Analytics for Insurance Fraud Prevention

Head of Industry Consulting, Asia Pacific at SAS

An unfortunate corollary of the current accelerating transition to digital commerce is an increase in fraud and economic crime.  Bad actors are quick to take advantage of opportunities for fraud presented by such features as digital promotions as well as social engineering scams.

A recent survey found that in Southeast Asia fraud rates increased phenomenally in parallel to the surge in online transactions during the pandemic.  Apart from the financial losses incurred, organisations also suffer from operational, reputation, and customer implications.

The insurance industry is no exception – incidents of fraud have increased across the industry, as more processes are digitalised. Some analyst reports suggest that fraud cases account for between 10% and 15% of all insurance claims. The pandemic and resulting economic environment have contributed to a notable increase in claims, which is also driving up fraud risks. As the Coalition Against Insurance Fraud says, insurance fraud means honest consumers and policyholders pay for these financial crimes. Your money is stolen, and your insurance premiums rise.

The Insurance Information Institute defines insurance fraud as an intentional deception committed against or by an insurance company or agent for financial gain. Common insurance fraud includes providing misleading information and evidence to obtain insurance cover, inflating claims, submitting false claims for injuries or damage that never happened, intentionally causing accidents, and data theft to get insurance or make a fraudulent claim.  

In Singapore, common types of insurance fraud are medical fraud which remains rampant; travel insurance fraud where individuals make false claims in the hope of getting a free vacation at the expense of the insurer; and motor insurance fraud where claimants make false or inflated claims by exaggerating injuries or property damage.

In 2020, the Government of Singapore received more than three times the number of reports of fraudulent claims compared to 2018.  The increase was largely due to a jump in reports related to fraudulent health insurance claims. And in Malaysia, fraudulent motor insurance claims alone are costing the industry RM 1 billion a year.

Traditionally, fraud detection focused on opportunistic activities in which an individual took advantage of a situation to pay a lower premium or exaggerated a claim to obtain a higher pay-out.  Today, insurance fraud comes in an increasing variety of forms with sophisticated, organised attempts across every aspect of the industry. This reality has strained existing controls that detect, prevent and mitigate fraudulent activity, and made it important for industry leaders to consider adopting an advanced fraud detection and prevention solution to address evolving fraud risks.

Outsmarting fraudsters with Advanced Analytics

With fraud tactics becoming more sophisticated, insurers should consider stepping up fraud strategies to go beyond simple transactional monitoring systems. The use of modern solutions, such as artificial intelligence (AI), machine learning (ML) and data analytics tools, can help insurers identify potential fraud in individual data, as well as on platforms like social networks where organised schemes involving multiple linked claims are taking place.

Unlike traditional systems for identifying suspicious activity, AI and ML solutions adapt to changing behaviour automatically, making it possible to detect fraud faster and with more accuracy. As claims are settled, they are captured in the system to help the AI solution learn the difference between valid and fraudulent claims. In turn, false positives are significantly reduced, which allows investigators to prioritise higher-risk insurance fraud and improves overall customer satisfaction when filing an insurance claim.

Advanced fraud detection solutions also deliver a singular view of risk by providing an end-to-end solution that makes customer claims across all lines of business visible. Insurers can identify links between seemingly unrelated claims in seconds to catch cross-product fraud, analyse activities at a network level using social network diagrams and data mining capabilities, and uncover evolving threats sooner. Analysing patterns in large volumes of claims through a network link analysis is a particularly effective way for insurers to get ahead of organised fraud groups. Advanced solutions enable insurers to model relationships between entities filing claims and new businesses. These capabilities make advanced fraud detection and prevention solutions scalable and future proof in the face of new threats.

Leading insurance providers in the region are looking to adopt analytics-driven fraud detection solutions. Driven by powerful fraud analytics engines, these solutions leverage advanced analytics with embedded AI and machine learning to uncover suspicious activity, processing huge amounts of data. The solutions typically adopt a hybrid analytics approach that leverages automated business rules and network level detection scenarios to detect fraud with greater accuracy. Detected alerts are scored, with alerts prioritised and routed to investigators for further investigation.

Providers save on claims, speed up processing

Greater precision in the rate of flagging fraudulent claims increases investigation efficiency and speed. Insurance companies deploying analytics-driven fraud detection solutions gain an immediate benefit in terms of savings on claims payment, and speeding up the processing of genuine claims. 

This faster and more accurate system makes it possible for providers to offer their customers better pricing of products and services. Analytics-driven fraud solutions may also deliver an improvement in turn-around-time with faster payment of claims, enhancing the customer’s claims experience and driving brand value and customer trust.

According to the Association of Certified Fraud Examiners (ACFE), more than US$4.5 trillion is lost to fraud globally every year. It is clearly essential for insurers to ensure that they have a reliable and effective strategy for detecting, preventing and managing fraudulent claims. Without a crystal ball to see how insurance fraud trends may develop and change, it is incredibly useful for insurers to not only adhere closely to best practices but also adopt advanced analytics and fraud solutions to ensure that incidents are detected and managed quickly. Now is an ideal time to consider what technology investment is best for your organisation to minimise fraudulent claims.