Fraudulent claims, exaggerated claims, counterfeit claims in the insurance sector have been a major concern but insurers are now looking at latest technology measures:
It is a fact that insurance frauds have been there ever since insurance has been there. Experts admit that leakages and frauds cannot be altogether eliminated in the sector but can only be controlled or managed. There has been substantial loss incurred by insurance companies across the globe on account of frauds, in spite of having implemented some of the state-of-the art counter measures, including use of the latest of the technology, especially AI and analytics. As fraudsters become highly sophisticated and keep one step ahead of the anti-fraud measures in insurance companies, it is now imperative for the industry to devise strategies and implement tools so that frauds are ideally prevented rather than allowed to happen and remedial measures are taken.
Fraudulent claims, exaggerated claims, counterfeit claims and even theft are the major instances of frauds in the insurance industry. In some countries, fraud detection is part of the laws that govern insurance, especially life and health insurance.
MANY WAYS OF FRAUDS
An insurance fraud can be committed in several ways by both buyers and sellers. These can include:
· Misrepresenting or falsifying information on an application
· Misrepresenting or falsifying information on an insurance claim
· Staging an accident or injury to make a claim
· Filing a false health insurance claim
· Selling insurance products from illegitimate or fake insurance providers
· Embezzling insurance premiums
In the Indian context, leakages and frauds relating to claims and underwriting have been the most critical of the frauds, which have in turn been affecting the claim experience as well as the pricing. There are also other types of frauds like application fraud by providing false information at the time of application to get a lower premium, diversion of premium by insurance agents, who steal the payments made by the insured, identity theft to get insurance policies or file fraudulent claims, etc. Cybercrime is also becoming a menace in the insurance industry where criminals hack into the systems of insurance companies and steal sensitive data or manipulate claims.
Fraudsters use many tactics to deceive insurance providers and deceptively gain from insurance claims. These include filing fake claims, staging accidents, providing false records or documents, and engaging in identity theft.
WAYS OF COUNTERING
Insurance companies today use several tools to fight fraud. The most crucial among these is technology, which in today’s context constitutes data analytics, AI and machine learning. Then there is continuous collaboration with law enforcement agencies, sharing information with peers and developing strategies, training the employees on new fraud mitigation techniques and always in collaboration with the regulatory authorities. Another aspect is continuous education of the consumers so that awareness is created about possible frauds and how to protect against these.
Studies conducted by specialist firms on the extent of frauds in the insurance industry indicate that false claims in the industry account for approximately 15% of total claims. In the Indian context, it is estimated that insurance companies offering health insurance policies are losing approximately Rs6-8 billion annually on account of inflated claims. Similarly, it has been brought out by studies that of the $100 billion approximately lost annually in insurance frauds in the U.S., as much as 90% relates to health insurance.
DIGITIZATION, A WAY OUT
All experts who devise measures to counter frauds in the insurance sector say that digitization in the only way that frauds can be minimized if not altogether eliminated. Digitization also helps reduce costs and speed up processes. Similarly, another measure that experts suggest is the use of digital signatures for validating the authenticity of the sender of a claim. Likewise, use of AI can effectively identify potential risks associated with specific types of claims and make better decisions. AI can help monitoring trends over time and thereby adjusting the strategy, accordingly.
Insurance companies are today making use of advanced data analytics tools like predictive modeling to identify anomalies in claims data, allowing insurers to proactively target possible fraudulent activities before significant losses occur. There are biometric checks, like facial recognition and fingerprint scanning, which can add security to the claims process. They ensure the person making the claim is the right one, helping to prevent fake claims.
Generative AI has also been used in fraud detection as the technology can simulate large datasets to train machine learning models, making them more robust against fraud tactics. It can also create synthetic but realistic claim scenarios to test and refine fraud detection systems.
Automation has also made is easier to do on-site inspections, background checks, and detailed document verification, which in turn can help an insurance company to verify the legitimacy of claims and identify inconsistencies.
COLLABORATIVE APPROACH
Prevention has always been a better strategy. However, preventing an insurance fraud necessitates a collaborative approach involving insurance companies, regulators and policyholders. The crucial aspect here is creating awareness about frauds, strengthening regulatory measures and implementing advanced technologies for fraud detection. Digitizing claims is the most effective counter measure, but this involves effectively using technologies – AI and ML in particular – and automating the entire insurance process – right from enlisting a customer to the final payout of the benefits.
Insurance providers today highlight the need for collaborative efforts between insurance companies, regulators and technology providers. In this chain, there is a crucial role for background verification companies. Their expertise and technological capabilities can play a significant role in streamlining insurance claim verification processes.
Likewise, technology integrators too are important. There is, for example, a demand for an integrated AI-blockchain-telematics technology platform which can be very effectively be used in detecting frauds as well as preventing them most of the time.
In a nutshell, experts believe insurance frauds can be prevented by:
1. Developing clear policies for team members to follow especially in areas like decision-making and risk management processes.
2. Very strictly verifying the customers and their information ensuring that an applicant is not falsifying information or their identity.
3. As many insurance fraud schemes occur at the point of the claim, it is important that to investigate the claims thoroughly.
4. All policy changes sought by the insured needed to be thoroughly examined and verified as policy changes can be intention to perpetrate frauds.
5. Some of the frauds are often committed by the team members and hence there is a crucial requirement for periodic internal audits.
