As the insurance sector grapples with all the various impacts of the global pandemic, evolving consumer demand and broader social change, criminals are exploiting those same factors to create ever more sophisticated ways to defraud insurers and their customers.
Before the pandemic, Dennis Toomey, Global Director of Counter Fraud Analytics and Operations for BAE Systems, attended the Global Insurance Fraud Summit. 50 people from 16 countries, with expertise spanning law enforcement, regulation, fraud and insurance crime got together at the event to share their wealth of insight and knowledge, with a view to developing a comprehensive plan to tackle global insurance fraud.
One key result was the identification of five core trends shaping the evolution of fraud within the sector.
“Coming up with an internationally recognised and adopted definition of fraud is the first key step to tackling insurance fraud, and identifying fraud trends is a fundamental part of that,” said Toomey.
“As insurers seek to understand and ultimately clamp down on fraud, it’s crucial that they’re aware of the trends so that they can respond to them quickly and effectively.”
The five key trends:
1. The new era of fraud investigation
Modern fraud is transnational and agile, so the insurance industry can no longer rely on traditional techniques to fight it.
Not so longer ago, fraud investigation was very labour-intensive, with teams on the ground literally going door-to-door to examine cases. In today’s world this process isn’t just inefficient – it’s insufficient. As fraud evolves, so must investigators. It’s time for a new breed of insurance investigator.
Today’s fraud fighters need nuanced skillsets and agile ways of working to be able to identify the scams and tactics modern fraudsters are adopting. But they must also strike a delicate balance because, while investigators need to gather data and build a case that may result in criminal prosecutions, they must also consider privacy implications that are more stringent than ever before.
In the age of GDPR and CCPA, it’s not just a new era for insurance investigation, but a new era for evidence collection and storage too.
A number of questions need to be addressed: how long can you store data? What are the consumer notification requirements? What are the implications for investigations as they relate to data privacy? How can insurers gather evidence while staying on the right side of regulatory drivers?
“The gold standard is intelligent actionable evidence collection, but with the battle for privacy fiercer than ever that’s easier said than done,” says Toomey. “While today’s investigators have more tools at their disposal, they also face more onerous demands and more sophisticated fraud techniques than ever before.”
2. The significance of social media
Today’s investigators must acknowledge the central role that social media plays as a source of intelligence. Mining social media or OSINT (open source intelligence) for information to uncover unknown or additional facts, relationships and connections between entities is already vital to the counter fraud engine of many insurers, delivering greater insight and improved investigation efficiency.
Leading insurers are already placing huge value on social media and OSINT, with many having a dedicated team of social media analysts. But, Toomey says, “while human expertise will always be critical, use of automation and artificial intelligence is accelerating.”
A range of tools exist to automate social media and OSINT investigations, so the challenge isn’t the availability of the technology, but the compatibility and stability of the platform.
There are tools which can sift through data and unearth evidence of potential fraud, crunching data processing time down from days to minutes. API compatibility is also important, to give customers the ability to use any data source and to integrate tools seamlessly into the counter fraud ecosystem.
3. Converging fraud and risk calls for the collapse of silos
Until recently, fraud scams were fairly rudimentary. Fraudsters would steal an identity, create synthetic IDs and execute criminal activity. It was a repeatable, linear and somewhat predictable process.
Today, criminals are more subtle and nuanced in their approach. They might wait for initial surveillance to conclude and then execute their attacks knowing that a previously obtained synthetic ID is less likely to trigger alarm bells. They may stage accidents, perhaps using technology to make their shams appear more legitimate. Or they might use cryptocurrencies to hide payments and transfers.
Insurers need to be particularly conscious of the risk posed by silos. Whether they’re within departments or interdepartmental (between cyber, risk and fraud departments), silos enable fraudsters to execute their scams.
Lack of communication between departments has traditionally been exploited by fraudsters, who know they can conceal information to evade investigators.
“That’s why insurers are now moving to create enterprise-level internal data consortiums or fusion centres within the organisation to embrace a 360-degree view of fraud, breaking down the silos that previously obscured suspicious activity,” says Toomey. “Insurers are coming to understand that they need to manage their data differently to be able to identify and thwart fraud.
4. The crucial role of Consortiums
The value that consortiums offer the insurance industry is increasing. They provide a bird’s eye view of transactions and shine a spotlight on suspicious activity across multiple carriers and lines of business.
The maturity of insurance consortiums varies between regions and countries. Many are already adept at analysing cross-carrier activity and providing invaluable intelligence.
BAE Systems, for example, currently works with three consortiums, bringing data from different financial services sectors to create a comprehensive picture of criminal financing and money laundering.
5. More insurance lines = more fraud variety
As more insurance products are introduced, the opportunity for insurance fraud grows, with both existing and new insurance products under threat.
Larger more established companies entering into these new lines can afford to fight emerging fraud techniques, but smaller niche firms often can’t – and they’re frequently the ones most targeted.
“Staying ahead of the fraud frontiers is a constant challenge,” says Toomey. “The only thing about insurance that doesn’t change is the fact that it’s constantly changing.”
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