"Insurers are concerned about fraud," says Mark McElroy, head of insurance for TransUnion. "The ability for fraud or fraud-related transactions to go undetected is presenting them with a significant amount of brand reputation at stake." (Photo: Shutterstock)
The insurance industry has long dealt with the issue of fraud, but its impact has multiplied as companies have expanded their presence to the internet. Insurers must not just consider the economic impact of fraud, but also the way in which fraud — and all the false alerts, detection and prevention procedures, and investigations that go with it — impacts their customers' experience.
Customers demand exceptional experiences in order to retain their business, so combating fraud is critical for any insurer. To understand the state of fraud within the insurance industry, TransUnion commissioned Forrester Consulting to evaluate the landscape.
Related: Secrets to combating insurance fraud with data analytics
|The fraud life cycle
One particular aspect of fraud that makes prevention so difficult is that it can occur at any point during the policy life cycle. However, insurance professionals say all types of fraud are most likely to be detected during the marketing phase as the insurer looks to acquire a new customer. This is the least expensive phase for fraud detection.
Fraud decreases customer engagement and deters potential customers from purchasing additional insurance policies with the company. (Photo: Forrester)
But fraud may be going undetected at other stages, especially during claims. In fact, the largest gap between occurrence and detection rates for all types of fraud exists in the claim stage. This leaves firms vulnerable to fraudsters who either focus on other stages or are able to get past the initial marketing stage undetected.
Fraud detection and prevention requires teams to have expertise in skills like data science, fraud management and investigation. A lack of professionals with the skills to detect fraud is cited as a major challenge for employers, as well as training and educating employees, and a lack of flexibility to adjust in real time. Combined, these factors can lead to poor customer experiences.
Related: Are you missing fraud with outdated tech?
|The cost of fraud
Fraud (including false alerts and investigations) is detrimental to the health of an insurer's business. Respondents believe that the No. 1 impact to the business is damage to the brand and reputation, but there are financial ramifications, too. Losses from write-offs, non-compliance fines, lawsuits, investigation costs, and legal and public relations costs also are direct impacts of fraud.
"Insurers are concerned about fraud," says Mark McElroy, head of insurance for TransUnion. "The ability for fraud or fraud-related transactions to go undetected is presenting them with a significant amount of brand reputation at stake."
Fraud also decreases customer engagement and deters potential customers from purchasing additional insurance policies with the company. Additionally, firms worry good customers can get caught in the detection process, flagging them in error and damaging the overall experience.
While many insurers have some sort of fraud prevention and detection tools in place, 98% of survey respondents are either planning to adopt, currently adopting or already have a solution in place. Insurers should select solutions that support identity verification and theft detection, screening, as well as transactional insurance claims and payment fraud.
Fraud may always be something the insurance industry has to deal with. But rather than it impacting an insurer's financial standing, as well as the customer experience, companies can work to understand the evolving nature of cyber and invest in ways that actively detect and prevent fraud with the customer experience in mind.
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Denny Jacob
Denny Jacob is an associate editor for NU PropertyCasualty360. Contact him at [email protected].
