More than half of insurers (57 percent) expect to see an increase in fraud losses this year on personal insurance lines, according to a survey of U.S. and Canadian insurers by FICO, an analytics, credit scoring and decision making services company. One in three said when it comes to premium leakage and new applications, they are not adequately protected against fraud; 5 percent said they expect to see a decline in dollar fraud losses on personal lines.
When asked about how to fight the rise in fraud, the greatest portion of respondents (20 percent) cited predictive analytics. Insurers also noted anti-fraud teams for specific books of business (17 percent), link analysis for detecting fraud (8 percent), and business rules for stopping known fraud types (7 percent) as viable approaches for fighting fraud.
"Conventional industry wisdom has held that fraud losses average around 10 percent of claims volume, but according to our survey the actual number is significantly higher," said Russ Schreiber, VP of the insurance and healthcare practice at FICO.
In the survey, 35 percent of insurers estimated that insurance fraud costs represent 5-10 percent of their total claims, while 31 percent said the cost is as high as 20 percent.
In the United States, 42 percent of insurers foresee the New York, Pennsylvania and New Jersey as being hardest hit by personal lines fraud. In Canada, 42 percent of insurers foresee Quebec as being hardest hit by personal lines fraud, and 39 percent foresee Ontario as being hardest hit.
Respondents also said they expect the biggest fraud loss increases to hit personal property, workers' compensation and auto insurance. In terms of fraud by individual policy holders, 58 percent of insurers forecast an increase in personal property fraud, 69 percent forecast an increase in workers' compensation fraud, and 56 percent forecast a rise in personal auto fraud. The majority of insurers (51 percent) attributed the increases in fraud to inconsistent economic recovery in low-growth areas.
Only 11 percent of insurers blamed the expected growth in fraud on the increasing sophistication of criminal rings, despite the fact that 55 percent are seeing a rise in workers' compensation fraud rings and 61 percent are seeing a rise in auto fraud rings.
The survey also found that 63 percent of insurers believe there is increased risk of fraud in no-fault states compared to states with tort systems. According to FICO, no-fault insurance has come under fire in recent years due to spiraling medical costs (40 percent more than in states with tort systems) and rampant fraud.
The Insurance Fraud Survey included responses from 260 insurers throughout the U.S. and Canada who were surveyed in July 2013.
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