Digital claims, evolving risks: Fighting fraud with tech innovation
Insurance fraud is a $30 billion a year problem, and most insurers believe scams are on the rise.
The property & casualty insurance industry is undergoing digital transformation at an unprecedented pace. Challenged by the disruption of the pandemic, insurers were compelled to accelerate automation initiatives — especially from a claims perspective. Now, insurers are pressing forward with investments in AI, big data and robotic processing automation to streamline operations.
With rising customer expectations, delivering fast settlements is essential now more than ever. But as insurers chase ever-faster claims, they may be leaving their businesses vulnerable to fraud — a $30 billion a year problem, according to the Insurance Information Institute. The criminals are adopting high-tech tactics, and two-thirds of insurers believe fraud is rising, according to the Coalition Against Insurance Fraud. While anti-fraud technology has evolved significantly, are insurers adopting new tech at the scale necessary to minimize losses?
Detecting fraud in digital loss images
The rise in remote claims inspections has been one of the biggest changes in the past year, driven by necessity after stay-at-home orders swept across the nation. No-contact claims processing kept adjusters and policyholders safe when COVID-19 transmission concerns were high. But, with fewer onsite visits to inspect damage, fraudsters saw an opportunity to profit from ‘the new normal.’
Since insurers rely on customer photos for virtual inspections, a claimant can easily send a photo from a prior loss — with a low chance of detection if it was processed by a different carrier. Digital-savvy fraudsters can doctor photos with editing apps or simply submit property damage photos they found online.
This is where advanced anti-fraud technology with digital forensic capabilities is invaluable. Imagine an insured submits a photo of an asphalt shingle roof damaged by hail. The photo-based estimate values the loss at over $5,000. But image forensics technology discovers the photo was lifted from the internet.
A recent Verisk analysis of 768,000 images from one carrier found 1,967 duplicates, including one photo used 44 different times. Without anti-fraud technology in place, the duplicates went undetected. The impact was $5.3 million indemnity paid out across 1,475 claims.
High-tech image analysis can analyze the image’s metadata and determine whether the photo’s date and location correspond with the loss. Image forensics can also uncover whether or not a photo has been manipulated. As photo-based estimates become the norm, this technology is critical to preventing fraudulent payouts.
Fake IDs, real costs
As more insurance processes go digital, another scam is brewing: synthetic identities. In this scheme, common in the banking sector, fraudsters might use one person’s social security number, another’s phone number, and a third’s address to form a new identity. In 2020, one synthetic ID fraud ring obtained more than $1 million in loans and credit. Now McKinsey estimates synthetic ID fraud is the fastest-growing financial crime in the U.S.
After establishing credit histories for these fake people, criminals are turning to insurers for more ill-gotten gains. The synthetic IDs apply for policies and later submit false claims. Synthetic IDs are notoriously difficult to detect because each data point “checks out.” Fortunately, carriers can now flag synthetic identities in the industry’s only all-claims database — and more solutions will be launched soon that can provide the deep analysis of diverse data sets to detect these fake identities within claims.
Preventing medical provider fraud
Medical provider fraud, waste, and abuse are among the most common and costly types of claims fraud. Like synthetic IDs, these scams are challenging to insurers because questionable billing is often hidden among complex medical bills and lengthy treatment plans with numerous diagnostic codes. Fraudulent/abusive billing only adds to the overall rise in medical treatment costs. According to The Institutes, injury claims expenses have outpaced the rate of inflation.
Insurers have historically taken a reactive approach to medical provider fraud — paying claims first then trying to recoup fraudulent losses through investigation. But that strategy takes a lot of time and resources and, frankly, misses a large portion of fraudulent billing costs. This is where predictive analytics is making a difference. Proactive analytic solutions that detect suspicious medical bills before payments go out are now available.
For example, when an insurer receives a medical bill, analytic systems can detect whether the treatment codes correspond to the services provided. And a developing technology will benchmark providers’ billing history against their peers to assign a risk score based on past behavior. If the score is high, insurers can further evaluate the claim based on the system’s insights and avoid paying for inflated or false charges.
Keeping pace with evolving risks
As insurers ride the wave of digital transformation and enable faster claims processes with less friction, it’s important to consider the vulnerabilities these automated processes can create. Relying on traditional fraud checks and intuition isn’t sufficient to stem the fraud seeping into a digital claims environment.
By making advanced fraud detection technology a critical part of digital initiatives, insurers can ensure they have a strong perimeter defense to arm themselves against evolving fraud schemes.
Rich Della Rocca is president of claims at Verisk, where he oversees the company’s integrated suite of products and services that help improve claims processing, valuation, and fraud detection worldwide. Rich also leads the Verisk business Xactware, a provider of property claims estimating solutions.
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