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In his latest blog, Tyrone Cole discusses the concept of a counter fraud eco-system from an insurance industry perspective, and more specifically the three key disciplines of the system that help to create an effective counter fraud strategy – technology & data, people/organisations and process

 
Tuesday 2 March 2021
Read time: 3 mins
Managing fraud in the global insurance industry

Insurance fraud is not a victimless crime. Studies around the globe estimate between 5% and 20% of all claims have some element of fraud, yet most carriers detect less than 3% costing consumers in increased premiums and carrier’s profitability.
Fraudsters are not bound by regulatory constraints, IT budgets or jurisdictional boundaries like the insurance industry is, giving them an advantage in the global fight against insurance fraud.
 
There are many articles and publications that discuss counter fraud eco-systems from an individual organisation’s perspective, and most speak to just the various technology and analytics used. An effective counter fraud eco-system is much more complex and overlapping. The Venn diagram below demonstrates the integration of the three distinct yet integrated disciplines.
 
Venn diagram - Managing fraud in the global insurance industry
 

Technology & Data


When assessing the technology and data discipline from a fraud detection and alerting discipline perspective, it’s important as an industry to have a multi-layered analytic approach to identifying suspicious activity. To do so, the industry must utilise Anomaly Detection, Heuristic Rules, Social Network Analytics, predictive modelling, advanced Artificial Intelligence and machine learning to keep false positives low and accuracy high. The detection and alerting system used has to be a somewhat open architecture that is open API “friendly” to incorporate various technologies like image and document verification and validation, device ID authentication, voice analytics and others. With the accelerated rate of new technology this point is critical in the future proofing of any system.
 
One of the strongest advantages the insurance industry has in the fight against fraud is the data that is available. The disadvantage to having that data is the industry’s lack of desire, resources or risk tolerance to share that data from a cross carrier perspective. As with all three disciplines, the breaking down of historical data silos and increased collaboration applying analytics across a combined or fused data set is essential to fighting fraud on a regional and global basis.
 
 

People/Organisations


When considering this discipline from an industry perspective, we should keep in mind all the key industry stakeholders in building an effective eco-system, as well as the trends to expect in 2021 and beyond. Consortium of Carrier’s as well as individual companies, Regulatory organisations, Law Enforcement (local, national and international), Fraud or Insurance Crime Bureaus, industry organisations like the International Association of Auto Theft Investigators (IAATI), International Association of Special Investigation Units (IASIU) the Annual Global Insurance Fraud Summit as well as other regional organisations dedicated to fighting fraud and more.
 
While the insurance industry manoeuvres through the “digital transformation” and era of ‘InsurTech’, many organisations are struggling to find, upskill or retrain talent to meet the needs of modern technology driven platforms. This trend is likely to continue over the next three to five years.
 
A consortium or fusion centre is one solution to help ease the resource deficit many regions around the globe are facing. This would allow for more accurate decisions through better industry data management, and analytics efforts aligned to industry goals.
 
 

Process


A consortium or fusion centre is “a collaborative effort of two or more organisations or internal departments that provide resources, expertise, and information to the centre with the goal of maximising their ability to detect, prevent, investigate, and respond to suspicious, fraudulent or criminal activity”i.

Fusion centres have the ability to fuse and analyse information from multiple sources, organisations, and disciplines into a regional or local picture, and identify cross carrier events that may otherwise appear unrelated.
 
The data is fused together in an encrypted or masked format that preserves the need to and authority to know protocols in compliance with statutory and regulatory mandates. The data is then scored for the likelihood of fraud or suspicious activity and provides proactive alerts and intelligence to other members of the consortium/fusion centre while protecting proprietary and competitive information. There are several process models that can be utilised in a consortium process depending on the need, regulatory environment and budget. It could be as simple as providing match reporting data to show another claim with the same entity such as a person, vehicle, business or supplier/provider, or scores with social network analysis and access to a common user interface to manage alerts and investigations. The possibilities are left to the imagination of the members of the consortium.
 
There is much more to consider, but fighting fraud across the globe has to be more collaborative and in a consortium process model. These models are unbelievably complex so we look to use our experience to support our customers and make them work with regional nuances and operationalised analytics by creating the feedback loop.
 
To summarise the benefits of consortium and fusion centre the industry should realise:

  • More effective use of cross industry counter fraud information

  • More accurate decisions through better industry data management, analytics efforts aligned to industry goals

  • More efficient internal business processes and collaboration

  • Higher ROI from technology investments as counter-fraud standards become more widely accepted

  • Distribution of cost and expense to allow all carriers an analytic and investigative resource

  • Better intelligence and fact based  decisions (fraud prevention and detection)

  • Higher prosecutorial success

  • Stronger regulatory compliance

 
 
 

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