The insurance fraud criminal enterprise amounts to 40 billion dollars. As per the FBI, this costs around $400 to $700 per year in increased premium to the average U.S. family. About three-fourths of the insurance industry professionals believe that at least 10% of all insurance claims have some fragment of fraud in them, as per the Friss Insurance Fraud Report (2020). However, the number of allegedly fraud claims has nearly doubled since the COVID-19 pandemic, as per the industry experts.
And coming to digital platforms, the insurance industry is even more vulnerable to threats from digital payments. A fraud detecting Software Company in 2018 analyzed 10 billion transactions for a duration of one year. All industries had an average of 5.09% risky transactions, but the insurance industry accounted for 9.14% of the risky transactions. As the number of transactions made using the company’s mobile application or website rises, the insurance companies’ hurdles will also increase.
How can insurers tackle such financial frauds and maintain customer growth?
Many steps can be taken in order to avoid insurance fraud; let’s discuss some of the most important ones.
1. Installing a Fraud Detection Framework
Install a framework that will implement fraud detection tactics. It would great if you can catch a fraudulent payment before it even reaches your account. You must learn to identify the correlative level of potential fraud for each type of claim and the quickest action that is supposed to be taken to deal with it effectively.
It would be best to focus your investigation on items that can lead to maximum damage rather than focusing on things that won’t do much harm. And ultimately, make use of data analytics so you can automatically detect frauds.
2. Review and Resource your Claims Uniformly
Uniformly review and resource your claims to prevent insurance fraud. For example, if you continuously use suspicion scores, you can recognise patterns that result in fraud. But this will not be possible if you do not do these reviews uniformly. Red flags, when detected early, can be removed efficiently. But some things remain unseen until you use an algorithm.
3. Deal Directly with the Concerned Person
Critically examine the potential client to make sure there is no difference between who he perceives and who he is. It would be best if you speak with the person who wants to be insured directly. It is a common practice that a known reaches out to you inquiring about the criteria and price. While you should help them with the information they need, make sure to speak directly with the individual prior to any documentation.
4. Verifying Identity Using Digital Solutions
COVID-19 pandemic and its aftereffects have led to a significant rise in insurance frauds. People are facing many problems, especially finance-related, which have resulted in false insurance claims. Furthermore, criminals have started preying organizations to claim insurance fraud for their unlawful winnings. Implementation of digital identity verification solutions for everyone can be an effective way to fight this.
Permission has been granted to the insurance sector to use video KYC so that fraudsters cannot create any problem. Other countries can also implement this and conduct robust verification before allowing any insurance-related claim. Along with decreasing the number of false claims, this method will also increase the reliability of platforms.
You can also take the assistance of insurance outsourcing companies for better results. This helps acquire more clients as they trust firms where precise protection measures are taken to remain shielded from the fraudsters.
5. Embracing Digital Transformation
If we follow the ongoing trends, 2021 might be a year of record-breaking false claims across multiple industries. The pandemic has resulted in synchronous health, and economic crises as these are interlinked. The impression on jobs and the overall economy is evident as government leaders battle the rising spread of the virus by implementing more restrictions and lockdowns. Economic disorder and distress are well-recognized forerunners to excessive fraud and Covid-19 acts as a catalyst to these factors.
So, to counter the pandemic’s effects, many companies have picked up the pace of their digital transformation to interact with customers virtually. Executed properly, these digital transformations can enhance customer experience. But fraudsters do not fear the digital environment as well.
Companies that do not install the mandatory anti-fraud defenses into their digital platforms will be the first target of fraudsters. The defenses should have combined efforts of artificial intelligence and human intelligence in order to prevent fraud.
6. Enhancing the Overall Process
Implement a fraud-proof, precisely structured claims management process. The beginning steps involve exploring, acquiring knowledge, and looking for resolutions to any vulnerable factor that can affect the company internally or externally. Once the imperilled areas are recognized, you can look for their solutions and modify the process accordingly.
The crucial factor here is to advance interaction between the head management and middle management, and additional departments. This is extremely important in order to achieve a successful evaluation of vulnerabilities. But this can fail if not done correctly.
7. Availability of a Strong It Team
Another tactic is to have a strong IT team. Claims management and underwriting consist of massive data, which can be challenging to manage and analyze. Availability of a competent IT team ensures precise analysis of data along with an overall improved system.
8. Technological Advancements
Insurance fraud is usually of two types. The first type is a criminal claim where an expert tries to loot the system, and the other is a cultural fraud, where a genuine claimant tries to exaggerate things to take leverage and claim the most out of the opportunity. For example, suppose a claimant suffered a car accident. And now he claims for the extra dents and scratches which were present before the accident took place.
Frauds can be detected effectively by making use of data and analysis. Insurers can generate a suspicion score by doing quantitative examinations and using data-mining tools. A numeric value can be denoted to this suspicion score that will establish the probability of fraud. The claimants will be automatically allotted a suspicion score to indicate the possibility of fraud after data is entered.
By introducing this technology, the only uncertainty alive would be the honesty of employees, who may still be your weakest link in avoiding insurance fraud.
Insurance frauds may not be such a big thing for mainstream media to rant about. But it is impacting your company’s capital and costing you customers. This makes it vital for any insurance business to stay aware and avoid being a victim of such activities, and so do you. The more you reduce the fraud, the more you improve your company’s image in the market and gain customers.