Opinion: Agile Tech is The Key to Fighting Insurance Fraud

In this piece, Steve Paton, Head of Anti-Fraud Services (EU), Verisk Claims takes a look at how fraud is evolving and how the switch away from legacy systems to something altogether more flexible, and customisable, is the solution.

Even though more than half a million cases of insurance fraud were detected in the UK in 2018, and that’s one fraudulent claim per minute, no one expects fraudulent activity to slow down.

It’s an evolutionary battle, and we all know that fraudsters survive by adapting quickly to stay ahead of the game. This is the painful truth as insurers move towards automation. With insurers competing to meet today’s digital-first consumer expectations, some commentators are already predicting that fraud cases could double. For example, delivering a “seamless customer experience” and “shortening the claims lifecycle” are common mantras in today’s market. However, 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 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 intel across claims tools for better analysis and interrogation.

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

Evolving fraud patterns – the legislative impact

Recent legislation, such as the Civil Liability Bill 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 law establishes new whiplash measures that raise the small claims limit to £5,000.

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

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Existing fraud schemes persist

Despite existing counter-fraud measures, organised fraud rings 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, engineers, still persist as well. These fraudsters routinely abuse their positions and make a sustained effort to disguise the fraudulent nature of a claim and then progress it.

Then there’s the insider threat. Insurance employees with an intimate knowledge of counter-fraud systems and their thresholds can facilitate fraudulent claims submissions that may remain undetected. Addressing these challenges requires sophisticated counter-fraud solutions.

Capability gaps hinder current anti-fraud tools

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

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 have a deep understanding of the counter-fraud measures and broader claims 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 counter-fraud solutions use advanced data analytics, configurable rules-based identification, machine learning, and document scanning to detect fraud patterns. They draw on extensive datasets to discover the slightest anomalies, share intel 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” claim 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.

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Smooth integration minimises 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 is a capability gap, insurers can avoid the costs and uncertainties of a “rip and replace” approach to counter-fraud detection. The next generation of technology has been developed with agility and simpler, smoother integrations in mind.

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

Prepare for challenges with the right solutions

Insurers that integrate advanced technology into claims processes will be best placed to cope with these ongoing industry challenges– and react quicker to mitigate any potential impact to their bottom lines.

Verisk has a strong track record of partnering with insurers to combat fraud. One example of the success of Verisk’s anti-fraud technology was its recent work with a major UK motor 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 neighbours’ claims 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.

 

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