A number of technologies, including link analysis, text mining, and predictive analytics, are evolving and becoming adaptive to the extent that they now enable insurers to address the increasingly serious threat posed by professional fraud networks, according to the latest research from Ovum. The research firm’s report, “Tackling Insurance Fraud,” contends these technologies can enable insurers to detect and respond to new and constantly changing techniques used by fraud criminals.
Although most insurers have invested in fraud technology to some degree in the past five years, the majority of this investment, while beneficial, Ovum says these have been piecemeal
With a current focus mainly on the claims phase, insurers must reassess their fraud strategies and how technology can now be utilized to combat the growing threat. Customer-interaction points including policy application and underwriting, in addition to claim notification, Ovum pointed out, must be taken into account to improve the effectiveness of fraud systems.
There are several financial challenges — such as the increased pressure on profitability, intense competition set against a backdrop of weak premium growth in most mature markets and the increasingly sophisticated tactics of criminal fraud networks, according to Ovum —making fraud an appealing, and urgent, investment for insurers trying to maintain growth and create competitive advantages.
“The nature of insurance fraud and the technology to combat it are in constant flux and there is no single ‘silver bullet’ technology that can fully address the issue of complex fraud,” said Charles Juniper, principal analyst, insurance technology, Ovum. “Insurers should therefore use a range of technologies within an integrated system as part of a comprehensive strategy to tackle fraud. The increasing pressure to respond to the fraud threat, together with the need to reduce costs and offer a competitive proposition in difficult market conditions, means insurers will invest significantly in these emerging fraud technologies over the next 36 months.”
By definition, deriving an accurate value for insurance fraud is an extremely difficult task, notes Ovum.
The U.K. Insurance Fraud Bureau believes P&C insurance fraud costs $3 billion per year, adding $70 to every policyholder’s premium. While figures vary nationally and between individual carriers, at an aggregate level, an estimated 10 to 20 percent of insurance claims are fraudulent —potentially, less than 20 percent of those fraudulent claims are being detected.
“New approaches are addressing the growing threat from professional fraud networks,” said Juniper. “To date, most insurers have focused their fraud strategies on the claims process. In order to avoid organized criminal fraud, the effectiveness of a fraud strategy can be significantly enhanced by using technology across the entire insurance product lifecycle.”
Insurance Networking News, July 24, 2013