Insurance Fraud is Growing According to Survey
While fraud has been around since the beginning of car insurance a recent survey has found that it is far more prevalent than most industry experts suspected.
A study by FICO and the Property Casualty Insurers Association of America (PCI) found that found that 32 percent of insurers claim that fraud costs may make up to 20 percent of their losses. This is much higher than the 10 percent of casualty and property losses that has been the conventional wisdom in the industry. In addition, 54 percent of insurers surveyed are expecting the cost of fraud to rise.
Fraud Comes in Many Forms
Insurance fraud comes in many forms, from the small cases where a consumer pads their claim to extremely sophisticated crime rings who stage accidents and then file phony injury claims. When it comes to individual fraud by consumers, 60 percent of insurers are expecting a rise in their auto insurance sectors. They are also expecting fraud to rise in both personal-property claims and workers compensation. According to the survey, 61 percent of insurers feel that the tough economy is to blame.
The same percentage of insurers are expecting that fraud perpetrated by crime rings will also increase, especially in the area of automotive claims fraud.
Insurance Companies Using Data
Insurers are going after fraud in a number of different ways. According to the insurers surveyed, one of the most effective methods is predictive analytics. Over forty-five percent of the insurers in the study claim that it will have the biggest impact in fighting fraud.
Predictive analytics uses algorithms and computing power to sort through huge amounts of data to detect patterns. Insurers use it to price policies more accurately and to detect claims that are fraudulent. They are also using it to weed out lies on car insurance applications.
FICO’s Insurance Fraud Manager software sorts through millions of data points from both applications and insurance claims. It flags anything that seems suspicious and those will get a second, more thorough look. As an example, if one person was named as a witness or claimant in multiple claims this could point to a fraud ring and the software would flag those claims.
Credit card companies have been using this type of technology since the 1990’s and now insurance companies are catching on to how effective it can be in fighting fraud. When you receive a call from your credit card company in regards to irregular activity on your credit card this is due to predictive analytics.
The industry is also hoping to change no-fault insurance systems that are operating in states like New York, Michigan and Florida. A whopping 76 percent of the surveyed insurers claim that fraud is higher in no-fault states when compared to tort system states. In no-fault states the majority of fraud comes from crime rings.
Insurance fraud is much more common than insurers and industry experts assumed. Insurers are fighting fraud using a variety of tools including predictive analytics. This tool sorts through tons of data looking for red flags which might indicate insurance fraud.