This post details the growing menace of insurance claims fraud. It is a problem that nearly all insurers are battling, but with limited success. The fact that fraudsters are always a step ahead by misusing technology to achieve their nefarious deeds makes it even more difficult to manage the problem. Technology is the only way of mitigating the instances of claims fraud and empowering insurers to deliver their services more effectively.
Insurance claims fraud is an area of serious concern for insurance providers, as the instances of such scams are proliferating globally. Scammers indulge in inflating claims by manipulating facts and making a pile of cash illegally. It forces insurance companies to invest heavily in system upgrades, technology, and manpower to proactively detect such fraud attempts and mitigate potential losses.
Insurance providers have been relying primarily on the judgment of agents and industry experts to detect instances of frauds. While this was a reliable method in the past as there were limited number of cases, in the modern world it is impossible to keep a track on fraud using human resources.
• It is virtually impossible to scrutinize all claims manually.
• Fraudsters are using newer and more sophisticated ways of perpetrating such crimes.
• This has entailed the need to use technology to deal with this growing and serious crime.
The rise of technology such as data analytics has created a world of endless potential for organizations operating in the insurance sector. While cost concerns and regulations have been the reasons for slow adoption of data analytics by the insurance sector in the past, all that is rapidly changing because of the intense pressure on the industry to cut down the colossal losses caused by claims fraud.
There is a lot of regulatory importance placed on protection of personal information, with new layers of security being added regularly. This has made it extremely tough for insurance companies to access data from various sources for fraud predictions. Data analytics has proved to be a game-changer for the industry and is helping insurers manage claims fraud instances better.
Fraud Analytics Software
Insurers are incorporating insurance fraud analytics software into their business processes to detect fraudulent practices and detect such incidents early and proactively.
Fraud analytics software systems can reduce claims fraud by gathering data from various sources and collating it into meaningful and valuable information. Predictive capabilities of the software can help companies apply the process to a large area of business operations and improve fraud detection significantly. The software can be used for:
• Identifying optimal risk level
• Gaining qualitative insights from data
• Mitigate fraud risk at insurer’s end
• Eliminating fraud risk at the agent’s end
• Moving from manual to automated underwriting
• Establishing accepted limits of risks
• Automating procedures to identify risk assessment for determining various factors such as coverage, profitability and others
Understanding Legacy Systems
One of the biggest challenges of adopting analytics software is the need to upgrade systems to the latest versions. With technology evolving rapidly and continuously, this might entail a fairly substantial investment. Also, there are concerns around use of a third-party service or software because of privacy protection issues. Insurance companies might not have absolute control over data which can result in significant liability.
Insurance Fraud Detection Solutions:
Advanced claims fraud detection solutions are driven by technology. It works in the following ways:
Detection of Anomalies:
Multiple metrics are created to compare the behavior of various entities. The system makes use of statistical analysis to detect any anomalies that deviate from the normal behavior patterns of agents and customers.
Analysis of Claim Notes
Analytics can help in extracting information by going beyond structured data. In simple terms, it means that it can pull data about circumstances of a specific incident, the parties involved, the damage caused, treatment costs and other related data vital for claims settlement.
Investigation of Anomalies:
Agents and customers pointed out as anomalous on more than one count are singled out and detailed analysis carried out to find out the reasons for the anomalies. Business rules can be set up to prevent misuse and future frauds.
Insurance frauds are generally carried out in a very organized manner across the globe. In the modern world, it will be difficult to detect them without using sophisticated analysis methods. Insurers must leverage newer technologies to prevent, detect, and filter frauds. This will help improve claim adjustment expenses and improve the efficiency and performance of the industry.