Steve Crystal, Head of Financial Crime at Sedgwick, offers these insights into claims fraud. Generally, when inflation rises and times get tough there are more exaggerated or suspicious claims, so it’s worth learning more about the tactics used.
Claims fraud has been a longstanding issue for our industry – and combatting it has been an ongoing process of innovation and adaption by insurers and would-be fraudsters alike.
This cycle has accelerated in recent years. With the proliferation of incredible technological and informational resources, the pace of adaptation on both sides has been rapid. Closer to home, the cost-of-living crisis has contributed to a significant uptick in suspect claims. And as globalisation has accelerated, so too has the insurance industry – exacerbating the challenges for insurers, when best practice for tackling fraud can vary from country to country.
With the global landscape constantly shifting, it’s vital to consider how we can break down siloes, collaborate, and develop strategies that can tackle claims fraud worldwide. Since joining Sedgwick over 25 years ago, I’ve seen this evolution first hand, and have experienced the challenges and solutions for deploying a global strategy in local markets.
Understand your markets
This might seem obvious, but the importance of deeply understanding the cultural, practical, legal, and bureaucratic realities of each market cannot be understated. Best practice in the UK is not necessarily what works in South Africa, and a risk indicator in Indonesia might not be cause for concern in Australia.
Despite significant regional differences, insurers everywhere share a common priority: combatting claims fraud. This is why I prefer to think of regional differences as a continuum. Every country is at different stages along the same journey, but the destination is the same.
For example, though parts of Asia might be at the start of the journey, I’ve seen incredible enthusiasm from local insurers to work with global partners, to apply well-established principles and insights to their local challenges. Approaching these partnerships as an exchange of ideas is key for both parties, as hearing from those who know their markets best is vital to tailoring a robust anti-fraud strategy, and hearing a new perspective can be invaluable for global firms.
Think global, act local
This leads to a core guiding principle – ‘think global, act local’. Established multinationals have significant resources and years of expertise, and those with roots in established insurance industries like the US and UK have gained invaluable learnings from operating at the cutting edge.
These are assets when tackling fraud anywhere, but without adaptability and communication they cannot be fully leveraged in new markets. Collaboration between global and local insurance professionals is key to developing a strategy that deploys knowledge and techniques in a way that meets regional challenges and needs. It is important for multinationals to give leaders in each country the autonomy to iterate and adapt on these global processes without unnecessary red tape.
Flexibility, not inconsistency
Naturally, flexibility must have limits. Not only is it counterproductive to build a bespoke national approach from scratch, but a strong degree of standardisation ensures unity across a brand and can break down siloes.
Consistency is also vital in terms of reporting. Whilst claims databases like Claims and Underwriting Exchange (CUE) and Motor Insurers Antifraud and Theft Register (MIAFTR) are invaluable, particularly for motor insurance, the wider industry could benefit from better integrated international datasets. Categorising fraud in a more detailed, globally standardised way, rather than using broad terms, such as ‘motor’ or ‘personal injury’, would also be a step forward.
Information is key to analysing and pre-empting fraud, so standardisation is vital for benchmarking and making meaningful comparisons, generating insights that help tackle the issue globally.
Data plays another key role. It’s impossible to discuss today’s fraud landscape without touching on artificial intelligence and machine learning, and the revolutionary potential they might have for tackling claims fraud.
Much of the excitement over these latest technologies is warranted. Insurers have long been at the forefront of using data to codify risk indicators, flag suspicious claims, and identify patterns that help them pre-empt fraud.
Currently, training and deploying powerful models which can adapt to the specifics of each market requires consistently and diligently recording and structuring data. However, with the rise of natural language processing and unstructured data analysis, it’s possible that AI could soon determine the myriad datapoints generated in the claimant customer journey to discover insights and patterns that humans simply cannot.
This has particularly transformative implications for countries with less resources available to analyse the data themselves, or where data is less meticulously logged. It offers the potential for early insight into new fraud trends specific to each region without a bias towards developed western economies, which currently account for the bulk of claims fraud datasets and research.
The human element
Technology will continue to help fight fraud, but it can never replace people. Data-driven insights can help us model and identify suspicious patterns, but people who commit fraud aren’t machines. Statistical analysis is a challenge when the rules of the game aren’t fixed, and perpetrators think and act unpredictably.
Despite the pace of digitalisation across the insurance industry, fraud detection and claims validation remain areas where human intervention is vital, requiring strong conversation management skills and intuition to detect deception. Technology can break-down vast volumes of data and flag suspicious patterns, but these insights require the interpretation of skilled claim handlers and investigators, whose knowledge of their local markets and cultures will always be paramount.
Human interpretation and interactions remain key, and a blended approach can leverage technology to inform fraud investigations. Early insights on current regional hotspots, and the types of claims and claimant traits to look out for can empower human investigators – but it can’t replace them.
Insurance will always attract those trying to fraudulently game the system, and it can be overwhelming to understand how to fight back, especially on a global scale. But by adopting a ‘think global, act local’ approach in terms of exchange of ideas, adaptation of best practice, and consistent reporting and information sharing, systems can be built that not only suit the needs of local markets, but contribute to global tools and insights that are greater than the sum of their parts. Technology will continue to transform the techniques through which fraud is both committed and combatted, but aligning global solutions with skilled local professionals will ensure the industry can fight back.