How Data Analytics Service can Stop Frauds in Insurance Industry?

The extent of insurance frauds in the US is startling and it happens through various sources. The cycle of insurance frauds starts right when an insurance policy is booked. The extent of insurance frauds can be judged by the statistics: 10 percent of all insurance premiums are usurped by the amount of insurance frauds. This is not a new phenomenon as the figures have remained static over the last two decades. It is held by some experts that the real extent of insurance frauds is never known. Even if a single body was charged with the duty to track all frauds it would not be feasible as cases of fraud are diverse and changing in their nature.

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Types of Insurance Frauds

Tens of millions are lost every year due to insurance frauds. Some of the common types of frauds include:

  • Consumers taking policies with the purpose of money laundering or to earn money through certain cash back deals or may be for debit fraud.
  • Certain claims represent opportunities for the agents to design an opportunistic fraud.
  • In case of cars, where auto insurance is compulsory, the customers tend to misinterpret the finer details while obtaining cheaper quotes. Such a fraud is called Fronting.

Out of all other insurance frauds, auto insurance is the segment that is hardest hit. According to an estimate by the National Crime Insurance Board, auto frauds in the US cost the insurance companies an estimated amount of USD 30 million every year. The figures are quite staggering aren’t they?

Reasons for Increasing Rates of Auto Frauds

The rates of auto fraud are clearly on the rise in the US. The detection of auto fraud is already a challenge and it is worsened due to the below mentioned reasons:

  • Scarcity of Resources: The resources required for detecting the auto fraud claims on time are diminishing in number. The trend will continue this year too. In North America alone there is a 50% shortage in the underwriting staff that would look minutely into the claims. This means there is no one accountable for detecting the pointers of a wrongful claim.
  • Pressure on the Existing Staff: There are thousands of claims submitted in each of the auto insurance companies. The existing staff of underwriters is overburdened with the number of claims they track. So, nothing more can be expected of them in terms of raising the number of claim investigations.
  • Frauds Going Undetected: It is seen that less than 1% of all the claims are referred for further investigations. This means that not sufficient number of claims is being thoroughly scrutinized. It is staggering that less than 0.5% of all claims are dismissed as fraudulent.
  • Digital Purchase Medium: A growing number of auto insurance policies are sold online. As there are more sales channels added to the repertoire of insurance companies there is need for these expertize as well within the organizations. Sadly, most of underwriters do not have the expertise to track claims from the digital sales channel.

How can Data Analytics service Help?

As the fraudsters are getting creative, it is the need of the hour that insurance companies are armed with appropriate automation capabilities. With automation capabilities insurance companies can attain fraud prevention, detection and management. The policies of business can be combined with new detection methods such as predictive modeling, anomaly detection and social media analysis for suspicious applications that could lead to fraudulent claims. Frauds can be easily detected by analyzing the person’s information such as claims payment, history, premiums payment and address of residence. Such analysis will surely bring up profiles or trends of frauds.

Where Data Analytics Makes a Difference?

Data analytics services deviates from the traditional approach of claims investigations in many places such as:

  • Bringing out abnormal patterns from information collected through various sources which would have gone undetected in the traditional approach.
  • Information is analyzed objectively which allows large volumes of information to be processed in a transparent way.

Minimizing the Fraud Claims

The process of fraud begins right at the point of initial application submission. The rate evasion or underwriting frauds are a direct result of providing faulty information that affects the rating. Some of the cases may be:

  • Under reporting of mileage covered by an automobile
  • A commercial vehicle shown as a personal one
  • Not mentioning the previous claims
  • Lies reported about medical history
  • Misinformation about the properties of policy holder

Business data analytics service can track the fraud right from the application stage. It helps understand the profiles and patterns of fake customers. Once detected the system can send out an early warning signal letting the investigation teams gather further evidence. With the use of analytics many insurance companies have been able to improve the rates of genuine claims and reduce the costs that are associated with fraud claim investigation. When businesses combat frauds with a well thought out data analytics plan they are able to run their business more efficiently and increase the customer satisfaction.