Fraud has existed throughout time in different types and methods. However, as fraud methods change, so do the challenges you need to tackle. This blog post looks at 5 fraud detection challenges insurers face and how Legentic is the best solution for your to uncover fraud and fight financial crime.
1. Fraudulent fractions with a high cost
According to FRISS, around 18% of claims contain fraudulent elements. Meaning that claims are not always entirely fraudulent, but those small fractions take a heavy toll on the insurance industry. The UK insurance companies alone average £2.1bln on fraudulent claims annually.
Even though most insurance customers have no fraudulent intentions, this costs the average consumer over £50 in premium payments. So, a small fraudulent group would cause direct damage to the insurance company, and in turn, to the average consumer, driving prices higher and delaying claim payments.
But if fraud is causing harm to both the insurers and the insured, why do insurance companies not focus on anti-fraud efforts and investigations?
2. Time-consuming claims investigation and Overloaded fraud investigators
The solution seems easy, hire enough people to process and investigate fraudulent claims. However, it can be rather challenging for insurance companies to deal with the amount of potentially fraudulent claims manually.
The journey starts with the insurance company being able to identify potentially fraudulent claims, investigating the real-time behavior with no easy way to trace the historical behavior of the policyholder or the insured asset, and most importantly, filtering low-quality data and using complicated, not user-friendly technology along the process.
But what are false positives, and how do they affect your customer experience?
3. False fraud positives and low-quality data
According to FRISS's Insurance Fraud Report, the biggest challenge for technology in detecting fraud is false positives (56%). A false positive in fraud is when a legitimate claim is flagged as fraudulent. False-positive could vary between 10% to 50% based on asset insured, insurance type, policy, and location.
The low-data quality is another challenge insurers face daily. Searching through low-quality data is time-consuming and could also lead to more complex identifying false positives and could have an immediate impact on the insurance claim and the policyholder’s experience and financial reputation.
4. Change of fraud patterns
It’s not only the insurtech and fraud detection industry that is shifting to new and innovative solutions and technologies, but the fraudsters have also been adapting. Like every other crime, criminals are always looking for new ways and opportunities to embezzle and/or claim fraudulent policies.
The change of pattern creates a major obstacle to claim departments, as it does not only affect the current claim but also previous and future claims, forcing the investigators to be on the look and go through previous cases.
5. Dissatisfied policyholders
This lengthy and complicated hands-on approach is not only financially expensive but limits your company from properly allocating talents and resources. It also causes massive customer dissatisfaction due to false positives, investigations, and late claim payments.
According to FRISS, false positives are the second biggest challenge to insurers, with a whopping 48% of surveyed insurance employees saying that too many false positives are a major workload and exhaustion factor.