Tipping point – Why technology is essential to combat insurance fraud

It has been argued that insurance fraud has existed ever since the first insurance policy. In the 17th century it was not uncommon for merchants to hide boats and their cargo and claim them on the insurance policies. However insurance fraud received little attention until the 1980’s. By this time the rising price of insurance, especially in the area of auto insurance, meant that it was a problem the insurers could no longer ignore. Initially, to tackle this growing problem, insurance companies began implementing business rules and red flag techniques to identify activities that looked suspicious. This technique initially proved successful, especially in discovering opportunistic fraud. However today, the fraudsters are a lot more sophisticated and insurance companies are experiencing a significant increase in organized fraud, such as medical provider fraud. The size and scope of these organized fraud rings was underscored earlier this year when one no-fault clinic ring in New York allegedly filed nearly $300 million in false claims between 2007 and 2012.

Today insurance companies are at an inflection point. The only way to combat this growing problem is for insurance companies to update their existing fraud detection techniques and embrace fraud technology. This topic was recent covered in a survey by the Coalition Against Insurance Fraud.  The primary finding from this report were :

  • 88% said that they currently are employing anti-fraud technology. Less than half, however are using technology for non-claims functions such as underwriting fraud.
  • 52% say the major benefit of anti-fraud technology lies in uncovering complex or organized fraud.
  • 31% of insurers report that they expect increases in technology budgets next year. Predictive modeling and text mining (see chart) represent the top two areas in which insurers are looking to invest in the future.

To discover more insights from the survey, download a copy of the research paper “The State of Insurance Fraud Technology”, or tune into a webinar with Coalition Against Insurance Fraud and SAS on October 24th at 11am EST. To register click here.

One Insurance company that does understand how technology adds value to the claims fraud problem is CNA, a $9 billion US commercial insurer that operates in highly fraudulent lines of business, such as workers’ compensation. CNA chose the SAS Fraud Framework for Insurance, not only for its predictive modeling capabilities, but also for its Social Network Analysis components that help find broader patterns and connections among medical providers indicative of organized fraud. Within three months of implementing the SAS solution, the CNA SIU department had opened 15 new provider investigations with an exposure of $20 million, plus recovered fraudulent claims totaling approximately $600,000. Read the full success story here.

The importance of this issue was further endorsed by insurance advisory firm, Strategy Meets Action. At their inaugural Innovation in Action Summit, SAS was recognized as the IT Solution Provider of the Year for our work on the SAS Fraud Framework for Insurance. According to Karen Furtado, Partner at SMA, “SAS provides a cutting-edge solution by combining key next generation technologies to help insurers detect and prevent both opportunistic and organized fraud claims fraud.”

With increasing combined ratios, insurers are at the tipping point. Lax fraud management practices put a company at a competitive disadvantage. It is recognized that insurers’ anti-fraud programs have matured considerably over the last twenty years; unfortunately more still needs to be done. As the Coalition’s survey found the time is right for insurance companies to invest in technology to prevent insurance fraud before it reaches epidemic proportions.

I’m Stuart Rose, Global Insurance Marketing Principal at SAS. For further discussions connect with me on LinkedIn and Twitter.

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