In a down economy, everyone looks for new and different ways to make money, including criminals. Thus it should be no surprise that, according to our industry experts, insurance fraud is on the rise.
Obviously, more fraud is more costly to insurers and, in the end, more costly to insureds. Yet it seems that carriers are not responding to this threat with any kind of investment in anti-fraud technologies.
“Opportunistic fraud tends to increase in down economies, so insurers have been more diligent over the past couple years, but it has not necessarily led to any significant increase in IT investments [in anti-fraud measures],” states Mark Breading, partner, SMA Strategy Meets Action. “We've seen more of a constant level of investment for the industry as a whole as opposed to any uptick.”
I find this puzzling: It’s not as if there is any shortage of existing or new methods to prevent insurance fraud.
“Near real-time analytics, such as those used by credit card companies, are promising for catching organized fraud before it incurs larger losses,” says Rod Travers, EVP, Robert E. Nolan Co. “Retrospective analysis and proactive resolution are important deterrents as well because fraudsters quickly learn they can't get away with it.”
We also can’t really blame the reluctance to spend on the newness of the threat, since insurance fraud is as old as the industry itself. In fact, the industry’s lackluster response to increased fraud may have its roots in the idea that such activities have always existed and have thus been relegated to the category of “cost of doing business.”
That makes sense because such an attitude would tend to have a great deal of inertia. As Newton explains it, a body at rest tends to remain at rest unless acted upon by some outside force. The insurance industry has viewed fraud as a constant for so long that even when an outside force (the economy) increases the frequency of fraud, we tend to maintain our view.
But how long can we afford to remain inert? How big a loss will it take for our industry to realize that this threat is growing not only in frequency but in sophistication? Perhaps we tell ourselves that once the economy gets better, fraud will abate. But this ignores the obvious fact that if fraud efforts are successful, they will continue, regardless of the unemployment rate or GDP. In any case, according to some economists, full recovery from the current malaise may take another decade.
At the moment, the industry’s ship is willing to tolerate the ever-increasing leaks in its hull, perhaps doing a little bailing with a shot glass to keep things at status quo. But just as anti-fraud technology improves over time (even if it is not bought), criminals’ technical sophistication and knowhow also increase. If we don’t invest in stopping the bad guys, they will be far ahead of us before long.
Insurers who want to keep their vessels afloat need to pay attention to what is happening now, instead of hoping for a future that may never come.
Ara C. Trembly (www.aratremblytechnology.com) is the founder of Ara Trembly, The Tech Consultant, and a longtime observer of technology in insurance and financial services.
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