Insurance companies are experts in assessing risk. They've built robust processes for underwriting and claims, and for decades have led the charge in detecting and managing fraud. But when it comes to disbursements, such as payments to brokers, vendors, and policyholders, many insurers are still relying on outdated processes.
Fraud and erroneous payments are a persistent threat in insurance disbursements. As fraudsters grow more sophisticated, often leveraging AI to exploit weak spots, and as regulatory scrutiny intensifies, insurers are under pressure to make sure every payment is both accurate and secure. These vulnerabilities extend beyond financial loss and pose a challenge to operational efficiency and client trust.
The rising cost of disbursement risk
Disbursements are especially vulnerable because of how they are structured. While underwriting and claims workflows are often standardized and controlled, payments tend to involve disconnected systems and cross-functional handoffs. This fragmentation is even more pronounced among larger insurers that have grown through acquisitions and continue to operate with siloed platforms and inconsistent data controls.
The result is a range of payment issues, including duplicate payments, misrouted funds, and overpayments. These errors create avoidable costs and inefficiencies. Meanwhile, fraudsters are not only persistent but increasingly equipped with AI tools that allow them to impersonate trusted contacts, mimic communication styles, and time their attacks to exploit operational weaknesses.
Why verification is the missing safeguard
Many insurers lack the real-time verification needed to secure their disbursement processes. Effective verification is more than identity confirmation. It involves validating account details, understanding the context of the payment, and detecting suspicious behavior before funds are released.
Risk scoring has become more common in recent years, but its usefulness is limited if it doesn't lead to specific action. Assigning a transaction a "92% confidence score" does little for the person in charge of the payment. Verification should be actionable and designed to create certainty. A zero-trust approach—where nothing is assumed and all payment details are validated every time—is a better path forward.
How fraudsters are adapting, and how to stop them
Consider a real-world scenario involving broker commission payments. A fraudster gains access to a broker's email account and monitors it quietly over several weeks. They study payment patterns and note that large disbursements tend to go out near the end of each month, typically in the afternoon.
Just before a scheduled payout, the fraudster sends a message from the legitimate email address, mimicking the broker's style. The message reads, "Apologies for the late notice, but we've updated our banking details. Please send this month's commission to the new account attached." The timing is deliberate. The message is received at 4:45 p.m., just ahead of a payment cutoff. There may be no time for proper verification.
In such cases, a smart verification system can prevent fraud without providing feedback that helps the attacker adapt. Instead of issuing a rejection that reveals why the payment was flagged, the system can reroute the transaction to a previously verified payment method or pause it for human review. These fallback strategies help reduce risk without becoming a training tool for bad actors.
The role of data quality and anomaly detection
Anomaly detection is a powerful tool, but only when the underlying data is clean and consistent. Insurers need to normalize payables data pulled from various systems into a single format. Once normalized, this data can be analyzed for patterns and flagged when deviations occur.
This analysis might uncover unexpected changes in routing numbers, unfamiliar bank accounts, or shifts in payment timing. These subtle changes are often the early signs of fraud or internal process breakdowns. Anomaly detection can surface these issues before money moves.
However, the process must begin at the point where payment instructions are received—not just when funds are being sent. That early intervention is essential for effective prevention.
How insurers can take action now
To improve disbursement security and reduce errors, insurers should:
- Audit disbursement processes to find gaps in verification and control.
- Implement real-time verification of identity, account ownership, and payment context for every transaction.
- Use anomaly detection to identify patterns that deviate from the norm and require further scrutiny.
- Normalize and cleanse data at the beginning of the payment process to ensure accuracy in analysis.
- Adopt systems with intelligent fallback, so unverified payments are rerouted or escalated without exposing decision logic to potential attackers.
Protecting the moment of payment
Each payout is a reflection of the insurer's promise to deliver. When a payment is misdirected, delayed, or compromised, it raises questions about the insurer's reliability. Verification helps insurers fulfill their obligations with greater accuracy and security.
Strong disbursement controls build resilience and trust. With the right strategy, insurers can stop fraud, prevent costly errors, and improve operational outcomes in one of the most critical parts of the insurance lifecycle.
