Effective fraud prevention today means P&C carriers need to be both proactive and reactive, with multifaceted methods of detection that create a "perimeter defense" against misrepresentation. Insurance-company executives have to employ enterprise-wide solutions that examine insurance applications at underwriting and apply intelligence gained through investigation of fraudulent claims to predict policyholder behavior early in the process.
Here are several strategies to help prevent insurance fraud:
1. Keep fraudsters out of your insurance pool. If insurers can keep out the worst risks—individuals who become rate evaders, perpetrators of arson for profit, claimants who fabricate or exaggerate property damage, leaders of or participants in organized fraud rings—they will be ahead of the game in terms of fraud prevention. Intelligence gathering during the application process is mandatory in building an effective perimeter defense.
Today, there are multiple screening resources available to underwriters. When new applicants apply, insurers must analyze applicant identities and their insurance and loss histories—as well as assess whether there is a criminal or insurance-related fraud background. And as the underwriting process becomes faster and more mobile, the architecture of the screening process must keep pace with the online-quoting process.
2. Screen auto applicants. For auto-insurance applications, underwriters should assess a driver's history of claims, verify key elements (such as Social Security number) and check an individual's motor-vehicle reports. The vehicle also has to be checked out: A report on vehicle registration can confirm ownership and verify the VIN is registered properly with the state's Department of Motor Vehicles. In today's highly competitive underwriting climate, all information must be available in real time.
3. Screen property-insurance applicants. Property insurers need complete and accurate information to identify the loss history of an insurance applicant as well as the loss history of the property. They will want to confirm the person buying a homeowner's policy is, in fact, the owner of the property. Historic claims information combined with state-of-the-art geographic-information-systems technology can help confirm the condition of the property and risk location. After a policy is in force, there are other data sets available to monitor those risks. One example is foreclosure information that may indicate a change in the status of the coverage.
4. Create disincentives to committing fraud. The most careful applicant-screening process can only go so far. There will always be people willing to commit fraud who may slip through the cracks and into your pool of insureds. For these potential fraudsters, it's important to create disincentives to committing fraud. If insurance fraud looks risky or unprofitable, potential fraudsters may be discouraged from pursuing illegal activity.
5. Resist payments of fraudulent claims. Technological advancements are positively impacting insurers' ability to confirm the validity of claims. Claim scoring, predictive analytics and other analytic models are now a part of automated claims evaluation. New information resources and data sets are adding to these capabilities. For example, with the refinement of satellite photography, checking the legitimacy of property claims may be as easy as accessing high-resolution photographs of the property before and after a reported loss event. Similarly, a claim confirmation can be as simple as using weather forensic reports to evaluate a reported loss due to severe weather.
6. Use social media to spot fraud. Today, social-media outlets are providing investigators with more opportunities to catch fraud. For instance, a number of Workers' Compensation and auto-injury claimants have been caught posting pictures and messages online that reveal their health is much better than they led claims adjusters to believe.
It should be noted there are varying limits on the permissible uses of social-media information. Your investigators must be well-trained and must proceed with caution in terms of acquisition and application of this information.
7. Prosecute repeat offenders. Organized fraud ring cases have been on the upswing. Today more than ever before, insurers are focused on catching the most active fraudsters. With the help of the National Insurance Crime Bureau and state fraud bureaus, the industry is improving its ability to identify these types of operations. Aggregated-loss-data analysis and industrywide alerts are helping to penetrate these groups at earlier points in claim evaluations.
Insurers can prevent a wide range of fraud schemes with a multipronged approach: identifying misrepresentation at underwriting; detecting claims fraud effectively; creating disincentives to commit fraud; and focusing on the most active fraudsters. And, of course, the great "value add" of an efficient and effective detection program, beyond the resistance of fraudulent claim payments, is a reduction in cycle time and better customer service for honest applicants and claimants.
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