This post is part of a series sponsored by AgentSync. We recently wrote in great detail about the different types of insurance fraud, including how to go about committing each type (just for informational purposes, of course!). Today, our focus is on the other side of the coin: what the insurance industry is doing to prevent and detect insurance fraud, particularly by using modern technology. A refresher on the cost of insurance fraud
Insurance fraud isn’t a victimless crime. It costs everyone from individuals and families to large businesses hundreds of billions of dollars each year. According to the National Association of Insurance Commissioners (NAIC) website: “While fraud is constantly evolving and affects all types of insurance, the most common in terms of frequency and average cost include the following (data is from The Coalition Against Insurance Fraud and Colorado State University Global): Life insurance: $74.7 billion; Medicare: $60 billion; Property & casualty insurance: $45 billion; auto theft fraud totaled $7.4 billion; Health insurance: $36.3 billion; and Workers’ compensation: $34 billion ($9 billion from premium fraud; $25 billion in claims fraud).” Source: https://content.naic.org/cipr-topics/insurance-fraud With that much money lost each year, it’s not surprising that insurance companies have long been investing in technology to help identify fraud, or even stop it before it happens. As early as 2012, The Coalition Against Insurance Fraud began studying how the industry was using technology to combat fraud, and publishing its findings in its biennial “The State of Insurance Fraud Technology Study.”
Insurance fraud prevention technology in 2021
The most recent edition of The State of Insuracne Fraud Technology Study was published in 2021. It showed that among 80 respondents (representing “the vast majority of all major insurers operating in the United States across multiple lines of insurance”) 96 percent say they use technology to detect fraudulent claims. This number is the largest use case, by far. But there were still significant percentages of insurers using technology for identifying and preventing fraud across other areas of the business, from underwriting to catching employees in acts of internal fraud. As we eagerly await the release of the 2023 study, which we expect to show even greater levels of technological adoption across the industry’s top insurance carriers, we’ll elaborate on how insurers are using technology to identify and prevent fraud in the three most commonly reported categories across their business (according to the 2021 study).
1. Using technology to identify fraudulent claims
Filing an insurance claim is the point in time when a policyholder stands to gain the most from bad behavior, like overstating bodily harm or property damage, or pocketing the payment that was intended to repair or replace the insured property. It’s no surprise then that fraudulent claims are the most common type of insurance fraud. Within the category of fraudulent claims, auto claims have the distinction of having the most prevalence of fraud. For this reason, the industry has focused its efforts on using technology to identify and prevent fraudulent claims, as demonstrated by the high percentage of insurers that report this use case compared to others. So, how do they do it?
Predictive analytics: Insurance carriers collect a lot of data on their policyholders and claims, and have been doing so for many years. With today’s technology, they can put historical data to use and recognize patterns that indicate possible (or likely) fraud. Predictive analytics includes machine learning algorithms and statistical modeling, meaning technology can comb through millions of pieces of data and flag only the instances that are likely to include fraud. Flagged claims may include both claims that meet recognized patterns based on past (confirmed) fraud, and claims with unusual activity, patterns, or outliers that haven’t been seen before and need to be reviewed by an expert. By flagging potentially fraudulent claims, carriers dedicate human attention only to the reviews that need it.
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