February 16, 2018
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February 12, 2018
Posted March 9, 2017
When life hands you Lemonade, get ready for more than a few lemons.
Earlier this month, the insurtech startup Lemonade sent shockwaves through the industry when it announced it had set a new world record by paying a claim in under 3 seconds—with zero paperwork.
It’s an impressive feat—and one that’s indicative of a whole new wave of innovation set to transform the insurance industry in the year (and decade) ahead.
But as the entire insurance ecosystem faces pressure to go digital and on-demand, one question looms large: What about fraud?
What will protect you from the proverbial lemons (and bad apples) seeking to use your speed and convenience to juice their own profits at your expense?
The Squeeze is On
The fact is, the digital revolution that has disrupted industries from supply chain management to retail over the last decade is now hitting the once-staid insurance industry in a very big way.
A full 80% of insurers say increased competition, pricing pressures, and disruptive new technologies are accelerating the race for innovation throughout the industry.
Spending on digitization efforts is expected to see a 5.7% CAGR through 2024, according to Juniper Research. Factor in startups like the aforementioned Lemonade, Trovo, Metromile and others that have collectively attracted $4.7 billion in funding, and the stakes go even higher.
Unfortunately, automation designed to spur new efficiencies and product innovation isn’t the only thing that’s accelerating. So is fraud, which costs the industry over $250 billion annually.
The problem: In a digital world, it’s hard to verify the identity of the person applying for a policy or submitting a claim.
Over the last few years, fraudsters have compromised over 5 billion personal identities. Today, 1 in 10 account creations is fraudulent—up 35% since 2015. And fraud now accounts for 3% to 5% of all claims in the U.S., adding an estimated $400 to every family’s insurance bill per year.
In fact, threats abound throughout the ecosystem. Brokers, aggregators, underwriters, claims and customers can fall victim to (or perpetrate) fraud by selling or signing up for fraudulent policies, filing false claims, or providing an access point for malware, Trojans, bot attacks and more.
Fighting back won’t come easily.
Protection at a Premium
The threats aren’t lost on Lemonade: It and other companies large and small are rapidly rolling out advanced machine learning capabilities to help detect and thwart fraud.
Lemonade says that the same AI it uses to streamline services via its mobile app also helps it spot fraud. But it doesn’t yet see it as an end-all.
As the company reports, “As smart as algorithms may be, they aren’t perfect.” According to Insurance Post, the mobile-centric startup uses AI mainly to determine whether a claim should be processed automatically or not.
To be successful, others are finding that can take more than real-time analytics.
Faced with ghost brokers, organized crime rings and individuals switching from other companies after defaulting on payment, UK-based insurance provider One Call has been quietly deploying solutions that leverage advanced Digital Identity intelligence to fight back.
Digital Identity solutions offer a new approach to verifying the identity of each individual user, whether they’re applying for a policy, or logging into their established accounts.
Not just through personal identity information, which is largely useless thanks to all those compromised identities. Rather, these systems authenticate each user across their devices, their locations, their overall online behaviors and more, and then compares it to shared, anonymized global threat intelligence on fraud, malware and more.
For its efforts, One Call is reporting a dramatic increase in its fraud detection rate, while actually reducing friction for trusted users.
Will this new generation of fraud prevention solutions prove effective in helping insurance providers outpace criminals and competitors in what might otherwise be a very dangerous year ahead? Time will tell.
In an industry that’s getting its first taste of digital success, the first line of defense the most important one of all.