Technology is a propulsive force essential to combating fraudagainst America's cornerstone industries, from credit cards tobanking to investments and insurance. It's equally vital fordismantling terrorism. Untold billions of dollars, not to mentionlives, can be at stake. Controlling such crimes also can have astabilizing impact on America's economy.

Tech weaponry can identify insurance schemes, expose their innerworkings, and uncover material evidence that helps break open theplots.

Insurers have entered an expansive era in their use ofanti-fraud tech weaponry, and they understand the fraud pathogen isspreading. They are increasingly using more-sophisticated techweaponry to counter a host of emerging fraud threats. Investmentsin technology also are growing, and insurers appear to be gettingpositive returns on those investments.

The State of Insurance Fraud Technology

These are among the findings of a just-released study, The State of Insurance Fraud Technology. It wasconducted by the CoalitionAgainst Insurance Fraud, with assistance from thebusiness-analytics company SAS. More than 40 insurers participated,representing nearly 80% of the property-casualty market. Thisstudy is a follow-up to the 2012 effort.

The annual dollar losses to fraud against insurers are unknown,yet more than half of responding insurers agree that suspiciousactivity rose over the last three years.

Attempted fraud also flows throughout the entire claim cycle,insurers perceive. Scamming starts at the point of sale during theapplication and renewal process and continues through to theclaims.

Emerging threats

Insurers require technology to be versatile enough to counterdiverse and serious emerging threats. Innovative technology allowsinsurers to take an offensive, first-strike posture that disruptsschemes and denies swindlers a chance to make false claims.

Sophisticated rings appear to be growing. Major fraud isshifting to suspicious bodily-injury claims by medical providers.This is most true of auto and workers' compensation.

Thwarting fraud rings thus is a recurring theme of the study. Infact, slightly more than half of responding insurers agree thatuncovering complex or organized fraud is a perceived benefit oftechnology — about the same as in 2012.

Money-laundering is a hallmark of organized schemes, and about25% of insurers are now using technology to detect this crime.

Point-of-sale fraud is another growing area of insurer concern.Criminals are illegally garaging vehicles in other locales toillicitly lower their premiums, and committing other forms of rateevasion. About one-third of insurers use technology to counter rateevasion at policy inception.

Cyber fraud is an emerging crime as well. Insurers collect vastquantities of data that is valuable to identity thieves. The numberof insurers reporting cyber attacks has grown markedly in recentyears.

Yet only 14% of insurers use technology against this threatdespite the potentially large-scale theft of sensitive policyholderidentities and resulting damage to the insurer's brand. The numberof insurers using technology of against cyber attacks, however,should rise significantly in the next few years.

Insurer use

The growing sophistication of fraudsters is reflected in therelatively wide insurer use of more-advanced tech weapons. Notsurprisingly, traditional automated red flags/business rules formthe first line of defense (81%). But large numbers of insurersalso use:

• Link analysis (50%);
• Anomaly detection (45%);
• Predictive modeling (43%);
• Text mining (43%); and
• Data visualization (40%).

Disrupting rings

One-quarter of insurers plan to expand their technologyinvestments in the next 12-14 months. They appear to see a clearROI. Only 8% said lack of ROI was a challenge to implementingtechnology, compared to 36% in 2013.

And the expanded tools surveyed are especially adept atdisrupting organized fraud rings such as no-fault medical schemes.All of which suggests more insurers plan an increasingly proactiveposture that places key fraud schemers on the defensive and deniesmore false claims earlier in the claim cycle.

Link analysis. This is where most insurersforecast expanded use. Link analysis can be especially effective inspotting complex relationships among ring members. A well-insulatedno-fault ring with dozens of attorneys, doctors and chiropractors,recruiters and “injured car passengers” is a prime candidate forlink analysis.

Nearly half of insurers (45%) say they plan to expand use oflink analysis — more than double their 2012 investment increases.

More technology options

Predictive modeling. Nearly 40% of insurersplan greater investments in a tool that can help identifysuspicious claims in closer to real time, and even project ascheme's likelihood of occurring.

Text mining. Insurers can unearth large volumesof unstructured data embedded throughout the enterprise.Traditionally this case-breaking data has been largely inaccessiblewith other tech tools.

Scripted comments in claim notes and call-center logs, forinstance, now can be quickly identified. Almost one-third (30%) ofinsurers plan to increase their investment in linkanalysis.

Data visualization (23 percent) enablesinsurers to quickly see shifts in things such as tactics ortargeted product lines.

Going forward

On balance, the study paints an expansive picture. Insurers aremoving steadily forward in adopting technology to counter emergingfraud threats, and move ahead of these scams. Advanced tools are abigger part of the picture than ever and use will be expanded inthe near future.

The study also raises questions about whether enough insurersare prepared for cyber fraud and other serious threats. But in theend, the survey results send a strong message: Fraudsters have goodreason to worry.