Sniffing Out Fraud in the Digital Age

Insurance carriers have witnessed a dramatic increase in consumers’ acceptance of digital activity compared to the pre-pandemic levels of early 2020. We expect these accelerated levels are only going to increase.

As a result, carriers are faced with weighing the significant pros and cons regarding how this behavior shift impacts their business. With careful guidance, insurers can successfully navigate digitizing their business while providing an enhanced customer experience. The first step is for insurers to confirm that their fraud-mitigation and identity-verification capabilities safeguard against these activities and match the seasoned techniques from fraudsters within the industry. Evaluating defenses and then identifying a solution that enhances the current option—or implementing a new one—on a continuous basis offers carriers a thorough approach.

To determine how best to assist carriers in identifying and combating fraud, we commissioned a research study for Aite-Novarica Group, and the resulting report, “Insurance Fraud: Rethinking Approaches in the Digital Age,” provides new insights for carriers on how to identify vulnerabilities and ways to mitigate them, while offering the ultimate customer experience.

Overall, the research revealed that insurance carriers saw an increase in consumer digital activity across both underwriting (77%) and claims (76%) during the coronavirus pandemic. Indications are that this digital increase has, in turn, driven more identity fraud activity, according to 67% of survey respondents.

P&C carriers, in particular, are increasing their use of digital claims with digital claim initiation and claim payments, which makes them more susceptible to fraud. And P&C carriers are experiencing a high percentage of claims fraud perpetrated through illegally obtained policies.

Managing the Enhanced Customer Experience

 The increase in digital interactions has multiple benefits for insurance companies, according to the research study. Carriers are seeing improved customer experiences unfold and can expand relationships over the life of a policy and beyond the time a claim is filed. In the meantime, while this digital explosion rises, carriers are also faced with a steadfast threat of identity theft and fraudulent occurrences.

To help protect against fraudsters, it is important for carriers to know where to pay close attention. There are, almost uniformly, three entry areas where carriers are seeing increased fraudulent activities: underwriting, or at the point of application; customer service, or at the point of account access; and claims, or at the point of payment.

Some of the most common fraud incidents reported by insurers that the industry needs to be aware of include:

•     Increased use of online portals to purchase a policy, create a new account, or access an existing account.

•    Use of false information in submitting an application or taking over an existing account.

•     Gaps in the use of alternative underwriting methods and data—for instance, aerial imagery to find a property location in the claims process.

•    Holes in understanding the electronic devices interacting with a carrier’s system.

These identity-verification and fraud-mitigation solutions provide the dual benefit of helping carriers identify and flag discrepancies in the submitted data proactively, while also providing carriers the ability to identify and fast-track genuine consumers with confidence.

Ensuring Secure Verification Capabilities

With fraud rates and risk increasing, insurers must confirm their capabilities to guard against fraudulent activities and match, in strength, these advanced methods. Considering a multi-layered approach is the first step to improve mitigation efforts. This layered tactic works across two dimensions: First, from a functional standpoint, carriers need to act on the prospects of fraud across underwriting, customer service, and claims. Next, in looking at capabilities, carriers should assess strengths and gaps across the functional areas, implementing a set of solutions.

Many types of solutions have emerged to help protect online identity and accounts, but the level of adoption among carriers varies. While multi-factor authentication is widely implemented, more advanced fraud-mitigation solutions, like digital fraud risk scores and link analysis, remain underutilized.

Based on findings from the Aite-Novarica Group research study, it is recommended that carriers use a combination of solutions that specifically address fraud risk in underwriting, customer service, and claims to complement existing customer-facing solutions and fill any additional vulnerabilities. While many of these solutions are being used, there are opportunities for carriers to integrate more of them into their workflow in order to increase their security. Taking a look at the current mix of implementation:

•    Multi-factor authentication is the most used fraud mitigation strategy, with 73% of carriers currently using it. Those carriers cite its increased accuracy in identifying fraud as well as its benefits for easing compliance, deployment, and efficiency.

•     One-time passwords are also frequently adopted, with 70% using them, particularly small commercial carriers.

•    Password-free authentication is the top solution for reducing underwriting and claims fraud, and while 67% of carriers are currently using it, many more should look to add it to their workflow.

•    Link analysis tools, which sift through data repositories and identify connections between customers and accounts, is only used by 58% of carriers.

•    Digital fraud risk scores can be very helpful in identifying and escalating risk, yet only about half of carriers (54%) use it, underlining the need for further exploration and investment by many carriers.

As for the aforementioned P&C carriers, there is also a need to acquire a holistic view of the personal insured, including the electronic devices they own that are interacting with their systems. This not only helps to minimize application fraud when the devices don’t match, but can also aid in mitigating the number of fraudulent claims that are both initiated and paid.

Insurance carriers have multiple opportunities to mitigate and prevent fraud. At the same time, they need to make it easy for customers and agents to interact digitally and strengthen relationships to achieve customer satisfaction, retention, and business growth. For carriers looking to get ahead of fraud and guard against their bottom line, the Aite-Novarica Group report offers five recommendations:

1.   Recognize that the evolving digital activity between carriers, agents, and consumers has become the new normal, and that you need to grow with it.

2.   Don’t overlook the current increase in fraud; address it before it results in higher claims costs, strained operations, and tainted consumer relationships.

3.   Close the capability gap by implementing more advanced fraud prevention solutions.

4.   Adopt a multilayered approach with multiple solutions for a more robust defense, because no single technology will adequately detect and prevent fraud. 

5.   Spread investment across functional areas to ensure your customers are protected throughout their policy life cycle.

Increased fraud threatens to dilute the benefits carriers are experiencing by digitizing their business, but carriers can guard against it. Implementing multilayered fraud strategies now protects a carrier’s business and empowers it to be a reliable and trusted partner for its customers, while enhancing the relationship experience.