The insurance industry consists of more than 7,000 companies that collect more than $1tn in premiums annually, providing criminals with huge opportunities to commit fraud using a growing number of schemes. Fraudsters are successful too often. According to FBI statistics, the total cost of non-health insurance fraud is estimated at more than $40bn a year. DXC Technology’s Joe Benson shares some insights.
Fighting fraud is like aiming at a constantly moving target, since criminals constantly hone and change their strategies. As insurers offer customers additional ways to submit information, fraudsters find a way to exploit new channels, and detecting issues is increasingly challenging because threats and attacks are growing in sophistication. For example, organised crime has found a way to robo-claim insurers that set up electronic claims capabilities.
Advanced technologies such as AI can help insurers keep one step ahead of perpetrators. Some technologies, for instance, helps insurers fight fraud by learning from, and adapting to, changing business rules and emerging nefarious activities.
Here are four compelling reasons why insurers need to begin to address fraud with sophisticated AI systems and machine learning that can continuously monitor claims for fraud potential:
1 The aging workforce.
There are many claims folks who are ageing out and will soon retire, taking years of knowledge with them. Seasoned adjusters often rely on their gut instinct to detect fraud, knowing which claims just don’t seem right, based on years of experience. However, incoming claims staff don’t have the experience to know when a claim seems suspicious. Insurers need to seize and convert that knowledge, getting it into a software programme or an AI programme so that the technology can capture the experience.
2 Evolving fraud events and tactics
Even though claims people may have looked at fraud the same way for years, the environment surrounding claims is always changing, enabling new ways to commit fraud. Fraud detection tactics that may have worked six months ago might not be relevant today. For instance, several years ago when petrol prices were through the roof, SUVs were reported stolen at an alarming rate. They weren’t really stolen however — they had just become too costly to operate. Now that petrol prices have gone down, this fraud isn’t happening as often. If an insurer programmes an expensive rule into the system, six months later economic factors may change and that problem may not be an issue any more.
3 Digital transformation
Insurers are all striving to go digital and electronic. As they make claims reporting easier, more people are reporting claims electronically, stressing the systems. At the same time, claims staffing levels remain constant, so the same number of workers now have to detect fraud in a much higher claims volume.
4 Fighting fraud is not the claim handlers’ core job responsibility
The claim adjuster’s job is to adjudicate a claim, get it settled and make the customer happy. Finding fraud puts adjusters in an adversarial situation. Some are uncomfortable with looking for fraud because they don’t like conflict. A system that detects fraud enables adjusters to focus on their areas of expertise.
In the past, insurance organisations relied heavily on their experienced claims adjusters to identify potentially fraudulent claims. But since fraudsters are turning to technology to commit crimes against insurance companies, carriers need to turn to technology to help fight them. Humans will still be a critical component of any fraud-detection strategy, however. Today, insurance organisations need a collaborative human-machine approach, since they can’t successfully fight fraud with just one tactic or one system. To fight fraud, humans need machines, and machines need human intervention. A
Joe Benson is the claims offering manager at DXC Technology with more than 20 years of insurance software and services experience. His expertise is in litigation management, fraud detection and claims adjudication for property and casualty and self-insured industries. His current role focuses on the adoption of digital technologies to speed product rationalisation and the movement of companies from self-hosted to cloud-enabled solutions.