Insurers' anti-fraud tech budgets on the rise

Insurers’ anti-fraud approaches are maturing, according to the latest biennial study by the Coalition Against Insurance Fraud and SAS.

The “State of Insurance Fraud Technology” survey, which reached 84 carriers, revealed that lead quantity has dropped from a concern of two-thirds of insurers to one-third, the lowest level since the report’s 2012 inception.

“This was the most surprising outcome of the 2018 study,” says Dennis Jay, executive director of the Coalition. “We believe it signals a maturing in how special investigative units [SIUs] use technology. Insurers have discovered that generating a large quantity of leads causes SIUs to expend significant resources that produce inadequate results.”

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Another sign of insurer progress was reflected by the first reduction in reliance on traditional detection tools, like automated red flags and business rules. Instead, insurers have increased their interest in deploying a combination of more advanced solutions, such as predictive modeling, exception reporting, and case management, all of which are now deployed by over half of respondents.

According to Jay, using a blend of more sophisticated tools is also alleviating challenges with excessive false positives and negatives, which showed a decline for the first time. “Rather than the historical approach of relying on one or two technology tools, insurers who report fewer frustrations with false positives and negatives are those with a robust blend of tools,” he says.

As for the types of fraud where insurers are applying technology, 90 percent of survey respondents -- which are more heavily P/C insurers -- concentrate on detecting claims fraud.

However, uncovering underwriting fraud surged from 27 percent in 2012 to 55 percent today, which Jay believes is having a deterrent effect. “At the Coalition, our social media monitoring shows people are saying it’s no longer worth attempting to commit underwriting fraud because the chances of getting caught are so high,” he points out.

Budgets on the rise

Moving forward, insurers are clearly bullish on the benefits of fraud detection technologies, with 41 percent expanding their tech budgets for 2019 and only two percent contracting. For purchasing, two-thirds expect to acquire claims fraud detection technologies, with a third investing in underwriting solutions.

Tool sophistication investments are also a priority says the study, which was conducted in partnership with SAS during November and December 2018. The top areas where insurers will spend new money are predictive modeling, at 64 percent versus 19 percent in 2016, and link analysis/social network analysis, at 43 percent versus 16 percent two years ago. New on the list is AI, where about a fifth of insurers are planning purchases.

On the investment findings, Jay strikes a cautionary note. “Many in senior management seem to have fallen in love with hot innovations, such as AI, without really understanding that success requires employing trained analysts and investigators to interpret the data produced,” he says.

Jay also emphasizes looking beyond the specific anti-fraud products your competitors are adopting to determine which technology partnerships are the best for your company. “Those who take the time to thoroughly investigate potential solution providers are achieving better results than those who simply jump into purchasing the latest thing, he says.”

Regardless which particular anti-fraud solutions make the most sense for your business, Jay notes that you’ll find new options coming on the market in the days ahead. “We’re hearing about many new exciting technologies in the pipeline,” he says. “We expect such advances will assist with deterring fraud and, as a result, enable insurers to shift their focus toward detecting complex schemes, which ultimately helps keep costs in check.”

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