As the industry attempts to keep up with the growth in fraud and deploy more effective anti-fraud technologies, spending by U.S. P&C carriers on fraud solutions, split roughly evenly between analytics and scoring products and services, is projected to grow by 44 percent between 2011 and 2016, according to a new study on fraud.
“The Escalating War on Insurance Fraud: P&C Carriers and Fraudsters Up Their Games,” the new report from Aite Group, provides an overview of the North American P&C insurance fraud battlefield, including its history and evolution. The information is based interviews with 22 North American P&C industry stakeholders and industry fraud-prevention organizations conducted from July 2012 to March 2013.
Aite Group estimates claims fraud in the U.S. P&C industry cost carriers $64 billion in 2012, averaging 14 percent of total net premium written, and will reach $80 billion by 2015. The report breaks down the estimated cost of fraud by product line and finds private passenger auto suffered by far the greatest hit, accounting for $26 billion of the total $64 billion. After that, homeowners’ multi-peril ($14 billion) and workers’ comp ($8 billion) were the only other two lines to suffer costs more than $4 billion.
Aite cites NICB numbers from earlier this year that make the consistent growth in questionable claims clear, including a 26-percent jump in 2012.
In response, P&C carriers are beginning to focus their fraud management strategies and investments on solutions that enable fraud detection as early in the claims process as possible, before claims payments are made and investigative opportunities are lost.
The amount spent annually by North American P&C insurers on fraud analytics and scoring products is expected to rise $20 million per year on average. The sector spent $271 million last year, and is expected to spend $291 million this year. By 2016, Aite anticipates spending to top $360 million, split evenly between scoring and analytics investments.
Advanced solutions outlined in the report include text mining, case management, visual link/social networks analytics, as well as more-evolved instances of identity management and verification, and analytics/predictive modeling. The report also mentioned advanced detection technologies, such as cyber defenses and outlier detection, as well as emerging investigation techniques, such as behavioral analytics and speech biometrics.
“P&C carriers should revisit and update their enterprise fraud strategies and actively review the many new and more effective solutions in the marketplace,” said Stephen Applebaum, senior analyst with Aite Group and report author. “Carriers that fail to improve their fraud-detection capabilities will find themselves both attacked by knowledgeable fraudsters and competitively disadvantaged.”
Aite also provides background on the efforts of vendors and organizations offering software and initiatives aimed at curbing fraud, including the Coalition Against Insurance Fraud (CAIF), CSC, Detica NetReveal, Equifax, Experian, FICO, IBM, Innovation Group, Insurance Bureau of Canada (IBC), ISO/Verisk, KPMG, LexisNexis, Mattersight, Mitchell, the National Insurance Crime Bureau (NICB), SAP, SAS, and TransUnion.
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