Technology has become an integral part of our lives, and has far-reaching implications in a wide range of industries, including insurance. Firms all over the world are leveraging technology to combat the growing problem of insurance fraud, which is estimated to cost the global insurance industry up to $70 billion annually, according to a report from the Association of Certified Fraud Examiners.
As a result, insurers are asking the same question: how can technology help to tackle insurance fraud? This article explores the various technology solutions that can be used to help combat insurance fraud, as well as how these technologies are being used in the real world.
What Is Insurance Fraud?
Insurance fraud is a major issue for insurers. It can be defined as the intentional deception for financial gain. It can range from a misled employee accidentally inflating an insurance claim, to organized crime rings running sophisticated schemes designed to defraud insurers. In either case, the cost of insurance fraud impacts everyone, as insurers are forced to increase their premiums to make up for the extra losses.
The Types of Insurance Fraud
Insurance fraud takes many forms. Examples include:
• Fake Identity Fraud – Fraudsters providing false names and details in an effort to obtain insurance coverage.
• Overselling Fraud – An insurance broker or salesperson offering inflated coverage levels in order to obtain larger commissions.
• Policy Lapse Fraud – Policyholders making false claims in order to obtain an insurance payout after their policy has lapsed or been canceled.
• Claim Exaggeration Fraud – Inflating the costs of a claim in order to receive a larger settlement.
• Policy Hopping Fraud – Policyholders changing their policies frequently in order to pay lower premiums.
• Staged Accident Fraud – Purported accidents set up in order to receive an insurance payout.
• Medical Claims Fraud – Healthcare providers submitting false claims or items in order to falsely receive reimbursements from insurance companies.
• Insured Property Fraud – Policy owners fraudulently claiming that their property was damaged or stolen in order to receive a payout.
How Can Technology Help Tackle Insurance Fraud?
Insurers are increasingly turning to technology for help in detecting and preventing insurance fraud. Here are six key areas in which technology can be leveraged to fight insurance fraud:
- Big Data and Analytics
Big data and analytics alleviate the need for manual fraud investigation, allowing insurers to detect patterns of fraud quickly and efficiently. Big data also enables pattern recognition and predictive analytics, allowing insurers to monitor customers for any suspicious behavior. By combining big data with powerful algorithms, insurers can gain a complete view of their customers and pinpoint any actions that should be flagged for further examination.
- Machine Learning
Machine learning models are used by insurance firms to automatically detect anomalies in claim data or activities. The models are trained using historical data to identify fraudulent behavior using sophisticated algorithms. These models can detect patterns of fraud that might otherwise have gone undetected by manual processes. This helps insurers quickly detect any potentially fraudulent claims and take action.
- AI and Natural Language Processing
AI and natural language processing (NLP) are used by insurers to automatically analyze customer communications and look for any signs of deception. This includes analyzing the content of emails and text messages, as well as analyzing the structure of sentences. For example, AI algorithms can detect when someone appears to be deliberately avoiding pertinent questions or lying about the facts. This technology can help insurers detect and prevent fraud before it occurs.
- Automated Fraud Detection Systems
These systems require minimal human intervention and can detect and flag suspicious activity by running checks on customer data. For example, an automated fraud detection system might compare different customer profiles for similarities or flag previously suspicious customers if they attempt to apply for new insurance policies.
- Biometrics
Biometrics, such as fingerprints and facial recognition, are increasingly being used to verify the identities of customers. This allows insurers to more easily detect fraudulent activities by confirming the identity of their customers.
- Blockchain
Blockchain is a digital ledger system that’s increasingly being used in insurance to ensure transparency, reduce the risk of fraud, and make the insurance claims process more efficient. By using blockchain, insurer and claimant’s data can be securely stored and tracked, which reduces the potential for fraud.
Real-World Applications of Technology to Tackle Insurance Fraud
There are many examples of insurers using technological solutions to tackle insurance fraud. Here are a few real-world applications of these technologies:
• In Germany, an insurance provider is using artificial intelligence to detect fraud in medical claims. The AI model looks for inconsistencies in medical exam results and bills, looking for patterns associated with fraudulent claims.
• In the US, an insurance company is leveraging big data and analytics to detect and prevent insurance fraud. The program looks for anomalies in customer data and claims data, alerting the company to any potentially fraudulent activity.
• In South Africa, a major insurer is using biometric technology to verify customer identities and reduce the risk of fraud. By verifying the identity of customers, the insurer is able to more easily detect any fraudulent activities.
• In the UK, an insurance provider is using blockchain technology to make the claims process more efficient and secure. By storing claim data in a secure, immutable blockchain ledger, the insurer is better equipped to detect and prevent fraud.
Insurance fraud is a growing problem, and is estimated to cost the global insurance industry billions of dollars annually. Insurers are increasingly turning to technology to tackle this issue, as technological solutions have proven to be highly effective in detecting and preventing fraud.
By leveraging big data, analytics, machine learning, AI and natural language processing, biometric technology, and blockchain, insurers can better detect any potentially fraudulent activity and secure their claims processes. Examples of such technology in action can be found all over the globe, with insurers leveraging these tools to gain a comprehensive view of their customers—and the potential for fraud—and take proactive action.
