Claims fraud is estimated to cost P&C insurers $30 billion annually, according to a new report from Deloitte, titled “A Call to Action: Identifying strategies to win the war against insurance fraud.” Workers’ compensation and automobile insurance lines currently represent the areas of largest fraud activity for P&C insurers, according to the report.
The report outlines two types of fraud: the deliberate faking of an accident and fabrication of a claim, called hard fraud, and exaggerated values on legitimate claims or misrepresented information in an attempt to garner lower policy premiums, labeled soft fraud.
According to the report, the Insurance Research Council-Insurance Services Office has noted that almost half of P&C companies report that between 11 and 30 cents or more of each premium dollar is lost to soft fraud alone. To boot, questionable claims have increased 19 percent compared to 2009, according to the National Insurance Crime Bureau.
While there are several obstacles inherent in fighting fraud—no collective industry approach, limited legal options and enforcement power, increased potential for fraud in personal injury protection states, problems with data quality and legacy systems, tolerant consumers in the face of rising premiums caused by fraud—Deloitte pushes companies to adopt an end-to-end fraud management process.
Deloitte’s four pillars of an integrated fraud management program include developing a fraud management strategy, aligning the operating model, improving information quality and leveraging advanced technology tools and analytics.
“Some companies have invested in improving data quality and adopting technology tools, but still lack the business processes, workforce competencies and organizational structure needed to act on the insights gained from data analysis,” the report states. “Other companies have worked to enhance their operating model, but have failed to develop a clear strategy of what they hope to achieve. Although these efforts can yield some benefits, they are unlikely to capture the potential synergies among the different aspects of fraud management.”
Deloitte outlines its four steps toward reaching an end-to-end process: First, developing a fraud management strategy that identifies the end-goal to be achieved, during which a company needs to ask themselves how public they want to be in their stances on fraud and how aggressively they will pursue fraudulent claims. Second, operational models need to be aligned along with that strategy—for example, fraud objectives should be incorporated into performance goals and evaluations, guidelines for referring claims and SIU duties established and staffs bolstered or reduced as needed.
The last two steps in the process specifically involve technology: The third step should find companies focusing on improving the quality of information by establishing data standards and enhancing data sharing, and the last step is leveraging technology tools and investments in analytics.
The report reminds readers that only after establishing new operational models can new technology be fully taken advantage of, and that publicizing successes, as well as the economic detriments of rampant fraud, is necessary for lasting change. For a full copy of the executive summary, click here.
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