The cost of fraud to insurance firms has been estimated at €8bn in fraudulent payouts in the EU and at $30bn for property and casualty fraud in the US. Despite the fact that an estimated 10-15% of annual premiums go towards the cost of fraud, many insurers seem resigned to accepting a certain level of fraud. So many people believe that it is acceptable to defraud insurers that some insurers believe that fraud is an insoluble problem and anti-fraud initiatives should not be a priority.
This needs to change, as the current environment is increasing the cost of fraud to insurance firms. Rising economic pressures and a backlash against all financial institutions in the aftermath of the financial crisis are pushing more people to rationalize insurance fraud. Simultaneously, the internet is making it easier to commit fraud.
Moreover, the growing sophistication of professional fraud rings, aided by the internet, is resulting in a higher number of organized scams with higher velocity, greater agility, and greater cross-channel and cross-industry scope. Although some insurers have set up major case departments, many others still base their approach to fraud on catching ‘opportunistic fraud’ (one-off frauds by individual customers), instead of preventing lower frequency but higher cost ‘professional’ frauds.
To reduce fraud in the current environment, insurers need to:
- Identify the nature of current fraud threats
- Update their anti-fraud programs to reflect these threats
- Update their anti-fraud technology systems to support a more sophisticated, enterprise-wide, and dynamic approach to tackling fraud
To understand the problems that firms are facing and what improvements they see as necessary, Detica NetReveal commissioned Chartis Research to carry out a survey of anti-fraud professionals working in the insurance sector. While the survey and this report focus on US insurers, Chartis Research also conducted a global survey of insurers from 40 countries.
The key findings of the survey show:
- More than half of firms surveyed did not have a well-formulated anti-fraud program
- Almost three-quarters of respondents did not have advanced anti-fraud technology systems in place, while more than a quarter had no automated fraud detection systems in place
- Although detection, automated scoring, and data are major challenges for respondents, reporting and case management are the top anti-fraud technology priorities for insurers.
The results show that firms have a long way to go to implement more advanced and sophisticated anti-fraud programs and that to implement these programs; they need to overcome non-trivial technological obstacles. This report examines these results and explores how firms can implement more dynamic and cross-channel anti-fraud programs.
The global survey showed that non-US insurers are in a comparable position to US firms; they are more concerned by the challenges the insurance industry faces and more willing to invest in technology systems to improve fraud prevention.