How to combat insurance fraudsters

The coro­n­avirus pan­dem­ic is the per­fect storm for crim­i­nals. While busi­ness­es have become increas­ing­ly stretched try­ing to deal with the out­break, they have ded­i­cat­ed less time and resources to inves­ti­gat­ing and pre­vent­ing fraud.

Added to this, peo­ple who have lost their jobs or become eco­nom­i­cal­ly dis­ad­van­taged because of the pan­dem­ic are becom­ing increas­ing­ly des­per­ate. 

Enforced restric­tions and delays in the crim­i­nal jus­tice sys­tem, due to the virus, have mere­ly com­pound­ed the prob­lem, which is set to wors­en once fur­lough and finan­cial sup­port schemes end.

“It’s an accept­ed fact that reces­sion leads to an increase in insur­ance fraud,” says Cather­ine Burt, nation­al head of counter fraud at DAC Beachcroft. “There is a very strong cor­re­la­tion between eco­nom­ic depri­va­tion and crime, and fraud is no dif­fer­ent.”

So it’s no sur­prise that glob­al insur­ance fraud has almost dou­bled in 2020 as claims with an ele­ment of fraud leapt to 18 per cent, up from 10 per cent the pre­vi­ous year, accord­ing to FRISS, a fraud detec­tion soft­ware provider.

In the UK alone, the Insur­ance Fraud Bureau has report­ed one insur­ance scam every minute dur­ing the pan­dem­ic. It’s a sim­i­lar sto­ry in Amer­i­ca, where insur­ance fraud increased 100 per cent last year to $100 bil­lion, with more than 75 per cent of com­pa­nies report­ing a rise in fraud, BAE Sys­tems Applied Intel­li­gence research shows.

With more staff work­ing from home, employ­ers have found it increas­ing­ly dif­fi­cult to ver­i­fy acci­dent or injury claims. And because of social dis­tanc­ing mea­sures, adjusters have also been sig­nif­i­cant­ly restrict­ed in their inves­ti­ga­tions.

So what can the insur­ance indus­try do to stop this surg­ing tide of fraud? And what new tech­nolo­gies can they deploy dur­ing and beyond the pan­dem­ic?

A good start­ing point is to car­ry out a full risk assess­ment, pri­ori­tis­ing key areas to focus on and draw­ing up a plan to tack­le them. Rather than cut­ting back, at this time com­pa­nies need to invest in and allo­cate resources to fight­ing fraud.

Addi­tion­al­ly, insur­ers need to col­lab­o­rate more by shar­ing data and insight between dif­fer­ent depart­ments, com­peti­tors and crime-fight­ing agen­cies to look for pat­terns of fraud. A prime exam­ple is the UK’s Insur­ance Fraud Intel­li­gence Hub, launched in 2019, which enables mem­bers to view real-time data and com­pare it with their own intel­li­gence, and the Insur­ance Fraud Reg­is­ter.

“The unprece­dent­ed nature of the COVID-19 pan­dem­ic means these are chal­leng­ing times for insur­ers and their pol­i­cy­hold­ers but, by work­ing togeth­er and shar­ing intel­li­gence, the insur­ance indus­try will guar­an­tee it’s even more chal­leng­ing for fraud­sters,” says Allianz fraud man­ag­er James Burge. “Shar­ing intel­li­gence will ensure we learn from each oth­er and are able to close down any new rack­ets quick­ly and effi­cient­ly.”

Insur­ance com­pa­nies also need to work more close­ly with gov­ern­ments and author­i­ties to devel­op new leg­is­la­tion tar­get­ing fraud. A recent exam­ple of this is the whiplash insur­ance claim reforms, which come into force at the end of May.

“The whiplash reforms will change the fraud land­scape,” says Aviva’s head of fraud Tom Gar­diner. “Tak­ing the cash and incen­tive off the table, the dis­pro­por­tion­ate com­pen­sa­tion and fees asso­ci­at­ed with whiplash claims will sig­nif­i­cant­ly strike at the heart of fraud­u­lent claims.”

Then there is pub­licly avail­able data, such as on social media, which insur­ers can use to mon­i­tor a customer’s activ­i­ty and behav­iour. Min­ing this data can uncov­er vital evi­dence, for exam­ple, find­ing links between the dif­fer­ent par­ties involved in organ­ised crime.

“By deploy­ing the prop­er ana­lyt­i­cal tools, you can extract and inter­ro­gate the data, and use algo­rithms to high­light these links,” says Zurich’s head of claims fraud Scott Clay­ton. “By join­ing all the dots, you can soon iden­ti­fy per­sis­tent and pro­lif­ic offend­ers.”

Insur­ers are also increas­ing­ly adopt­ing auto­mat­ed fraud detec­tion tech­nol­o­gy to spot sus­pect claims. Arti­fi­cial intel­li­gence tools such as these can quick­ly adapt to new cir­cum­stances and con­stant­ly evolv­ing and sophis­ti­cat­ed fraud, as in the case of COVID-relat­ed scams.

“Machine learn­ing helps to look at pat­terns of fraud in struc­tured data,” says Nigel Can­nings, chief tech­nol­o­gy offi­cer at Intel­li­gent Voice. “Using instances of pre­vi­ous­ly known fraud and oth­er avail­able data, such as incep­tion date, claim val­ue, loca­tion and so on, mod­els can be trained to help pre­dict whether a claim might be fraud­u­lent.”

Track­ing devices and cam­eras are oth­er cru­cial weapons in the fight against fraud. These enable insur­ers to gath­er invalu­able data, for exam­ple telem­at­ics and dash­cams in motor insur­ance. Drone tech­nol­o­gy and geospa­tial plat­forms, such as Google Earth, can also be used to assess flood dam­age where a prop­er­ty can’t eas­i­ly be accessed.

Pre­ven­tion tools, such as secure two-fac­tor authen­ti­ca­tion and voice, image and fin­ger­print recog­ni­tion, have a big part to play too. Cap­tured data can be checked against a data­base of pre­vi­ous­ly sub­mit­ted claims to make sure there aren’t dupli­cate records.

“As we move towards the post-pan­dem­ic stage, we are see­ing an increase in insurtech, with more inno­va­tion and star­tups than ever before,” says Den­nis Toomey, glob­al direc­tor of counter-fraud ana­lyt­ics at BAE Sys­tems Applied Intel­li­gence. “Imple­ment­ing an enter­prise-lev­el solu­tion with an open archi­tec­ture, appli­ca­tion pro­gram­ming inter­face-friend­ly plat­form that allows for inte­gra­tion of stand­alone tech­nol­o­gy solu­tions is best prac­tice to future-proof invest­ment.”

Edu­ca­tion is anoth­er piv­otal ele­ment. Insur­ers need to alert pol­i­cy­hold­ers to the risks of fraud through aware­ness cam­paigns and hot­lines to report offend­ers, while train­ing their own staff to spot fraud and sus­pi­cious behav­iour.

Sim­i­lar­ly, as the first point of con­tact, bro­kers play a vital role in uncov­er­ing fraud. Along with claims han­dlers, they can look for tell-tale signs, for exam­ple if the pol­i­cy­hold­er is resis­tant to claims val­i­da­tion.

Insur­ers large­ly have a suc­cess­ful track record for pros­e­cut­ing false claimants who per­pe­trate fraud. In Decem­ber, two trick­sters who sued a hous­ing trust, alleg­ing to have injured them­selves by falling down an open man­hole, were found guilty of con­tempt of court after the insur­ance com­pa­ny became sus­pi­cious and found nei­ther man had suf­fered such injuries. 

So, as the pan­dem­ic unfolds, the insur­ance indus­try must be on high alert to catch an increas­ing num­ber of oppor­tunists and prac­tised fraud­sters.