaloptions/pdf/GO_Pinder_Interview_Post_Magazine.pdf