Agile Technology Is Key to Countering the Cost of Insurance Fraud

20 May 2020 / 5 min read

Even though more than half a million cases of insurance fraud were detected in the UK in 2018¹ (one fraudulent claim per minute), no one expects fraudulent activity to slow down.

It’s an evolutionary battle, and we know that fraudsters look to survive by adapting quickly to stay ahead of the game. This is the painful truth as insurers move toward automation. With many insurers competing to meet today’s digital-first consumer expectations, some commentators are already predicting that fraud cases could double. Delivering a “seamless customer experience” and “shortening the claims life cycle” are common mantras in today’s market.

However, most legacy systems can’t keep pace with today’s customer-centric goals, and insurers may lower their payment thresholds to achieve faster low-touch settlements. Of course, fraudsters will be quick to try to move in and profit from any new opportunity. If insurers are to stay ahead of the curve and counter new waves of change in a digital era, they need more than ever before to adapt—and adapt quickly! They need an innovative approach to fraud detection, one that incorporates emerging technologies, agile solutions, and real-time shared intelligence across claims tools for better analysis and interrogation.

This type of approach is not only expedient but necessary to help insurers keep pace with changing fraud schemes and to overcome system limitations.

Evolving fraud patterns: The legislative impact

Recent legislation, such as the Civil Liability Act 2018 that received Royal Assent last December, could complicate the challenge of balancing fast settlement of meritorious claims with the due diligence of fraud detection. Among other reforms, the UK Ministry of Justice announced plans to raise the small claims limit to £5,000 for road traffic accident personal injury claims.

These types of claims are usually considered low-risk, and insurers often fast-track them. But raising the thresholds on these claims may elevate the risk of fraudsters gaming the system, especially organized criminal gangs that can file several small claims through a large network of conspirators. Eventually, those small settlements can add up and become costly for an insurer.

Existing fraud schemes persist

Despite existing counterfraud measures, organized fraud rings often persist in succeeding with known fraud tactics, like contrived accidents, which still inflict a heavy cost on insurers.

Long-established schemes involving professional enablers, such as doctors, solicitors, and engineers, still persist as well. These fraudsters may abuse their positions and make a sustained effort to disguise the fraudulent nature of a claim and then progress it.

Then there’s the potential for insider threat. This can entail certain insurance employees with an intimate knowledge of counterfraud systems; their thresholds can facilitate fraudulent claims submissions that may remain undetected. Addressing these challenges requires sophisticated counterfraud solutions.

Capability gaps hinder many current antifraud tools

Advanced data analytics can identify many fraud schemes at an early stage of a claim, and most insurers employ some type of counterfraud system. But whether an insurer uses an internal system or a vendor solution, many current tools have inherent limitations.

One common vulnerability lies in legacy systems that may not be fully integrated into all other related systems, creating silos of valuable data. Such systems are especially vulnerable when fraud patterns change. Shrewd fraudsters can quickly identify and exploit loopholes in new regulations because they may have a deep understanding of many of the counterfraud measures and broader claim processes currently in place.

Fighting back with the next generation of fraud detection

Despite the increasing complexity of fraudulent claims and system challenges, there are now solutions on the market that harness the power of the cloud to help insurers deploy advanced capabilities within a short time frame—particularly ideal for insurers with minimal IT capacity, limited budgets, and siloed data.

These new counterfraud solutions use advanced data analytics, configurable rules-based identification, machine learning, and document scanning to help detect fraud patterns. They draw on extensive data sets to discover anomalies, share intelligence between systems, and subsequently flag claims for further review.

It’s important to note that these solutions don’t supersede human expertise; rather, they support “right-touch” claims handling. The technology focuses on delivering advanced capabilities to supplement the knowledge of fraud investigators and claims handlers. By identifying complex patterns, it aids the decision-making process and boosts operational efficiency.

Smooth integration minimizes business disruption

While new, innovative solutions are intriguing, some insurers may be wary of the business disruption from a large-scale digital transformation to overhaul existing claims systems. Fortunately, this need not be the case.

If there’s a capability gap, insurers can avoid the costs and uncertainties of a “rip and replace” approach to counterfraud detection. Much of the next generation of technology has been developed with agility and simpler, smoother integrations in mind.

Cloud-based solutions go a long way to minimize business disruption with easy implementation. The small IT footprint of these solutions can also bring lower maintenance costs, helping insurers’ bottom line.

Prepare for challenges with the right solutions

Insurers that integrate advanced technology into claim processes will likely be best placed to cope with ongoing industry challenges—and react faster to mitigate any potential impact to their bottom line.

Verisk is helping insurers respond to the related challenges by integrating the very latest counterfraud technology into its suite of existing solutions. The initiative effectively creates a central repository of antifraud claims and policy data that enables continuous data washing at every stage of a policy or claim. This feature provides the real-time claims analysis that insurers need to help detect fraud quickly, take action against fraud at the earliest opportunity, and ultimately expedite legitimate claims. The net result will be to help facilitate legitimate claims processing through state-of-the-art, right-touch technology.

Verisk has a strong track record of partnering with various insurers to combat fraud. The company was recognized with the 2018 Tech & Innovation Technology Partner of the Year award for a successful collaborative counterfraud project with a leading UK insurer.

Another example of the success of Verisk’s antifraud technology was its recent work with a major UK auto insurer. The insurer used the solution to carry out a one-off exercise that identified significant levels of internal fraud, exposing schemes ranging from accessing neighbors’ claim details to staged accidents and stealing data. The result: significant savings achieved over a three- to four-month period. The insurer’s HR department now routinely uses Verisk’s solutions to uncover these potential threats.

As the insurance claims landscape evolves, fraud detection methods and solutions must change with it. Embracing agile technology and real-time data sharing and analysis is essential for effective claims management.

1. Association of British Insurers. “UK Insurance and Long Term Savings Key Facts 2018”
https://www.abi.org.uk/data-and-resources/industry-data/uk-insurance-and-long-term-savings-key-facts/