Estimates suggest that insurance fraud costs U.S. households anextra $300 per year in higher insurance premiums. This staggeringnumber equates to roughly 20-to-30 cents of each premium dollarcollected by insurers.

One might expect the culprit to be losses resulting from "hard"fraud--the deliberate attempt to stage a loss. The reality,however, is that "soft" fraud--misrepresenting oneself on anapplication, or exaggerating otherwise legitimate claims byindividuals--actually occurs more often and results in even greaterclaims costs.

With that in mind, insurance companies should examine howclosely they monitor the accuracy of information provided byprospects and customers on policy applications.

They also should analyze the potential "little white lies"consumers might make on applications and determine how much thatundercuts premium payments--and, subsequently, their profits.

In fact, insurance providers can take control of their fraudlosses and prevent premium "leakage" by identifying erroneousand/or potentially fraudulent information before policies arebound.

Although insurance carriers realize the serious challenge fraudpresents to their companies, most have found it difficult toaddress the issue head on, or even measure the exact dollar amountit is costing their company.

Despite the inherent challenges in tackling fraud, most insurersrealize the importance of managing it but tend to address itreactively.

For many carriers, fraud is most commonly addressed after thefact by the claims and/or special investigative units. In fact,many insurance providers account for a certain percentage of lostrevenue to fraudulent activities up front.

As operations become leaner and underwriting strategies moresophisticated, the epidemic is becoming both quantifiable andmanageable. In fact, wouldn't it be nice to verify key componentsof an application that could save the company thousands, evenmillions of dollars per year before the underwriting team picks upa pen?

A positive answer to that question isn't wishful thinking. Thereare rating verification tools available that can be incorporatedinto the application process and deployed at the point of quote toverify an applicant's information and subsequently help insurancecarriers in making more-informed decisions about prospects.

Having verification technology at the point of quote is anenormous advantage. Agents and call center representatives canidentify discrepancies in the information applicant's provide andreceive simple, actionable messages.

Those messages would highlight what measures, if any, agentsshould take before underwriting a policy--such as confirming anapplicant's address, verifying an applicant's Social Securitynumber, or performing a vehicle inspection.

This enhances profitability by confirming events prior to theunderwriting process and well before a claim, when carriers areless likely to collect lost premiums.

Moreover, by underwriting at the point of quote and eliminatingmany of the potential fraudulent claims, insurers can redirect thework of claims and SIU departments to areas of greater fiscalconcern.

Because identity verification technology is relatively new, manyinsurers are hesitant to invest in it. Some cite a lack ofinformation technology resources or budget, while others suggest itis difficult to measure return on investment. In some cases, theyare using other tools that offer similar benefits or using them topredict claims.

Forward-looking insurers, however, recognize that by identifyingfraudulent activity at the point of quote, verification tools payfor themselves.

Consider that a large percentage of the revenue originally setaside as a result of fraud loss may be retained. Moreover,verification tools can help insurers uncover policymisrepresentations, thereby increasing profits.

On the back end, such technology can identify and prioritize thelikelihood of fraud, allowing the SIU to focus attention on themost probable fraud and collect accordingly.

Although there are several tools in the marketplace, insurersmust be savvy about the solutions they implement. The success ofany identity verification technology hinges on the quality of itsdata.

Therefore, it must be capable of accessing multiple, autonomousdata sources and algorithms while combining analytics, businessintelligence and decision-making so it can quickly confirminformation and flag data inaccuracies.

Unfortunately, fraud continues to persist in the insuranceindustry. Although consumers may adopt a "little white lie neverhurt anyone" mentality, the reality is that it's keeping dollarsout of insurance companies' pockets and raising the rates of honestconsumers.

Verification tools, however, can help insurers curb fraudulentactivity at the point of quote and subsequently boost profits.