Using analytics to prevent underwriting fraud

By Waynette Tubbs, Risk & Fraud Insights Editor

A study by Strategy Meets Action found that mobility and "ease of doing business" initiatives have led many insurance companies to implement "straight through underwriting processing" projects. This can be a recipe for disaster that results in increased fraud – especially application fraud.

Dennis Jay, Executive Director of the Coalition Against Insurance Fraud, says, “Application fraud traditionally has been the poor cousin of claims fraud, receiving little attention and not being fully understood. Forward-thinking insurers are developing new strategies and employing new tools to not only detect underwriting fraud, but to prevent it as well."

The State of Insurance Fraud Technology by the Coalition Against Insurance Fraud, found that only 41% of insurance companies are currently using technology to detect underwriting fraud.

Premium or underwriting fraud occurs when someone intentionally conceals or misrepresents information when obtaining insurance coverage at any stage in the policy life cycle. Examples include:

Application fraud/rate manipulation. Providing incorrect data to get lower premiums.

Remedy. With as little as a telephone number, the application can be populated with policy-level data, including location, coverage limits and deductibles, current in-force details, and payment and lapse information. By integrating these pre-fill technologies with real­ time anti-fraud analytical tools, insurers can track changes in online application data.

Rate evasion/ Data misrepresentation. Deliberately hiding or falsification of a material fact.

Remedy. Insurance companies are using advanced analytics to create a premium leakage predictive model that identifies the lost premium due to misclassification of risk. The effectiveness of the models should be continually monitored and measured as they can deteriorate over time due to changing fraudulent behavior.

Agency fraud and ghost braking. Intentionally changing key details during the application process to offer a lower premium to high-risk consumers. The ghost brokers charge a fee for their service.

Remedy. Insurers use analytics to detect and prevent this type of fraudulent activity, such as deploying statistical analysis and cross­ referencing information like date of birth and driver's license information with industry databases.

In a recent study, The State of Insurance Fraud Technology by the Coalition Against Insurance Fraud, found that only 41 percent of insurance companies are currently using technology to detect underwriting fraud. The study also found that 31 percent expected a budget increase for anti-fraud technology – and the increased investment being spent on predictive modeling, text mining and business rules technology.

Underwriting fraud is one of the most costly types of insurance fraud. Read more on how analytics can help you prevent billions of dollars in premium leakage.


insurance-adjuster1

More Insights

Underwriting fraud is one of the most costly types of insurance fraud. Read more on how analytics can help you prevent billions of dollars in premium leakage.

Insurance Myth Busted

The idea that just a small percentage of applicants misrepresent details to reduce auto insurance rates was recently debunked by Co-Operative Insurance, which found that 41% of policyholders deliberately lie when completing policy applications, and 61% would consider doing so in the future.

Back to Top