Insurance fraud rises along with carriers' workload
FRISS’ annual survey found an 8% jump in the assumption of insurance claims with an element of fraud compared with the industry benchmark.
As with most troubling developments, the pandemic has accelerated insurance fraud trends as pressures from economic uncertainty moves individuals and businesses to act less than ethical at a time when carriers are facing a slew of challenges from COVID-19.
Although 10% is the industry standard assumption for the number of claims that have an element of fraud, this year responses averaged 18%, according to fraud detection and risk assessment software provider FRISS Fraudebestrijding B.V.’s 2020 Insurance Fraud Report survey.
In addition to increased instances of fraud, insurers have seen a 75% uptick in workload since the pandemic, the report noted.
“The increase in workload was about getting people used to working from home, which was new for most employees,” Jeroen Morrenhof, CEO and co-founder of FRISS, said during a webinar debriefing on the report.
He went on to explain that since remote work has become the norm, carriers have been forced to make fewer inspections. In turn, insurers are seeing upticks in suspected and proven fraud. The most common schemes during the pandemic are staged accidents and vehicle theft, procedure billing and phantom services, and fake accidents occurring in homes.
“Normally, when you have doubts about a claim, you can send an expert to see what the situation is. Now you have to rely on gut feelings and experience,” Morrenhof said. In fact, 64% of survey respondents reported relying on staff experience to detect fraud, while 38% used homegrown solutions.
While many are still using staff experience, nearly 70% of respondents reported using automated red flags and business rules to uncover fraud, according to the report. On top of this, more than half of FRISS survey respondents said they’d like to see their organization adopt automated detection tools to improve fraud-fighting efforts. Sharing data between departments, as well as other carriers, learning from competitors, and defining fraud measuring metrics were among other improvements respondents would like to see implemented. Surprisingly, a third said they didn’t measure fraud metrics.
However, automated systems do cause concern for some around issues such as poor data integration, lack of IT resources and fears of false positives.
Facing a tidal wave of challenges from COVID has moved carriers to also reconsider their underwriting processes, with half of FRISS survey respondents reporting they have started to re-think or have already enacted new underwriting standards. In fact, no insurers reported putting an underwriting initiative on hold during the pandemic, while many other projects have been frozen.
The FRISS report explained the top three fraud-fighting challenges — internal data quality, data protection and privacy issues, inadequate access to external data — point to carriers opening the door to bad risks. Most insurers look at internal claims and policy history information, previous fraud cases, and known-fraud lists, yet they neglect data points such as payment behavior and loss information.
“Insurers have historic payment information, but don’t take it into account when underwriting people,” Wouter Joosse, FRISS product manager, explained during the webinar. “This can help businesses with respect to fraud and on the claims side as well.”
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