Insurance Fraud in the US

<p>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.</p>

<p>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.</p>

<p>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.</p>

<p>To reduce fraud in the current environment, insurers need to:</p>

<ul>
<li>Identify the nature of current fraud threats</li>
<li>Update their anti-fraud programs to reflect these threats</li>
<li>Update their anti-fraud technology systems to support a more sophisticated, enterprise-wide, and dynamic approach to tackling fraud<br />
&nbsp;</li>
</ul>

<p>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.</p>

<p>The key findings of the survey show:</p>

<ul>
<li>More than half of firms surveyed did not have a well-formulated anti-fraud program</li>
<li>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</li>
<li>Although detection, automated scoring, and data are major challenges for respondents, reporting and case management are the top anti-fraud technology priorities for insurers.<br />
&nbsp;</li>
</ul>

<p>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.</p>

<p>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.</p>

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• Topics
• Market Analysis
• Quantitative Methods
• AI & Machine Learning
• Analytics
• Workflow/RPA
• Financial Crime
• Financial Risk
• Vertical
• Anti-fraud
• General insurance