Sanjeev Kumar is the head of the insurance practice at Saama Technologies, a business analytics services company.
Ten percent of the incurred losses and loss adjustment expenses each year in the property & casualty insurance industry are due to insurance fraud, according to an analysis by The Insurance Information Institute (III). Worse yet, the number of fraudulent claims are on the increase—statistics from the National Insurance Crime Bureau (NICB) show a 19 percent increase in questionable claims from 2009 to 2011.
Fraud analytics solutions use advanced analytics and data science technologies to cull through transactions and flag the ones that have clear and significant risk for further review. The analytics solutions are embedded in the normal workflow to identify potential fraudulent claims as the first notice of loss (FNoL) comes through, without any delay in processing the ‘good’ claims. The flagged claims can then be assigned to the right claims handler, while the rest can be paid quickly. This ability to separate the two is critical because customers have relatively few barriers to switch insurers and an unsatisfactory claim experience in the previous year can easily cause good customers to switch at the time of renewal.
Insurance companies should take advantage of advanced fraud analytics to anticipate and reduce fraudulent policies and claims in order to improve loss ratios. Reducing fraud through advanced analytics will have a faster and deeper impact on profitability than from improving operational efficiency. There are already some changes at work - innovative insurance companies are beginning to hire less ex-military/police personnel and more statistical modelers in their Special Investigation Units (SIUs).