Insurance: Fraud Detection Drills Deep in the Age of Digital Identity
Posted March 16, 2017
Ross Compton might just become a poster child for fraud detection in the digital age—but it could depend on what his heart has to say about it.
Earlier this year, the Middletown, Ohio man pleaded not guilty to setting a fire that reportedly caused $400,000 in damage and led to charges of aggravated arson and insurance fraud.
According to the Associated Press and others, Compton allegedly told authorities that after a fire had broken out in his home, he packed up some belongings, broke a window with his cane, and managed to haul himself and his stuff over to his car.
His heart might tell a different story.
As it turns out, Compton has a cardiac pacemaker, which among other things, monitors and records heart rate data.
As court records indicate, a cardiologist’s review of the data found it “highly improbable” that Compton could have carried out the actions he described to authorities the night of the fire.
Regardless of how the case against Compton fares at trial, it offers a dramatic example of how outside data can be used in the battle against potential insurance fraud.
Even cooler: A growing number of insurers are finding that it’s refreshingly uncontroversial, completely anonymized outside data that’s making a much greater impact in that battle—and taking it real time.
Truth or Dare
No doubt about it: Insurers face a perfect storm these days.
On the one hand, you have a consumer republic that has zero tolerance for waiting for anything—quotes, application approvals, policy claims—in today’s hyper-competitive digital world.
On the other, the same technologies that enable the kind of instant gratification consumers demand also make it frightfully easy to file fraudulent policy applications and claims.
According to 60% of insurers, the damage is adding up fast.
Across all insurance sectors, fraud already results in up to $250 billion in losses per year. In fact, fraud now accounts for 5% to 10% of all claim costs for US and Canadian insurers, with nearly 32% of providers saying that figure is closer to 20%.
So what gives? For starters, far too many consumers and so-called “ghost brokers” are “fronting”—misrepresenting or changing key details in order to get cheaper prices on coverage.
Factor in the nearly 5 billion user credentials and identities stolen through corporate data breaches and sold online over the last few years, and it’s easy to see why everyone from small-time fraudsters to organized crime rings is using that data to commit fraud against established insurers and disruptive new insuretech entrants alike.
To turn the tide, the industry has been actively deploying advanced authentication and verification technologies.
The problem: First generation fraud detection solutions that rely on rudimentary device- and location-based intelligence are proving woefully insufficient for the task.
Honesty, Meet Policy
Designed to identify suspicious user devices and the kind of mismatched locations and networks that may signal fraud, these device-centric fraud detection systems frequently fail to dig deeply enough, across a wide enough array of variables, to stop sophisticated cybercriminals.
In 2017, insurers are abandoning these fraud detection systems for an emerging generation of SaaS-based solutions that leverage new forms of digital identity intelligence.
Tapping global networks of anonymized data on hundreds of millions of consumers and rich, real time behavioral histories, these solutions establish user identity—and the risk they might represent—by drilling into:
- Device identification, health and application integrity
- Location, cloaking or spoofing efforts, proxies and VPNs
- Threat intelligence on bots, session hijacking, phishing, ransomware and more
- Real-time threat data spanning billions of transactions in every industry
- Established behaviors analyzed within the context of the transaction at hand
While still on the cutting edge, early adopters in the insurance sector report these digital identity solutions are boosting their fraud detection rates up to 60% or more.
Combining “all the capabilities of our previous device-ID solution, but with the additional digital identity intelligence, it was a no-brainer to switch,” says Josh Barnsdale, head of fraud prevention for UK-based insurance broker One Call.
According to Barnsdale, digital identity intelligence helps the company identify ghost brokers, and detect and reject fraudulent policy applications. It will even determine if an applicant is switching from another company after defaulting on payment.
The company plans to deploy the technology to claims as well.
The Heart of the Matter
These next generation solutions are revolutionizing the fraud detection space, and looking to prove their worth over the long haul.
With their ability to drill so deep using shared, global threat and transaction data to detect and reject fraudsters, perhaps they offer insurers reason to take heart that helps is on the horizon.
No pacemakers required.