Insurance fraud is soaring around the world, with a study by The Coalition Against Insurance Fraud (CAIF) last year indicating that insurance fraud in the US alone costs consumers $308,6-billion yearly.
Zurich UK, one of Britain’s biggest insurers, said the number of fraudulent property claims from 1 January to 31 May last year was 25% higher than in the same period in 2021. During the five months, the insurer prevented fraud totalling £4,2-million – up from £3,3-million in 2021.
In South Africa, the Association for Savings and Investment South Africa (ASISA), said life insurers detected 4 287 fraudulent and dishonest claims worth R787,6-million across all lines of risk business in 2021. This was a significant increase over the year before, and a trend that threatened to impact both insurers and policyholders in the long term.
However, fraudulent life and disability claims are not the only insurance fraud schemes on the rise, says Louw Hopley, founder and CEO of insurtech platform Root.
“Fraudsters are becoming increasingly cunning and innovative in their efforts to defraud insurers across the board. Recently, the Passenger Rail Agency of South Africa (Prasa) uncovered fictitious personal injury claims dating back as far as eight years, to the tune of around R9-million. The Road Accident Fund reports that it sees a substantial number of fraudulent claims, with culprits charged with involvement in fraudulent claims totalling as much as R18-million.”
Fraud is committed in various ways, including by using ID numbers gathered from unemployed people; by failing to check claims against accident and medical records; by processing policies taken out on people after they were deceased; or even by going so far as taking out life policies on people and murdering them in order to claim.
Hopley notes that while due diligence and compliance with well-established policies would mitigate these risks, insurtech offers a range of tools to help counter insurance fraud and corruption within insurance systems.
“Advanced technologies can highlight anomalies, limit permissions, access third party data sources – and therefore the risk of internal fraud – and allow insurers to make sure all checks and balances have been addressed in processing claims,” he says.
The Insurance Crime Bureau appears to support the use of digital technologies to help combat fraud, stating in its 2022 annual report that digitisation and data trending would contribute significantly to efforts to combat fraud in insurance.
Four key areas where insurtech helps mitigate fraud risk include:
* Know your customer (KYC) – Knowing without a doubt who your customers are is crucial in ensuring compliance and mitigating the risk of fraud. “Customer bases that are already FICAed and then accessed in a safe environment via insurtech APIs, or made accessible via a compliant insurtech platform, support KYC and help prevent fraud,” Hopley says.
* Verification – Insurtech can accurately verify claims details to offer a better customer experience while also reducing the risk of fraud. With embedded AI, it can identify forged and staged photographs and attempts to inflate damage estimates.
* Anomaly detection – Advanced analytics and AI technologies help organisations to detect anomalies and identify red flags faster. They can also carry out social media analysis and AI-powered image analysis to better identify fraud attempts.
* Preventing internal fraud and corruption – Insurtech is crucial for helping address losses incurred through internal fraud and corruption. With AI and ML to uncover fraud patterns and flag anomalies and suspicious transactions, insurtech can identify and block improper payments, Hopley says.
Hopley notes that while insurtech offers a plethora of compelling features to improve insurance processes and reduce the risk of fraud, not all insurtech is equal.
He says: “Organisations need to be sure the technologies they bring into their environment don’t end up adding to complexity and slowing down processes. They should be fit for purpose in the insurance sector specifically, they should be easy to use, and they should have APIs that make integration simple. Ideally, insurtech providers should also be ISAE 3000 (SOC2) compliant.”
This voluntary compliance standard for service organisations, developed by the American Institute of CPAs (AICPA), assures customers of the highest quality and most secure insurance software, with properly designed security controls in place to protect client data, he concludes.