Colin Bristow, Fraud & Anti-Money Laundering Specialist at SAS UK & Ireland, looking at the advanced technologies transforming the anti-fraud landscape.
When the world was first gripped by Covid-19 two years ago, it didn’t take long for the cyber-criminals to swoop in.
There were soon warnings of blanket phishing scams aimed at individuals, including employees suddenly working from home, as well as targeted attacks on organisations directly involved in tackling the pandemic. Vaccine research centres became a key target, while the World Health Organisation reported a fivefold rise in cyber-attacks in April 2020.
So serious was the threat of cyber crime that tackling it formed a major part of the UK’s pandemic response.
The National Cyber Security Centre, part of GCHQ, defended the country from over 700 attacks in 2020, and worked with the healthcare sector, scanning over a million NHS IP addresses for vulnerabilities and detecting ‘51,000 indicators of compromise’. While the acute phase of the pandemic has now subsided in many countries, the world remains a volatile place, and the risk of cyber-attacks is ever-present.
It’s certainly a worrying time for insurers, who not only hold highly sensitive personal and financial data but are also in the midst of digital transformation. Although the shift to digital has opened up endless commercial possibilities to firms, it’s also increased the ‘cyber-risks and attack vectors’ that could result in data breaches.
While not confined to the insurance sector, a ransomware attack could bring down entire systems and prevent companies from being able to operate at all, unless they pay the eye-watering sums demanded for their data to be returned.
Another, more insidious, threat directly impacting insurers is that of fraudulent claims linked to phishing scams. Anyone who inadvertently discloses their personal details to the scammers might find their identity is stolen and used to apply for credit cards and bank loans and, in some cases, to make false insurance claims.
Setting the standard
Well-aware that tackling fraud in our connected world is a complex and time-consuming task, insurers have been deploying anti-fraud technology for some time now. Today, 96 per cent of firms have software in place to detect claims fraud, according to research by SAS and the Coalition Against Insurance Fraud.
Since 2014, we’ve seen a steady rise in the percentage using it to detect fraud in three key areas – claims, underwriting and among insiders – and it’s yielding impressive results.
Some 39 per cent of firms we polled reported that just under a third of potentially fraudulent claims referred for investigation came from their automated fraud detection system in 2021, a rise from 20 per cent compared to 2018.
They’ve also moved on from simply using the number of referrals they get to gauge how effective the technology is. Last year, 40 per cent also measured how well it was performing against their loss ratio, up from 15 per cent in three years prior, suggesting that companies increasingly want to see tangible returns on their software investment.
Tackling new threats
Anti-fraud technology is evolving rapidly in response to the growing threat of cyber-attacks and fraud. Demand for artificial intelligence (AI), geotargeting, automation, text mining, predictive modelling and other advanced technologies has jumped in recent years because firms need smarter ways to root out criminals. Our research suggests that 88 per cent of insurers have automated red flag rules in their system as one of their first lines of defence. As many as 80 per cent use predictive modelling too, and two-thirds deploy text mining.
We’ve seen a marked change in adoption rates since our last survey in 2018, with predictive modelling up by a quarter, and text mining rising from a third to almost two-thirds. Furthermore, more than a third (35 per cent) now include photo recognition and analytics in their fraud prevention techniques. As insurers move away from in-person inspections of damage to property, and instead asking customers to submit photos, this technology helps them to determine whether an image is genuine and hasn’t been tampered with, or submitted for other claims.
Another interesting development since 2018 is the emergence of a new category of anti-fraud technology – identity verification. Not only is identity verification a relatively new anti-fraud method, it’s already being used by 40 per cent of firms we polled. This figure is expected to increase, with a further 31 per cent planning to invest in identity verification and authentication technology.
This is a positive step in the fight against criminal activity. With the application of AI, machine learning and anomaly detection, insurers can analyse claims data in real-time and at scale to detect anomalies and patterns that the human eyes would miss.
Barriers to overcome
While the appetite for advanced technologies is clearly there, and adoption has grown substantially, there are still barriers to overcome. Limited IT resources is a challenge for 68 per cent of respondents, while integration and data quality is another problem.
Yet despite the spike in cyber-crime and insurance fraud during Covid, the pandemic has not pushed firms to adopt new technologies as quickly as expected, and it could even have put the brakes on spending and implementation for some. Uncertainty in the market has perhaps led some to put major projects on hold and as many as 68 per cent said that their budget would remain the same in 2022, as it had in previous years.
Implementing any new technologies requires an investment of time, money and skills but the cost of cyber-attacks and false claims, not to mention the reputational damage caused, means that fraud detection tools could pay for themselves many times over. The sophisticated nature of modern-day scams means insurers need to leverage advanced technologies sooner if they’re to successfully tackle fraud. Of course, if insurers want reassurances that this technology will deliver value, they only need to look at how well it’s performing for those already using it. Our research shows that nearly half (48 per cent) reported more referrals and 55 per cent saw higher-quality referrals.
The drop in excessive false positive and negative rates since 2018 should also give them confidence in the accuracy of the results.
Final thoughts
As everyone knows, fraudulent claims not only cause damage to businesses but also impacts policyholders who invariably see their premiums rise to make up for insurers’ losses. With the UK experiencing a cost-of-living crisis at the moment, firms have a responsibility to ensure costs aren’t passed onto the consumer.
Anti-fraud technology is now smarter than ever but with criminals also getting smarter, the industry must arm itself with the latest advanced technologies to identify and predict suspicious activity early on.
For more information please visit: https://www.sas.com/en_gb/industry/insurance.html
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