Most insurance is a scam
5 insurance fraud trends and how to prevent or detect them
Digitization has made life easier for insurers and customers, but it has also had a negative impact. While onboarding online customers makes it easier for customers to get insurance, it also makes life easier for criminals. It is the same with filing claims online. Less work for insurers, easier for customers and also easier for criminals.
But when it comes to insurance fraud, everyone is a suspect. Not only do criminals make false claims, but ordinary people too. Most people take the opportunity to ask more when they have a real claim. For example, if they were in a car accident, they can claim an older scratch as well. But fraud is a sensitive issue. Most people resent being accused of making a false claim.
Yet attitudes towards the gravity of insurance fraud remain apathetic among the general public. Is it because people fail to realize that fraud is affecting the rewards? Or is their current situation so bad that they only think of their short-term gains? Whatever the reason, it is difficult for insurers to fight fraud. In this article, we offer a little help by outlining the five trends in insurance fraud and the solutions to uncovering these fraudulent claims.
1. Identity Fraud
When it comes to scams committed by criminals, identity fraud is usually the first step into their scams. Online onboarding has made it much easier for criminals to use a fake identity while purchasing insurance.
In order to prevent criminals from taking out insurance under a false name, the KYC process needs to be brought to the point. But it's not just potential customers that need to be screened before they are brought on board. The periodic account check enables insurers to check that customer data is up-to-date. At the same time, a customer's risk rating is reassessed, which plays a major role in detecting identity fraud.
2. Ghost broking
The anonymity of the internet makes it easier for intermediaries to sell fake insurance. But it's not just customers who need to be vigilant. One of the methods ghost brokers use is to buy a real policy from insurance companies to sell to an actual customer. Just change this customer's personal information, which is usually unknown to them, in order to get a cheaper offer.
To prevent ghost broking, KYC is key again. It is important to check both the broker and the customer. Regular reviews of the intermediaries also ensure that they are not suddenly on a PEP or adverse media list, for example.
3. Cash crashes
Car accidents happen every day, but staged accidents are also increasing. These are organized crimes with many accomplices. Personal injury and automobile damage are the obvious claims in such a plot, but the criminals don't stop there. Thomson Reuters reports:
"A popular act is the staging of a staged car accident between two cars in which the actors involved claim fake injuries. The actors visit an complicit medical center for" treatment ", where fake medical bills with falsified identities are submitted as an insurance application At the same time, an complicit auto body repair shop will file false property damage claims. As a result of this fake accident, the insurance company pays false claims, both for property damage to the car and expensive medical claims Claim workers' compensation claims and submit them to the same insurance company, which is rare as each claim is examined by separate business units.
Pay attention to the last sentence because the right software can easily detect this scam. Connections between alerts and cases become visible through data-driven investigations. This makes it much more difficult for criminals to exploit the separation between departments.
4. Climate change
An increase in property claims is inevitable as the climate changes. It also means that there are more and more opportunists who exaggerate the damage to their possessions or, worse, people who make false claims about their involvement in disastrous circumstances. For example, since Hurricane Katrina, United States attorneys have charged 1,300 cases of disaster fraud.
In Europe, more frequent forest fires, floods and storms can lead to increased claims for damages. For example, more frequent storms mean there are more opportunities to claim damage to roofs. Every claim is an opportunity to exaggerate.
Digitalization means that insurers have more data at their disposal. This data can be used to create behavioral profiles and peer group analysis to identify unusual harmful behavior that could be an indicator of fraud. Making good use of the available data will make it easier to spot fraud earlier.
By using a machine learning solution, your system will also learn from experience and be better able to spot new types of fraud.
5. Evidence on social media
Motor vehicle damage fraud remains popular. Around 80% of car insurance fraud concerns personal injury. It's hard to spot embellished bodily harm. For this reason, the UK put in place legislation (the Civil Liability Act) on whiplash damage in 2018, which has significantly reduced cases of fraud.
Such an act does not yet exist in Europe. So how can European insurers expose this type of fraud? The Guardian writes about how much people share online. Social media has helped insurers find evidence of fraud on suspicious claims. Automated social media screenings are of great help in uncovering cases of bogus or embellished injuries to ordinary people. A risk with using social media screening is that under GDPR you are responsible for protecting personal information once you add the results of your screening to your case. To get around this, insurers can use anonymized social media screening tools.
Will 2020 be the year your business moves to data-driven fraud detection and investigation?
Insurers go to great lengths to prevent fraud. You are constantly looking for ways to prevent fraud, for example by working with behavioral analysts. The Dutch Financial Intelligence Unit also does a lot of research on general indicators of fraud. But fraud is still difficult to spot. To this day, it is estimated that the number of fraud cases detected is only the tip of the iceberg.
However, the number of cases of fraud detected is on the increase. That doesn't necessarily mean there are more people trying to make money on false claims. It is very likely that better use of technology will enable frauds to be exposed more frequently. Data helps generate specific signals of possible fraud. Preventing and detecting fraud can save insurers a lot of money. This ultimately enables them to gain a competitive advantage by lowering their premiums and keeping their integrity standards high.
Check out our whitepaper to learn more about how data-driven research is saving insurers money.
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