Move Fraud Detection to the Point of Sale
Posted April 14, 2017
According to the FBI, the total cost of insurance fraud (not including health insurance) is estimated to be more than $40 billion per year. That means insurance fraud costs the average U.S. family between $400 and $700 per year in the form of increased premiums.
Insurance companies are well aware of this. They have been battling fraudsters for a long time, and have even employed anti-fraud technology and other security processes in this fight. However, most of this anti-fraud technology is used during the claims process, trying to determine if the person making the claim is who they say they are.
That is, in a way, like locking the door after the burglar has already entered your house. The thinking is a little backward. Instead of waiting to identify a fraudster when the make a claim, why not try to prevent the fraudster from ever getting a policy?
Unfortunately, this seems like a novel concept in the insurance industry. Only 42 percent of insurers that employ fraud detection systems use them in the upfront underwriting processes. Why have some many companies been reluctant to use this technology earlier in the process?
It could be, in part, because of the automation spurred by the demand for instant quotes and approvals. Some companies believe that adding security measures upfront will slow the process, leaving them at a competitive disadvantage against the the increased competition from InsureTec startups.
As a result, everything from “white lie” misrepresentations to “fronting” and other forms of falsification, “ghost brokers” and fraudsters now cost underwriters billions in premium leakage every year, as noted earlier.
Unfortunately, these companies are missing out on a huge opportunity to stop fraudsters before they even get started — at the point of sale. By enhancing their risk assessment capabilities at the point of sale, insurers can reducing premiums for prospects with lower risk profiles while protecting against fraud.
But, how can insurance companies identify fraudsters up front while still providing instant quotes and approvals to a demanding digital audience?
It is all about data.
According to industry experts, one of the best ways to catch falsified information is to pre-populate application forms using data pulled from any combination of internal and external data sources, and then comparing it to the information prospects submit on their final application.
To be effective, however, these detection systems must go beyond merely pre-populating the kind of static personal data that recent security breaches have rendered useless.
Underwriters must have access to dynamic data that integrates location, identity, behavior and more to establish the true digital identity of each prospect so they can reject suspicious applications and price all policies according to the risk in real time.
And, as it is done in real time, insurers can still present legitimate customers with the instantaneous quote or approval they demand.
Change isn’t easy. But, if insurance companies truly want to fight fraud, they need to change their way of thinking and lock the door before the fraudsters come in the house.
Check out our Cybercrime Battle Basics for more on these and other risk assessment requirements.