Categoría: Fraud Prevention

Fraud is inherent to the nature of insurance. This, because only a few companies are really able to make the benefits of a policy tangible without the occurrence of a loss, which makes policyholders feel that the value paid is an expense and not an investment for the prevention of a risk.

Attempting to take advantage of a policy can range from exaggerated claims, misrepresentation of information or even staging a claim.

According to the definition of insurance fraud, it is «any act committed in an administrative, operational and/or indemnity process with the intention of obtaining a benefit to which the perpetrator, insured and/or claimant would not have been entitled if they had told the truth, generating an impact on the affected party (generally economic)«.

The above is understood not only for proven and gross fraud but also for its intent, which is the vast majority of events that occur in an insurance company. We are talking about those occasional fraudsters who seek to take advantage of an eventuality and although less severe than structured fraud, both are malicious and should not be tolerated.

Organizations such as the ACFE (Association of Certified Fraud Examiners) estimate that insurance fraud accounts for about 10% of total claims received on average for all lines of business.

Insurance companies have developed different strategies to manage fraud risk. Some of them have specialized units for prevention (SIU – Special Investigations Unit), while in others are the actors themselves who manage operations based on their own experience.

Only a few companies employ fraud prevention software, although it is estimated that those companies that don’t prevent 1,5% of fraud at best.

Risk events are defined from desk and field research processes, not only incurring significant costs and diluting savings, but also impacting effectiveness, since we know that fraud is dynamic and, in many cases, the defined controls become obsolete in a short time.

Understanding that under the fraud triangle there must be a need, an intention and an opportunity, we only have control over the latter because the others are the fraudster’s own. The most effective way to manage fraud is with dynamic controls, adjusted with data analysis according to the needs of the process, seeking not only to detect and manage fraud but to attack it even before it is acquired by the company, thus avoiding the risk.

Part of the problems that insurers face in this area is that the volume of data and its recording is complex, which prevents a correct analysis and definition of reference guides to identify suspicious events. 

LISA Insurtech has a solution that manages fraud through processes based on artificial intelligence and flexibility, using Homero (AI documentary) and Burns (AI images) as the basis for the extraction of detailed information for the claim and the automaton that performs the analysis for decision making.

This implies that in the analysis process artificial intelligences can identify patterns, previously charged items or those with a higher value than the average, frequency and severity, among others. This, in conjunction with a powerful static and dynamic rules engine fully managed by the user, without interaction from LISA Insurtech, provides flexibility in the adjustment of rules and processes according to requirements.

In the process, we must not only consider how to identify fraud, but we must also manage the investigation processes and their results to account for savings. This involves selecting suppliers, monitoring service agreements, reading reports and recording fraud values and intent.

These complementary processes are often managed manually by insurance companies, generating inconveniences and not showing the real effectiveness of the implemented controls. LISA Insurtech allows this to be done automatically, issuing follow-up communications to ensure compliance with service agreements and the stability of the operation according to current needs.

These systems enable prevention and also detect 5% of all fraudulent claims, generating a significant increase in efficiency and constantly growing given the self-learning nature of the process.

We are all aware that we must fight fraud – today we can do it with a smart ally like LISA Insurtech!

Finally, after this series of the Triangle of Fraud, we can summarize the keys of each vertex.

Rationalization: although it is one of the most difficult to combat, building a relationship based on customer trust is necessary. This is how they will know that there are honest people behind it who may also be affected.

Motivation: as we know, it is difficult to control a client’s circumstances. But as insurance experts, we can be more open and transparent about what effects fraud has on the insurance industry. 

As we said at the beginning, fraud also affects other policyholders, including the fraudster himself, let’s not forget. The more fraud occurs, the higher the prices of insurance policies will be. 

If educated in this way, potential fraudsters would not have that incentive!

Opportunity: Insurers have a real advantage in combating fraud. To eliminate that part of opportunity, simply close the doors through which fraud can be committed. 

We have two questions to ask ourselves: Are insurance agents trained to detect the warning signs in a claim? Do their systems encourage or facilitate the most common fraud?

Using Artificial Intelligence, LISA Claims can simplify the collection and verification of evidence of claims and help policyholders file their claims in a simple way, minimizing insurance fraud.

LISA Claims favors the reduction of operating costs, the reduction of settlement times and customer satisfaction at all times.

Thanks to technology, we have the opportunity and ability to regain control and stop fraudulent behavior, which benefits all parties involved.

The last part of the fraud triangle refers to «rationalization,» or the reason the fraudster believes that insurance fraud is justified. Some of these frequent justifications may include the following:

01. «Everybody does it.»

Small-scale fraud is a common phenomenon in the insurance industry that anyone would think is easy to carry out.

Insurers are often seen as companies to whom a few dollars are no big deal and can be quickly recovered. Unfortunately, precisely this reasoning encourages people to commit more fraud.

02. «I have no other choice.»

If a person feels that they have a money or liquidity problem, it may cause them to be desperate. From this, the person will not think twice before committing fraud, as it may be the only option to get some money.

03. «I have not been treated as I expected.»

A person who feels that their insurance company has not treated them as they deserve may use this argument to commit fraud.

As 100seguro points out in one of its articles, people «allow» themselves to do what is not correct, convincing themselves that it is not theft but an act of justice.

Fighting insurance fraud with LISA Claims

At LISA Insurtech we use artificial intelligence and automation of processes and business rules to manage and resolve claims.  

The artificial intelligence analyzes both documentary and photographic evidence and is able to identify patterns, previously charged items or those with a higher than average value, frequency and severity, among others. This, in conjunction with a powerful static and dynamic rules engine fully managed by the user provides flexibility in adjusting rules and processes according to specific requirements.

These systems generate a significant increase in efficiency thanks to the self-learning nature of the process.

Go to the last article of this series.

As we saw in the previous article, with the Fraud Triangle framework we can understand why an individual decides to commit fraud. Now we will talk about the vertex of «Motivation,» that is to say, the motives that make the individual commit fraud. 

Sometimes this motivation can also be referred to as «pressure,» referring to the feeling that something is pushing the insured to behave fraudulently. Some of these reasons can be:

• Personal Incentive:

The most obvious reason a person makes a fraudulent claim is their circumstances. An example of this could be a feeling that they should be earning more, so they take fraudulent action with their insurance to profit from it.

• Enjoyment of the Reward:

Some policyholders who commit fraud simply enjoy the process of getting a little more than they should. They may also like the idea of «cheating the system» and feel compelled to repeat their behavior in future claims.

• Claims for low amounts that «do not arouse» the insurer’s suspicions:

We have already mentioned that some fraudsters do not consider what they do a crime. This is an incentive explored by psychology professor and economist Dan Ariely in his book ‘The (Honest) Truth About Dishonesty.’

After investigating 30,000 people, Ariely stated that “most people cheat to the extent that it allows them to retain an image of themselves as reasonably honest individuals.”

Although your fraudulent claim may be small (or at least not large enough to impact your self-image), each of these small claims adds up to a large amount, resulting in significant losses for insurers.

Now let’s see what the last vertex of the fraud triangle is: rationalization.

Insurance fraud has always existed and affects not only insurance companies but their policyholders as well. This article will discuss the Fraud Triangle and its impact on the insurance industry.

To give you an idea, it is estimated that the cost of insurance fraud amounts to 40 billion dollars annually, directly affecting the cost of premiums for policyholders.

What is the Fraud Triangle?

This is a model used to explain why an individual decides to commit fraud, helping us understand the motivation and mindset of fraudsters.

Starting with this, if we can understand why and how insurance fraud occurs, we can work to stop it. Let’s break down the three vertices of the triangle: Opportunity, Motivation, and Rationalization.

01. Opportunity:

Insurance fraud cannot happen unless an opportunity presents itself. These opportunities can be difficult to mitigate and even more difficult for insurance companies to control.

An opportunity for insurance fraud can arise from any situation, including «the ability to redefine or exaggerate claims.«

A 2015 report by German economic researchers found that «redefining» and «exaggeration« were the two most common forms of fraudulent insurance actions.

We will give you an example of this!

Imagine that a claim is made for a loss due to damage not covered by the insurance policy. This person will «redefine« what has happened so that the damage fits with some coverages and, with this, access the payment. 

These policyholders also take advantage of all the «loopholes» reflected in the company’s agent’s report to get their hands on an even higher amount of money than it should be. This is known as «exaggeration.»

Incomplete information: another excuse to commit fraud

Altering information is another form of an opportunistic fraud. For example, a customer may see the price of their auto insurance policy go up by naming their 18-year-old daughter as the primary driver.

Faced with this situation, the insured has two options. Either he pays more, or he remains the main driver even though his daughter is the person who will be using the car the most (this option involves significant risk, but many policyholders opt for it).

Following an investigation by the Research commissioned by the Association of British Insurers, it was discovered that most cases of fraud are carried out because the insured trusts and believes that he will never be discovered or that he simply believes that what he is doing is not a crime.

Want to learn more about the other vertices of the fraud triangle? Keep reading!

In our previous article, we gave you a little taste about the importance of fraud prevention in the insurance industry. Some figures and also we mentioned two of the 5 technologies that are being used to stop them.

So, in this article, we will tell you everything about the 3 technologies that are equally important and necessary for insurance companies to prevent fraud and operate securely in all their processes.

03. Computer vision: Let’s evaluate the cost of the loss.

The computer vision models infer meaning from visual inputs, such as images and videos. The models can evaluate the cost of loss by evaluating videos and photos taken to send a FNOL.

In consecuence, the insurance company has an idea about the cost of repairing the damage.

In the case of LISA Claims, we make use of Computer vision and with this we are able to carry out documentary and photographic analysis to estimate damages more accurately and prevent fraud during the settlement process.

Therefore, we avoid inflated repair claims, where the scammers use false invoices and bills about the maintenance brocedure to get more money from the insurance company.

04. IoT: Let’s notify claims immediately.

The insurance companies can be notified instantly about a claims thanks to the connected universe of intelligent devices.

An example of this could be an event of a car accident, the insurance company will be notified without the policyholder having to contact the insurer, thanks to a beacon installed to the vehicle.

As a result of this, the claim processing starts as soon as the damage is done, giving the scammer little time to manipulate the data to their advantage.

In addition, the insurance companies can use the IoT to compare the policyholder information in the FNOL like the ubication, time and y average speed of a car accident, with the available data stored in the smart vehicle’s memory.

05. Blockchain: Let’s avoid double-dipping frauds

El blockchain is a database network that record such transaction data in real time while addressing security, privacy and control concerns. Therefore, it is beneficial to a number of insurance practices.

Let me give you a real life use case: The blockchain prevents double-dipping frauds, where the policyholders file a claim with more than one insurance company.

Blockchain’s distributed accounting technology could prevent repeated transactions for the same claim from being approved. Only the claim with the most approvals would be considered valid, while the others would be disregarded.

Conclusions

After having diving into this topic, which is very important for the insurance industry, we reaffirm how necessary it is to implement and promote technology in the insurance industry.

All this will bring us a great number of benefits that will not only have an impact on the insurer but also on the honest policyholders.

What would you do if you could find a comprehensive solution with each of the above technologies?

Through our star product, LISA Claims, it is possible to detect and prevent fraud thanks to our wide range of technologies:

• Artificial Intelligence.
• Chatbots.
• Computer vision.
• Blockchain.

Do you dare to innovate your insurance company with LISA Claims?

It is known from FBI reports that insurance frauds (excluding health insurance) costs more than $40 billion a year only in the United States.

However, if we add health insurance costs, the total amount of insurance in the U.S. market exceeds $100 billion.

Under this premise, there is a clear need to protect the insurance industry in the face of the great wave of fraud that is occurring all the time. If this is not curbed, the consequences extend to a long list.

For all these reasons, in this article we will explain which technologies are necessary for the insurance industry to prevent fraud.

How can we prevent fraud?

First, it should be made clear that frauds are not something that only affects insurance companies; on the contrary, it has a negative impact on their policyholders as well.

Part of the financial cost of frauds is reflected for policyholders in the form of higher premiums.

Now, starting from this point, let’s explore these two technologies that we can implement in our insurer to curb fraud and its consequences:

01. Artificial Intelligence

The insurance companies that uses some types of Machine learning (ML), are capable of identifying similities betweens} previous fraudulent actions.

Insurance companies can classify each case as fraud or non-frauds. Over time, ML models find the parameter values that indicate a suspicious claim and flag them for further investigation.

It should also be made clear that fraudsters are always devising new fraud schemes. Supervised ML models may be ineffective at detecting new types of fraud, while unsupervised models are good at detecting anomalies.

Behavioral Analysis

According to the article from AI Multiple, is a new tool that insurers can use to combat insurance fraud.

These provide information about people’s actions by tracking and interpreting their browsing history, clicks, location, etc. They also help insurers determine whether policyholders’ claims are reliable or not.

02. Chatbots: Let’s speed up the processing of claims.

These customer assistants are driven by Natural Language Processing and the accelerate the claims processing. Today, it is possible to send the First Notification of Lost (FNOL) following the chatbot instructions. 

In consecuences, the first step of the claim processing is completed inmediatly without the necessity of involving a human expert.

The chatbots drive the customers to take pictures and videos of the damage and this, give the potencial scamers less times to change the data.

In a nutshell, thanks to the inmediate FNOL, the scammer can not tamper the original data. Therefore, the probability of false claims is reduced.

Conclusiones

While it is true that insurers have undergone a very slow metamorphosis, they need to continue adopting technology.

Technology makes our lives simpler and also protects us from not so pleasant situations such as fraud.

Get to know LISA Claims! With our flagship product you will be able to prevent fraud during the entire claims settlement process thanks to the use of AI and the chatbot where the FNOL will be carried out.

Get to know us! It’s totally free and you won’t regret it.

Fraud has always been an issue of concern for the insurance industry, as it is one of the most sought-after targets for organized crime.

In the words of Arturo López Linares, director of claims at Axa Spain, «digital fraud is the future we are going to be in and we are not prepared for it», as reported by the portal 65ymas in one of its articles.

He also points out that «it is the great concern of the insurance industry», in addition to the fact that «companies need to accelerate their capabilities to detect digital fraud, they need more technology and more investment».

How to fight against this fraud? Investments.

During the pandemic alone, cyber-attacks increased by 600%. With the prospect of work and e-commerce continuing to grow, data protection is one of the biggest challenges for companies in 2021.

With the new invention of 5G, it is more than likely that it will bring with it potential vulnerabilities, for which we must keep a close eye.

It is important to allocate resources to cybersecurity and not limit ourselves. The vice-president of the National Securities Market Commission (CNMV), Montserrat Martínez, stated that 23% of large companies suffered a security incident during 2020. Martínez warns that people are becoming increasingly accustomed to news of attacks to access data or carry out some kind of fraud.

Insurance companies and digital fraud

Insurance companies have been confronted with three types of fraud: occasional, premeditated and organized.

The first refers to when a person takes advantage of a real loss to fatten the indemnity or settlements.

In the second, premeditated, the damage may be real or fictitious, but it has clearly been planned in advance.

Finally, organized fraud is one of the most dangerous frauds, which are committed by organized criminal gangs. Insurers are clear that they will soon have to add digital fraud.

Criminals already rely on technologies, i.e. they carry out a digital crime. They do this by forging digital documents such as invoices or identity documents, manipulating claims management websites.

While insurers are just beginning to explore the digital medium, they must be prepared for the impending wave of fraud.

At LISA we have the most advanced technology to digitize and protect the insurance industry from the most malicious frauds.

How prepared are you to combat this type of crime? Count on our support 🙂

Frauds are nothing new for any industry that we talk about, however, the industrial sector that is most known for commonly suffering this type of crime is insurance, where unfortunately the insured also pay the consequences due to the increase in your cousins.

The impact of Covid-19 in the insurance sector, made it possible to establish new measures to continue operations, in addition to taking into account the detection of fraud during this contingency, establishment of a culture to fight fraud, the use of of RRSS to combat it, among others.

It should be taken into account that the rapid changes in the way in which insurers operate and fight against fraud had already begun before the Covid-19 pandemic occurred. Digitization and Artificial Intelligence are mechanisms that provide great potential to benefit insurance companies, despite this, scammers work to perpetrate a crime.

Key findings from the fraud study

It is known that Covid-19 forced 65% of insurers to focus on digitization, almost half of them focused on reducing costs and 30% increased their fraud controls. Working on fraud prevention is important, in addition to enabling a digital way of working, which is more prone to perpetrations.

However, the desire to move towards digital processes has not yet been fulfilled with the action. Many insurance companies surveyed still rely on their staff’s intuition and manual methods to prevent and predict fraud.

18% of claims have a fraud component

Pinning down an exact number of how much fraud has affected the insurance industry is difficult. However, it is pointed out that fraud represents approximately 10% of the cost of all claims, but respondents found that on average they believe that 18% of claims contain a fraudulent element, misrepresentation and inflation.

The most committed fraud during the Covid-19 pandemic were simulated accidents and car thefts, billing of ghost services or procedures, and bogus accidents that “happened” in people’s homes. Eliminating fraud has an unspoken payoff to the loss ratio and is the main reason respondents are willing to take new initiatives to their advantage.

Assessing claims in real time provides better customer service, making critical moments magical. Other benefits include better portfolio quality and investigator efficiency, plus real-time screening of incoming customers offers a better experience and greater loyalty.

As insurers drive digital change, it’s important to remember the importance of including fraud prevention as part of your digital toolkit. Real-time monitoring of risks and policies, fraud and claims throughout the processes, will make a healthy and convenient portfolio possible.