This Insights piece is by Leonie Belz, (pictured) Payments Product Manager at global payments platform, Vitesse. It looks at how more accurate, and real time data on payment transfers, can help insurance brands prevent fraud. Plus enhance their consumer reputation via increased levels of trust.
The news is ripe with cases of fraudulent insurance claims, premium diversions and stolen reimbursements. According to Stacey Giulianti, co-founder and chief legal officer for Florida Peninsula Insurance Company, 30 cents of every claim dollar is lost to fraud.
In some cases, it starts with shady contractors. Giulianti states that contractors that claim old home damage as something attributable to a new event, such as a recent windstorm, are conning insurance companies into covering normal wear and tear on homes.
At other times fraud creeps in when public adjustors enter the picture. Giulianti says that adjusters have been known to exaggerate claims to receive more money from the insurance company. Adjustors then work with unscrupulous contractors to pocket the excess cash.
However, fraudulent acts aren’t always aimed at the insurance company alone. Consumers have also been victims of insurance fraud. Sometimes, it’s the person a customer should trust most that perpetrates criminal activity. The FBI reports that premium diversion is the most common type of insurance fraud. Agents collect funds from consumers but never pass them on to the insurance company, leaving the customer without the coverage they rightfully purchased.
If that isn’t bad enough, other schemes directly intercept claims payouts from unsuspecting customers. One of the more notorious cases involves Alex Murdaugh, an attorney in South Carolina.
Murdaugh was charged in October of 2021 with obtaining property by false pretences after his long-time housekeeper, Gloria Satterfield, suffered a fall at his residence and eventually died. Attorneys for Satterfield’s heirs claim that Murdaugh stole $2.7 million in life insurance proceeds by diverting them to a fictitious company called Forge.
Defrauding the Consumer Pocketbook
While most insureds won’t experience insurance fraud at the high-profile level of the Murdaugh case, the average consumer does face ordinary dangers during insurance transactions. As demonstrated, perpetrators of fraud are targeting the purchasing process, but claims are equally at risk. That’s because paper checks remain the primary method for claims disbursements.
Schemes begin when mail is stolen from public or private mailboxes. Thieves can then fraudulently cash insurance reimbursement checks by editing details—such as the payee name—using methods that are virtually unnoticeable by receiving banks. According to the Evidence-Based Cybersecurity Research Group at Georgia State University, mail-related check fraud is on the rise.
Incidents of fraud are having a real-world impact on customer and insurer relationships. According to the FBI, insurance fraud schemes cost the average U.S. family between $400 and $700 a year in increased premiums.
Rising premiums damage consumer trust. In fact, 42 per cent of Canadian consumers say they don’t trust insurance companies, an industry number that has hardly budged over the last decade. Unfortunately, Canadian insurers are not alone as consumer trust in the insurance industry remains low across many developed nations.
How insurers can build trust
Recent reports indicate that consumers’ lack of trust in the insurance industry stems from a number of factors. One is a dearth of clarity surrounding coverage. Consumers consider policies to be rife with jargon. The result is a customer that rarely understands the coverage they purchase.
Consumers also want more clarity around pricing. How an insurer arrives at a premium is shrouded in mystery. As fraud cases cause premiums to escalate, consumer distrust also increases. While simplified policy language and greater transparency regarding pricing can help to improve customer trust in the areas stated above, insurers must still address concerns around claims reimbursements and fraud.
Automating claims and payments can reduce reimbursement theft and also enable faster payouts, but consumers are not always willing to trust online and digital processes. Gaining consumer trust then becomes a two-fold proposition, one in which the insurer must change its public perception while also demonstrating a high level of digital competency.
Fortunately, there are several steps that insurers can take to reassure customers and build trust. The first involves data and transparency. Sixty-nine percent of consumers are willing to share data if it leads to more personalized experiences or reduces premiums. Insurers who utilize consumer information to customize insurance and provide affordable options demonstrate that they are taking this message to heart.
Establishing strong security measures when handling payment and banking details is also critical. That means an insurer needs high-security protocols and visibility when funds are being managed and transferred. If a customer inquires about a claims reimbursement, and the insurer can’t locate where the payment is in the system, the customer will automatically feel distrust.
On the other hand, when the insurer has complete visibility into the payments process, they can pass that same level of confidence onto the customer, building trust through enhanced transparency and a track record of success in safely delivering claims reimbursements.