Scams have existed in various forms and methods over time. As fraud methods change, so do the challenges we face. This blog post looks at 5 challenges insurers face in fraud detection and how the Legentic solution helps detect fraud and fight financial crime.
1. Fraudulent fractions with high costs
According to FRISS, about 18% of claims contain fraudulent elements. This means that claims are not always completely fraudulent, but these small portions take a heavy toll on the insurance industry. UK insurance companies alone average £2.1bn annually. On fraudulent damage.
Even if most policyholders have no fraudulent intentions, this costs the average customer over £50 in premium payments. So a small group of scammers would cause direct harm to the insurance company, and by extension the end customer, by driving up prices and delaying claims payouts.
But if fraud causes harm to both insurers and insureds, why aren't insurance companies focusing on fraud prevention and investigations?
2. Time-consuming damage investigations and overburdened fraud investigators
The solution seems simple: hire enough staff to handle and investigate fraudulent claims. However, it can be quite a challenge for insurance companies to process this amount manually.
Getting there starts with insurance being able to identify potentially fraudulent claims and investigate behavior in real time. There is no easy way to track the past behavior of the policyholder or the insured object, and most importantly, low-quality data must be filtered out and complicated, non-user-friendly technologies must be used to guide the process.
But what are false positives, and how do they impact the customer experience?
3. False scam reports and substandard data
According to FRISS's Insurance Fraud Report, the biggest challenge technology faces in detecting fraud is so-called "false positives" (56%). A false positive is when a legitimate claim is identified as fraudulent. False positives can vary from 10% to 50%, depending on the insured item, type of insurance, contract and location.
Insufficient data quality is another challenge that insurers face every day. Searching in low-quality data is time-consuming and could also lead to more complex identification of false-positive cases. This could have an immediate impact on the claim as well as on the policyholder's experience.
4. Changing patterns of fraud
It's not just the insurtech and fraud detection industries that are embracing new and innovative solutions and technologies, fraudsters have adapted too. Here's how criminals are always looking for new ways or opportunities to misappropriate insurance policies and/or report fraudulent claims.
The change in approach is a major obstacle for claims departments. It affects not only the current claim, but also past and future claims, forcing investigators to review prior cases.
5. Dissatisfied policyholders
This lengthy and complicated approach is not only financially expensive, but also prevents the company from properly utilizing its talents and resources. It is also causing massive customer dissatisfaction due to false alarms, investigations and delayed claim payments.
According to FRISS, false positives are the second biggest challenge facing insurers. A whopping 48% of insurance employees surveyed said that too many false positives are a major workload and exhaustion factor.