Fraud prevention at every customer touchpoint critical for increased revenue growth
London 24 July 2013: Professional insurance fraud is a growing problem, and the need for effective fraud detection is now an urgent priority says Ovum. Although most insurers have invested in fraud technology to some degree in the past five years, the majority of this investment, while beneficial, has been piecemeal. With a current focus mainly on the claims phase, insurers must reassess their fraud strategy and how technology is currently being utilised to combat the growing threat. Customer-interaction points including policy application and underwriting in addition to claim notification must be taken into account to improve the effectiveness of fraud systems.
Ovum’s latest research* shows that a number of technologies, including link analysis, text mining, and predictive analytics, have evolved to the extent that they now enable insurers to address the increasingly serious threat posed by professional fraud networks. This technology will become increasingly ‘adaptive’, enabling insurers to detect and respond to new and constantly changing techniques used by fraud criminals.
Challenges such as the increased pressure on profitability, intense competition set against a backdrop of weak premium growth in most mature markets and the increasingly sophisticated tactics of criminal fraud networks, all mean that fraud is now an issue that insurers must urgently tackle.
By definition, deriving an accurate value for insurance fraud is an extremely difficult task. The UK Insurance Fraud Bureau believes P&C insurance fraud costs $3bn a year, adding $70 to every policyholder’s premium. While figures vary nationally and between individual carriers, at an aggregate level, an estimated 10 to 20 per cent of insurance claims are fraudulent with potentially less than 20 per cent of such fraud being detected.
“New approaches are addressing the growing threat from professional fraud networks,” says Charles Juniper, principal analyst, insurance technology, Ovum. “To date most insurers have focused their fraud strategies on the claims process. In order to avoid organised criminal fraud, the effectiveness of a fraud strategy can be significantly enhanced by using technology across the entire insurance product lifecycle.
“However, the nature of insurance fraud and the technology to combat it are in constant flux and there is no single ‘silver bullet’ technology that can fully address the issue of complex fraud. Insurers should therefore use a range of technologies within an integrated system as part of a comprehensive strategy to tackle fraud. The increasing pressure to respond to the fraud threat, together with the need to reduce costs and offer a competitive proposition in difficult market conditions, means insurers will invest significantly in these emerging fraud technologies over the next 36 months,” Juniper concludes.
*Ovum: Tackling Insurance Fraud, Charles Juniper, May 2013