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Innovations in Claim Fraud Detection

With the fine-tuned tactics that hardcore fraudsters employ to target their victims, no carrier can afford to lack a strong, unified strategy against fraud.

By Karthik Balakrishnan, Thomas Mulvey | Updated on June 20, 2011

Despite years of ongoing efforts to identify and curb insurance fraud, it remains a significant problem. Conservative estimates from the Insurance Information Institute (I.I.I.) place the figure for annual P&C payouts on fraudulent or padded claims at more than $30 billion. A further disturbing statistic suggests that 10 percent of losses and loss adjustment expenses (LAE) are associated with fraud and abuse. Thus, a carrier with $100 million in direct written premium (DWP) and running at a 70-percent combined ratio is likely leaking more than $7 million annually because of fraudulent claim activities.

As the statistics indicate, fraud continues to be a profitable enterprise, with fraudsters often operating across vertical lines like P&C insurance, healthcare, and mortgages. Economic factors play an important role as well, with the down economy driving new entrants to practice fraud—both opportunistic (such as padding, waste, and abuse) as well as organized fraud schemes. Perhaps most noteworthy are the experienced fraudsters who continually revamp and innovate, developing entirely new schemes or improving old ones to avoid detection.

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