Insurance fraud is a multi-billion-dollar problem impacting both insurers and policyholders. This blog examines the statistics and different ways fraudsters operate, focusing on property insurance claims and how Artificial Intelligence (AI) is revolutionizing the fight against it. Learn how AI can detect fraud early, improve efficiency, and create a more secure insurance landscape.
Insurance claim fraud is a global challenge affecting individuals and businesses alike. In the United States, the Coalition Against Insurance Fraud (CAIF) estimates an alarming annual cost of $308.6 billion attributed to insurance fraud, with Property and Casualty (P&C) accounting for $45 billions of this sum. According to the FBI, the average household incurs an additional $400–$700; per year in increased premiums due to insurance fraud.
Similar challenges confront the UK and Europe. In the UK, the Association of British Insurers (ABI) has identified 72,600 fraudulent insurance claims valued at £1.1 billion. Alarmingly, it is estimated that a similar amount of fraud goes undetected annually. Moreover, the average value of fraudulent claims rose by 20% in 2022 reaching £15,000, compared to £12,283 in 2021.
Insurance fraud manifests in many forms, from staged accidents and fabricated property damage to filing false or exaggerated claims or inflating repair costs. This nefarious activity is driven by organized crime syndicates, manipulation on social media platforms, and individuals seeking swift financial gains.
Understanding the prevalence and methods used for claim fraud is crucial for effective countermeasures. Let us look at some common property insurance claims fraud schemes-
- Staged losses:
- Water damage frauds: Deliberately causing water leaks or manipulating plumbing systems to fabricate damage and claim false payouts.
- Fire fraud: Engaging in arson or deliberately setting small fires to claim considerable damage and insurance benefits.
- Construction fraud: Inflating repair costs by overbilling for materials, services, or unnecessary work, padding claims with fictitious expenses.
- Exaggerated damages:
- Property overvaluation: Inflating the value of damaged items or claiming non-existent losses to maximize payouts.
- Duplicate claims: Submitting the same claim to multiple insurers or filing for the same damage under different policies.
- Ghost policies: Taking out insurance policies on non-existent properties or vacant buildings to file fraudulent claims.
Role of innovative technology and AI in fighting fraud
The role of innovative technology and AI in combating fraud is pivotal. Emerging technologies such as Gen AI, analyse complex data and identify potential fraud promptly, leading to transformative efficiency gains and a change in thinking towards proactive defence and unparalleled customer service. Here are some examples:
- Real-time anomaly detection at first notice of loss (FNOL) . Advanced AI, trained on vast datasets of historical claims and fraud patterns, scrutinises every incoming claim. It identifies deviations from established behaviours, narrative inconsistencies, or suspicious geospatial data, triggering immediate alerts. This proactive analysis significantly reduces the likelihood of fraudulent claims entering the system, streamlining operations, and saving precious resources.
- Demystifying the why behind the claim - AI delves deeper, analysing claimant behaviour, social media footprints, and even external data sources to build a comprehensive risk profile. This intelligence empowers adjusters to understand the potential motivations behind a claim, enabling them to make informed decisions with laser-sharp precision.
- From reactive to predictive: Anticipating the next move - AI, due to its continuous learning mechanism, evolves to anticipate emerging fraud trends and adapt its detection models accordingly. This proactive approach puts insurers one step ahead of fraudsters, minimizing losses and safeguarding the financial well-being of the entire industry.
The impact of Gen AI and other innovative technologies in detecting claim fraud is undeniable. Claim fraud detection solutions powered by AI not only reduce losses but also enhance customer service by expediting legitimate claims processing. This translates to increased profitability for insurers and a smoother, more secure experience for policyholders.
However, the journey does not end here. As AI continues to evolve, its capabilities will refine the fight against fraud. From advanced natural language processing (NLP) for deciphering fraudulent narratives to image recognition for detecting staged accidents, the future holds immense potential for a fraud-resistant insurance landscape. By embracing its analytical prowess, the insurance industry can fortify its defences and pave the way for a future where trust and transparency reign supreme.
Conclusion
AI is a powerful tool for combating insurance claim fraud. By embracing AI, insurers can streamline operations, save money, and provide a better experience for honest policyholders.
How Coforge supports insurers in combating insurance fraud
With our deep understanding of the insurance life cycle and the use of innovative technologies like AI, we deliver comprehensive solutions tailored to every stage, from claims processing to fraud detection. Coforge’ s Quasar, an exceptional AI Platform engineered to develop enterprise AI capabilities, provides a robust suite of solutions and GenAI accelerators that assist insurers in combatting claim fraud.
For expert consultation, contact us at: insurance@coforge.com
Reference
https://insurancefraud.org/fraud-stats/ https://content.naic.org/cipr-topics/insurance-fraud https://www.fbi.gov/stats-services/publications/insurance-fraud https://www.covermagazine.co.uk/news/4123505/value-average-insurance-fraud-jumped-2022
-1.jpeg?length=1920&name=Artefact%201%20(2)-1.jpeg)
