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Insurers have forever strived to prevent leakages due to fraud and have been developing systems and practices to combat fraud that costs them billions of dollars, annually.
The world has been a witness to the advancements triggered by the technological revolution that is forcing industries to be technologically resilient to stay at pace with technological advancements that are changing a million facets in the blink of an eye.,
On one hand, technology enriches human life through multiple touchpoints on a daily basis, improves the quality of our lives, and makes our jobs more convenient.
However, on the other hand, like the invention of the atomic bomb which led to technologies that power many major cities around the world, in the wrong hands, it is a sharp and deadly weapon that could cause havoc.
Insurers have started realizing that it has become inevitable for them to adopt AI-driven technologies in fraud management as fraudsters too are enabled by these technologies, and are using more sophisticated ways to commit fraud which are extremely difficult, if not impossible, to detect solely by human efforts.
The US insurance industry accounted for a total of 1.22 million US dollars in premiums written in the year, 2018 with Property & Casualty insurance premiums accounting to 51%, and 49% for life/annuity insurance, according to a report by III (Insurance Information Institute).
Insurance fraud costs the US insurance industry a staggering USD 40 billion per year, according to reports published by the FBI and this loss indirectly affects every citizen in the form of increased premiums.
Insurance premiums have been witnessing an average annual growth rate of 7% which is higher than the percentage of increase in wages and inflation put together. Insurance fraud increases insurance premiums for an average US family in the range of $400 - $700 per year, according to the FBI.
From the inception of the claim to its settlement, there are innumerable ways in which people commit insurance fraud at various stages of a claim.
One of the most common types of fraud in automobile insurance that is committed during the inception of the policy is a false declaration at the time of registration.
For instance, a person living in a particular location might register the vehicle in a different address due to the premium in the former being higher due to reported risk factors such as an increased number of vehicle thefts reported in that area.
Another type of fraud committed in automobile insurance is false thefts.
Example: A policyholder either dispose of the vehicle, sell it (usually for parts), or intentionally destroy it to receive a settlement or a replacement.
It is not always the policyholder that commits fraud, but in many cases, other involved parties such as garages and accident management companies commit fraud.
Example: Garages and accident management companies sometimes commit fraud by overstating the damages, unnecessarily quoting towing and storage charges, using fake parts or cheap components, and in some cases with the involvement of the policyholder.
There have also been cases reported where organized fraudster gangs stage accidents to defraud the insurer. Though today, AI helps in identifying such claims, it was earlier very difficult to trace, detect, or prove such frauds.
Example: In 2011, a gang of fraudsters that ran a ‘crash for cash’ scam faked more than 120 car accidents and have successfully claimed 1.17 million pounds from UK insurers.
Apart from false claims of theft, there have been many reported cases of engineered home fires in home and contents insurance claims.
A natural disaster is a time when insurance companies are flooded with claims and among them, there are claims where damages to the insured property are amplified by the insured to receive a better payout from the insurer
The most common type of fraud reported in renter’s insurance is where the policyholder sells or destroys their contents and files a false theft claim.
Health insurance frauds include quoting high fees for low-cost procedures and also performing unnecessary medical procedures to charge a higher bill to the insurer.
It is also one of the most consequential types of fraud as the damages are not alone in monetary terms. There have been reported instances where such frauds were committed putting the patient at considerable health risks.
As one could easily discern, fraud in insurance is disparate and the prediction and prevention of such claims are humanly impossible beyond a certain extent.
Insurers are now adopting advanced analytics, artificial intelligence and machine learning for fraud management. Read more...