In this Opinion piece, Daniel Marchetti, principal business solution manager, AML & fraud, SAS UK & Ireland takes a look at the rising rate of fraud and how insurers can identify potentially fraudulent claims.
With the number of people being added to the Insurance Fraud Register (IFR) on the rise, experts are warning that more people may consider turning to fraud as the cost-of-living crisis continues.
The IFR is a national database of insurance fraudsters and anyone on it can be denied essential insurance services for five years.
Recent evidence has supported the widespread view that fraud increases during times of economic difficulty. The latest recession in the UK occurred during the peak of the COVID-19 pandemic in 2020 and coincided with fraud rising by 24 per cent, according to a Crime Survey for England and Wales.
As the cost of living crisis continues to bite, fears that a similar pattern will be replicated are justified. Over the past year, 5,058 people were added to the IFR – around 100 people a week. This is up 17 per cent when compared to the previous 12 months.
Fast forward to November of 2022 and insurance firms are becoming increasingly accustomed to the crisis context in which fraud flourishes, demanding fresh and effective solutions to keep up with different types and levels of claims.
A new generation, a new challenge
YouGov research (commissioned by IFB) also revealed that one in five young adults would consider turning to fraud if they were struggling financially.
The upcoming months may therefore see a rise in opportunistic fraud. At the opposite end of the spectrum to criminal fraud, this occurs when people encounter an opportunity within their day-to-day life to either invent or inflate a claim. It can also involve people intentionally providing incorrect information when applying for insurance.
According to The Association of British Insurers (ABI), in 2020 alone, insurers detected 96,000 dishonest insurance claims valued at £1.1 billion. Whether opportunistic or organised, this will increase the pressure on claims handling teams to detect fraud, in particular the biggest frauds.
The power of analytics
While more transactions happening online and the expansion of technology has given fraudsters new opportunities, it should not be underestimated the extent to which technology can be utilised to identify increasingly complex scams.
Artificial intelligence (AI), including adaptive machine learning methods and unsupervised intelligent agents, are uniquely positioned to identify emerging threats and automatically suggest new rules and scenarios in real time.
One of the unique selling points of fraud detection and investigation software is that it consolidates massive amounts of data from internal and external sources, which would not be possible for a human to do. But there can be some scepticism as to whether the software can make the same decisions as an experienced human agent can, particularly where there is a lack of transparency and explainability as to how decisions are arrived at.
However, we know that a powerful fraud analytics engine processes all data – not just a sample – and can quickly spot patterns to help detect more fraud with greater accuracy (meaning fewer false positives).
Going into 2023 one step ahead
In the current climate, insurance firms can no longer afford to be reactive. The rapid increase in fraud means they are unable to effectively handle the high volume of claims without technology. Predictive analytics enables insurers to act pre-emptively and detect fraud before it takes place.
It is important for the technology to complement agents’ efforts and allow them much-needed time to focus on priority cases. Visual tools, such as AI- created social network diagrams, can help to better understand new fraud threats and prevent substantial losses early.
When genuine claims do come through, insurance firms that have invested in analytics benefit from techniques to correctly handle claims and increase operational efficiencies.
For example, risk- and value-based scoring models are designed to accurately score and prioritise alerts before they go to investigators. Advanced case management tools are ideal for streamlining investigations and boosting investigator efficiency.
Though it may be a dream come true to many in the industry, there is not one single technique for combating fraud. A unique, hybrid analytic approach – combining human expertise with powerful analytics that operate across the entire claims process – is the most effective.
Digital renovation and innovation
For firms wanting to focus their attention on digital modernisation, moving data to the cloud can improve multiple processes, including the handling of fraud claims.
With more claims equating to more data, the outdated method of adding more on-premise servers to boost computing power and manage data is not an efficient way forward. The cloud offers agility and scalability, so insurers can use as much or as little data as they need to at any one time.
Similarly, migrating to the cloud can remove the problem of disparate spreadsheets or silos of data, resulting in a single platform that can be applied to all fraud detection and investigation.
What is needed from industry leaders in the face of rising fraud is an innovative approach, adapting to new circumstances as they arise.
A balance of tried-and-tested methods and modern cloud-based technology, where models can be continuously monitored, refreshed and updated, is the way forward to help claims handling teams navigate new complexities arising from the cost of living crisis.
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