How to Build a Fraud-Proof Digital P&C Strategy

Leor Melamedov

There are many clear advantages to digitizing the insurance claims process — the efficiency, costs, and customer experience benefits are relatively straightforward to understand. But can technology also help support a fraud-immune insurance company?

If chosen and integrated successfully, technology has the potential to help insurance companies beat fraud while reducing the need for time-consuming, manual work. Here, we will explore how companies can harness technology to prevent fraud in the digital era.

The rise of FNOL insurance fraud, and what it costs

Considering that U.S. insurance companies collectively $1 trillion in premiums each year, there is bound to be fraud bound up in that number. According to FBI estimates, non-health insurance fraud stands at a whopping $40 billion each year. Of this amount, around $30 billion is property and casualty fraud.

Far from a victimless crime, all Americans must pay the price for fraud, with the average family paying $400 to $700 annually in higher premiums.

Whether it’s padding legitimate claims to receive higher payouts, falsifying information on application, submitting claims for non-existent damage, or staged accidents, fraudsters find creative ways to game the system.

Unfortunately, insurance fraud has only been increasing in recent years. The Coalition Against Insurance Fraud and the SAS Institute, which conducted a study of property and casualty insurers in 2018, found that three-quarters of insurers believed fraud increased slightly or significantly over the past three years. Significantly, none of the 84 insurers studied said that fraud decreased significantly over the last six years.

With the continued rise in fraud, it’s imperative that insurance providers take meaningful measures to stop it — while still making strides to fully digitize.

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How technology can support insurers’ anti-fraud goals

While digitization can in some ways make insurers more vulnerable to fraud due to the greater quantities of data being exposed and reduced human touch, this is far from an inevitability. In fact, the best software solutions for insurance address these weaknesses while doing more to fight crime than manual checks could ever do.

Fraud can be difficult to detect if it isn’t on companies’ radar. Many insurance companies today employ special investigation units (SIUs) to help representatives identify and handle fraud. While such measures are important, they tend to be cumbersome. Technology can augment and speed up the fraud prevention process without the need to hire special personnel.

While digitizing the entire claims process is first and foremost seen as a CX- and efficiency-enhancing move, it can also help significantly with compliance:

  • Non-siloed digital journeys: When claims forms, documents, and ID verification are all digitized starting from the frontend interface, it’s easy for agents to share this information instantly on the backend with, for example, underwriters and salespeople.

This open and easy sharing of information contributes to a full ecosystem of fraud fighting. Each person involved in the claims process can provide feedback to other parties in the moment, ensuring that fraud risks are communicated and flagged early on.

  • Frictionless security features: In addition to removing silos, completely digitized claims processes include authentication elements that add layers of security. — without imposing an extra burden on legitimate customers or other parties in the insurance company.

For instance, single-sign-on and one-time passwords can be employed to ensure the identity of the claimant during the FNOL insurance process. Time-stamped documents and forms with an audit trail ensure the validity of the application and prevent tampering. And digital ID verification allows a policyholder’s photo ID to be instantly and accurately compared to a selfie taken in “live” mode.

  • Human-augmented digitization: As we’ve mentioned, most insurance companies still rely predominantly on manual work from analysts and SIUs to manage fraud. Insurers undergoing a digital transformation will want to reverse that: the human element is there to support the technology, which does the bulk of the anti-fraud work.

Yet, fraudsters are more likely to go through with scams when they feel detached from the service provider they are working with. This is one reason to retain human agents to help guide customers (either via phone conversation or messaging app) through the otherwise digital and remote claims process.

The takeaway

Fraud is more likely when the risk seems low and reward seems high. Readily available technological advancements make it less appealing for potential fraudsters to go through with scams, and increase the flow of critical, fraud-alerting information among different parties during the process. In this way, digitization plays an essential role in staying compliant and risk free in the modern era.

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