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Technology is one more tool in the fraud toolbox

With insurance fraud still on the rise, investigators are expanding their arsenal and finding technology is an extremely effective weapon. (Photo: Shutterstock)
With insurance fraud still on the rise, investigators are expanding their arsenal and finding technology is an extremely effective weapon. (Photo: Shutterstock)

Insurers continue to see an increase in insurance fraud, but more and more are turning to technology to help in the battle against fraudsters.

In a recently released study by the Coalition Against Insurance Fraud, State of Insurance Fraud Technology, 60 percent of insurers said they have seen an increase in fraud over the last three years.

The biennial study was conducted in conjunction with analytics company SAS and highlighted research from 86 insurers who comprise a significant portion of the property-casualty market. And while fraud continues to escalate, insurers are employing more technology to catch fraudsters earlier in the process.

Fraud-fighting tech paying big dividends

“Insurer investments in fraud-fighting tech are paying bigger dividends, and faster,” explained Dennis Jay, the Coalition’s executive director. “Insurers continue gaining confidence that tech is a nucleus of their efforts to stem surging fraud crimes.”

Related: New weapons in the war on fraud

The perceived increase in fraudulent activities has given insurers the impetus they need to invest in technology to assist in identifying a variety of insurance crimes.

Reliance on automated systems

According to the study, close to 75 percent of insurers now rely on automated systems to help detect false claims and 6 percent of insurers said they received at least 60 percent of their referrals for additional investigation from technology systems. That figure is up 25 percent from 2012.

Here is a look at some ways insurers are using technology to identify fraudulent claims and mitigate possible losses earlier in the process.

questionable fraud claim

Technology allows investigators to search thousands of claims to quickly identify those that may be fraudulent. (Photo: Shutterstock)

Red flag rules

Using rules-based technology that automatically flags possibly fraudulent claims is the most popular technology, with close to 90 percent of insurers who are using anti-fraud technology selecting this method for detection. This is an increase of 26 percent from 2014.

Thirty-two percent of insurers said they update their red flags at least annually, with 32 percent saying they actually refresh them more than once a year to keep their information current.

computer data

Access to a information from a wide variety of sources allows for more effective data mining and better results when identifying fraudulent claims. (Photo: iStock)

Data matters

The amount of data available to insurers from a variety of sources continues to increase with many using a combination of internal records and public records, social media and other sources that can be included in their technology systems in order to flag questionable claims. The number of insurers in the survey who said they utilize predictive modeling increased to more than 50 percent.

Link analysis and data mining are also increasing, with two-thirds of insurers saying they utilize these tools as well.

Industry fraud alerts are also becoming more valuable, especially since fraud tends to cross over into more than just the insurance industry.

Related: The changing face of fraud

fraud key on computer

The number of insurers using technology for fraud detection has jumped 11 percent in four years. (Photo: Shutterstock)

Benefits of technology

Technology’s role in fighting fraud cannot be underestimated, especially since 70 percent of the insurers said that technology now accounts for as much as 10 percent of their fraud referrals. That number is up slightly from 2014.

The insurers indicated that technology allowed them to receive better referrals for further investigation and it actually helped in mitigating the losses they experienced.

Related: Optimizing tech solutions

computer screen with data 

Despite significant advances, technology still flags claims that may not be fraudulent. (Photo: Shutterstock)

Technology limitations

However, technology is not a panacea. Limited IT resources affect its effectiveness for insurers, especially those with smaller budgets or less in-house expertise available. While companies are aggressive in using technology for marketing, legal and underwriting aspects of claims, in many cases budgets are not adequate to hire outside services or purchase additional technologies. Almost one-third of the respondents indicated they were planning to increase their budgets in 2017, but 52 percent weren’t adjusting their budgets.

Related: 4 ways technology is disrupting fraud

Another issue involves the number of false positives that can be generated from using technology, since this can lead SIU investigators to chase claims that really aren’t fraudulent. Despite vetting many of the leads, an increase in false positives wastes valuable resources.

Part of the increase can be attributed to how narrow a scope the insurer uses. The study found that insurers who use a combination of technologies and multiple sources of data seemed to have fewer false positives.

man working on iPad

Fraud technology will continue to become more sophisticated and intelligent, improving insurers' odds of catching fraud much earlier in the process. (Photo: Shutterstock)

Measuring success

When it comes to determining how successful their technology efforts were, 50 percent of the insurers said their fraud detection rate was the key indicator, and 16 percent said the number of referrals was also important. Some companies used the number of days from the first notice of loss to notice to when the fraudulent claims were detected to determine program effectiveness. Interestingly, 20 percent said they don’t use any type of metrics to gauge the success of their efforts.

Going forward, a successful fraud detection program will continue to involve a combination of knowledgeable claims staff, as well as new and existing technologies. The right mix will allow insurers to effectively manage their claims costs, provide accurate pricing and excellent customer service, while still remaining competitive. 

Related: As insurance fraudsters get smarter, so do investigators and their methods

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