Technology can help fight insurance fraud, but are carriers harnessing it?

The right mix of tools and technologies will result in a much higher insurance fraud detection rate. Find out where carriers stand in their strategies and deployments.

By Dennis Toomey, Senior Fraud Solution Specialist, SAS Security Intelligence Practice

Insurance carriers across the globe are trying to understand how they can harness technology and analytics in the fight against insurance fraud. To elevate anti-fraud knowledge and understanding, SAS and the Coalition Against Insurance Fraud (CAIF) have partnered to conduct a biennial industry study that monitors and compares technology trends in this area.

Read the report: The State of Insurance Fraud Technology

The study is based on an online survey of 42 insurers, which represents a significant share of the property/casualty market in the US. It looks at the degree to which insurance fraud has changed since the previous study (2012) and how advances in technology enable insurers to better combat insurance fraud now and in the future.

It’s evident from the survey that many carriers are embracing technology to help fight the fraud epidemic. Some of the key observations revealed from the study are discussed below.

Insurance fraud is still growing and continues to be a priority with most carriers

Most (97 percent) of the insurers say fraud has increased or remained the same in the previous two years. Interestingly enough, for the first time 2 percent of the respondents indicated fraud has slightly decreased. However, it’s unclear as to why – is the industry doing a better job at deterring fraud? We’ll keep a close eye on this response in the 2016 study.

Suspected insurance fraud
Source: Coalition Against Insurance Fraud, Sept. 2014.

The areas employing technology

Seventy-one percent of respondents said detecting claims fraud is the primary use of anti-fraud technology. However, usage across each insurance area has increased since the 2012 study. Approximately one-third of insurers now use technology to combat rate evasion. The study also shows carriers are expanding the benefits of this technology to help detect internal fraud. We expect this trend to increase in the 2016 study.

The breadth of tools employed

Carriers appear to be employing multiple analytical or modeling techniques as a best practice to identify both opportunistic and organized insurance fraud. Eighty-one percent of the respondents reported using red flags or business rules as the first line of defense. Business rules is a simple and easy first step toward using technology to help fight fraud. Unfortunately this technique also results in more false positives and allows fraudsters to learn and circumvent the rules (more about challenges below).

As insurance fraud patterns and behaviors become more sophisticated, so do insurers. The study shows insurers are deploying more advanced analytical techniques now than in the past. The top five technologies being deployed are:

  •  Link analysis (50 percent).
  • Anomaly detection (45 percent).
  • Predictive modeling (43 percent).
  • Text mining (43 percent).
  • Data visualization (40 percent).

What are the challenges?

As with any business process improvement, there are challenges that have to be overcome in the fight against insurance fraud. The survey uncovered some of the challenges carriers face, with the most common (53 percent) being “lack of IT resources.” Does this sound familiar? As insurers deploy more technology, they develop a greater dependence on already burdened IT departments.

To relieve some of the pressure on IT groups, companies like SAS are responding with hosted or remotely managed solutions. By managing the implementation process remotely with a strategic and tactical knowledge transfer plan, carriers can use their limited IT resources more efficiently without sacrificing other projects or quality.

Business rules, which have the advantage of simplicity, also often generate high false-positive rates and fail to detect fraud – because fraudsters can easily learn and manipulate such rules. Seventeen percent of the survey respondents cited excessive false-positives/negatives as the biggest challenge to implementing an anti-fraud solution.

Other challenges included:

  • Data integration and poor data quality (14 percent).
  • Lack of return on investment (8 percent).
  • SIU’s inability to handle large volumes of potentially fraudulent claims (6 percent).
  • Delayed claims adjudication (3 percent).

Interestingly, the 2012 survey found that 36 percent of respondents saw a lack of ROI as the biggest challenge. As systems become more advanced, they likely are demonstrating a higher ROI, thus making this issue less critical. With more automated collection of data and ease of exploration and reporting, business cases and ROIs will be more advantageous in the future.

What the future has in store

As anti-fraud technology continues to expand and become more effective, we see a shift in skill sets and training required to get the most out of it. Technology can offer creative and efficient ways to help carriers deploy via the cloud or take advantage of on-site hosting and/or remote managed services.

In addition, the International Association of Special Investigation Units through its chapters and international seminars and conferences, are offering more sessions on analytics to improve skills and share best practices. The National Insurance Crime Bureau Analyst Academies are also helping carriers close the skills gap to make better use of anti-fraud technology.

An anti-fraud strategy that includes the right mix of tools, technologies and skills will result in a much higher and more efficient fraud detection rate. This strategy will not only reduce losses and deter insurance fraud, but also enhance customer service and retention by paying meritorious claims faster and resisting suspicious or fraudulent claims using analytics and technology.

 


Dennis Toomey

Dennis Toomey provides support in the in the planning, management and marketing of SAS fraud detection and investigation management solutions for the property, casualty, life and disability insurance markets worldwide. With SAS since 2011, he has been working as a subject matter expert on insurance fraud for more than 20 years. Dennis has an MBA in Leadership, a B.S. in Business Management and an Associate’s degree in Criminal Justice.

insurance fraud
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