Reading time: 3 minutes
Fraud is an unwelcome reality of doing business for every company regardless of size. Losses due to employee theft, vendor deception and other illegal behaviors not only harm the company but have an impact on the product pricing. While fraud is an issue for every industry, insurance companies are in the unique position of having to manage fraud threats not only from employees and vendors but also customers. The increased risk means that insurance companies need to continue to find new processes and methods to prevent fraud from occurring. One component of a robust anti-fraud program is the implementation of key technology safeguards that protect the company and its customers. A study conducted by the Coalition Against Insurance Fraud, The State of Insurance Fraud Technology, offers insights into fraud trends at insurance companies and how technology is being used to help combat it. To help clients, prospects and others understand the changing landscape and impact of anti-fraud technology, JLK Rosenberger has provided a summary of key points below.
About the Study
The study was designed to identify and understand how insurance companies are using technology to combat fraud at their organization and its effectiveness. According to the Coalition Against Insurance Fraud, the study is conducted every other year and is facilitated through an online survey. The survey was conducted in two phases including an online survey and an interview process with participating company executives. There were 86 total participants which included property/casualty and automobile insurance companies located in the United States.
- Fraud Trends – A key reason why insurance companies continue to invest in anti-fraud technology is the perception of the associated risks and costs. According to the survey, 61% of survey participants reported that fraud cases increased slightly or significantly at their company. There was a decline in the number of respondents that indicated fraud remains the same or has declined over the past year. It’s clear that preventing fraud is a key concern for companies and the perception of the opportunities to fall victim to fraud amongst participants has increased.
- Use of Anti-Fraud Technology – Since fraud is perceived to be a threat throughout the insurance lifecycle, different companies use technology at various points to prevent and uncover fraudulent activities. According to the study, 76% of survey participants used technology primarily for fraud detection within claims, 32% identified underwriting/rate evasion, 28% identified uncovering internal fraud and 18% identified combatting cyber fraud as the primary use. Anti-money laundering was also identified but only by a small portion of survey participants.
- Technology Implementation Challenges – While the use of anti-fraud technology is on the rise in the insurance industry it’s important to point out that it’s not without challenges. 77% of survey participants indicated their biggest challenge is a limited Information Technology (IT) budget, 73% experienced excessive false positives, 62% experienced data integration issues and poor data quality and 27% identified a lack of a cost/benefit analysis as a challenge.
- Measurement – Identifying the success of anti-fraud technology is essential to understanding how well it is helping companies fight fraud. According to the survey, 50% of respondents measure success by detection rate, 16% measure success by the number of fraud referrals, 10% indicated other (which includes the number of days between claim filing and fraud detection) and 4% by the loss ratio. An interesting finding from the study was that 20% of insurance companies have no formal program in place to measure the effectiveness of their controls.
- Future Investment – Survey respondents indicated they will continue to invest in anti-fraud technology in the coming year. According to the survey, 33% of companies will increase their technology budget, 52% will maintain their technology budget, and 15% will decrease their technology budget. Companies with expanded budgets stated they intend to invest in predictive modeling, link analysis and data mining among other anti-fraud technologies.
The study highlights the ongoing concern that many insurance executives share about fraud in the industry and how technology is being used to prevent such abuses from occurring. While details change from company to company, it’s obvious that companies should be leveraging technology as part of their anti-fraud efforts. If you have questions about the study or need assistance in implementing controls or anti-fraud technologies, JLK Rosenberger can help. For additional information call us at 818-334-8623 or click here to contact us. We look forward to speaking with you soon.