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Jun 2023

Unlocking a robust claims fraud risk framework in Asia

Source: Asia Insurance Review | May 2023

Rudolf FreiIn the age of digital insurance, fraud poses an ever-evolving challenge for Asia’s insurers, with consequences for consumers and shareholders alike. But defences are also advancing, and a sustainable fraud control framework is more achievable than ever before, says IBNR Management Consulting’s Mr Rudolf Frei.
Managing risk and writing profitable risk-based premiums are the insurance industry’s core competencies.
Insurers have well-established procedures for evaluating the impact of current and evolving risks, aided by plentiful data and the established practice of full disclosure. This data transparency has given the industry an edge in risk evaluation, bolstering the growth of profitable business lines.
Tackling a growing gap in Asia
In terms of fraud defence however, the insurance industry - particularly in Asia - is tangled in reactive fraud processes rather than a cohesive fraud risk framework. The question seems to be: Who owns the duty of fraud defence?
Perhaps unsurprisingly, insurers and governing agencies rarely publish fraud data or provide meaningful insights on the threat of claims fraud. There is a dearth of case studies connecting fraud to unaffordable premiums and unfavourable financial results for insurers.
This lack of data hampers innovation and investment in robust fraud controls, as decision-makers are forced to invest in anti-fraud technologies and fraud control measures instead.
For decision-makers, reliable data is crucial to understanding and predicting the impact of fraud on the industry and its players, while for regulators it offers clarity on why premiums are unaffordable in segments riddled with excessive fraud.
What does a robust fraud risk framework look like?
For Asia’s insurers, the fraud threat landscape is in a state of flux as digital insurance becomes the norm and massive cyber fraud attacks reveal the flipside of advancing technology. Resourceful fraudsters can use simple technology to test the bounds of insurers’ fraud controls. But a transformation is underway in the claims fraud control arena, where fraud detection and prevention is just a click away.
An effective response to the threat of claims fraud would entail a dynamic fraud defence framework similar to fraud controls in the more developed markets of Europe and the US. These markets provide extensive access to information and case studies on the nature and extent of claims fraud threats, as well as its financial and social impact.
To safeguard its shareholders and consumers as well as comply with regulatory regimes, insurers must embark on a roadmap that builds fraud resilience into every aspect of the business. This will lead to profitable growth for the insurer and more affordable premiums for consumers.
Building up a pipeline of skills and resources
Having faced estimated fraud losses of up to 35% of total cost in medical and health insurance, the Asian insurance industry is under pressure from multiple stakeholders to protect its consumers and shareholders by strengthening its fraud controls.
The industry is on the cusp of embracing advancements in anti-fraud technologies designed to detect and investigate fraud. Decision makers are poised to invest in expertise on integrating traditional fraud processes into the discipline of professional risk and control management.
Investments in specialist fraud investigation teams will also help strengthen fraud control processes, while building robust fraud process will help reduce unnecessary delays during investigations. The benefits of these investments will be shared among shareholders and consumers and even welcomed by the government.
The psychology of fraud prevention and deterrence
Fraud is here to stay. But sustainable fraud controls are the key to successfully mitigating and deterring fraud attacks. The most cost-effective fraud controls are embedded in prevention and deterrence measures. Understanding fraudster behaviourism – particularly in the age of digital insurance – is another essential strategy for insurance companies seeking to dissuade opportunistic fraudsters from committing fraud.
It is the insurance industry that owns the duty of defence against claims fraud and the threat it poses to profitable growth, and the necessary resources for mitigating the negative financial and social impact are already within its reach. A 
Mr Rudolf Frei is managing director – Asia, IBNR Management Consulting, claims and fraud controls, HK and SG.
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