New research has shown that rapidly increasing cases of online fraud, a situation made worse by the pandemic, has prompted more insurers in the US to turn to predictive algorithms and digital identity technology to stem the tide.
Usage of predictive analytics to fight fraud has now reached an all-time high, according to an insurance fraud technology study.
The research, put together by analytics and AI firm, SAS, in collaboration with the Coalition Against Insurance Fraud, revealed that 80% of insurers are now employing AI-powered modelling to help detect fraudulent activity – that’s up from 55% in 2018.
The study also underscored the soaring significance of identity verification software, cited as important for 40% of survey respondents. Identity analytics is quickly becoming must-have technology for insurers amid an alarming spike in malicious phishing scams, up 600% since the pandemic’s onset.
David Hartley, Director of Insurance Solutions at SAS, said:
“The shifts we’ve seen since the 2018 study emphasise the increasingly sophisticated technologies needed to foil insurance fraudsters’ criminal exploits.”
“Predictive modelling is up 25%. Text mining has nearly doubled, jumping from 33% to 65% in three years. These findings prove that, even as Covid has fuelled rampant fraud, insurers are agilely stretching their advanced analytics and AI capabilities to counter rapidly changing threats.”
Gauging insurance fraud technology trends since 2012
Insurance fraud causes more than $80 billion in losses annually in the United States alone. Fraudsters the world over are using phishing schemes, malware and even social media quizzes to steal sensitive personal information from unsuspecting consumers.
The lucrative data is then sold on the dark web for nefarious purposes, such as traditional identity theft or the creation of synthetic IDs using an amalgam of stolen and fabricated data. Scammers can use the identities to file bogus claims for cash or collect commissions from insurers for selling fake policies.
Since 2012, the Coalition has used its biennial State of Insurance Fraud Technology study to track how technology is augmenting fraud fighters’ abilities to thwart fraudsters and criminal rings.
Dave Rioux, Coalition Co-Chair and Chair of the organization’s Research Committee, said:
“Capturing these trends over time enables us to understand how, and to what extent, insurance companies use anti-fraud technology.”
“This research also provides important insights into emerging use cases and common challenges, helping the entire industry discern the technologies that are proving most effective against these unprecedented fraud attacks.”
Other key finds from the study include:
- Anti-fraud technology is flourishing. The study identified automated red flags (88%), predictive modelling (80%), text mining (65%), and reporting capability (64%), among insurers’ most used anti-fraud technologies.
- Insurers are diversifying their data sources. Beyond relying on their own internal data, insurers are turning to industry fraud-watch lists (88%), public records (79%), third-party data aggregators (55%), social-media data (48%) and data from personal devices (15%). Notably, the use of unstructured data soared from just under half in 2018 to 81% in 2021.
- A picture is worth a thousand data points. Insurers are flocking to photo analysis technology (up from 49% in 2018 to 81% in 2021) to authenticate claim damage, identify digitally altered images, and index pictures submitted in other claims.
- Investigators are clamouring for more resources. New anti-fraud technology is creating efficiencies in investigative processes, but the resources insurers are dedicating to internal and external investigative teams are insufficient to keep pace with the billions in fraud committed each year. Limited IT resources was the top anti-fraud challenge, cited by 68% of respondents.
Kim Kuster, Principal Business Consultant in SAS’ Global Security Intelligence Practice, said:
“We know that criminals are using advanced technology at scale to steal personal information and plunder billions of dollars from insurance companies each year.
“Wider adoption of emerging technologies and deeper investment in human- and machine-powered fraud fighting capabilities will help turn the tide of fraud flooding the domestic and international insurance markets,” Kuster added.
Prevention and detection are a key defence against financial crime. Changes in crime trends, new technologies, the economy and wider society also mean the risks relating to financial crime are always changing.
FinCrime Global brings together over 70 thought-leaders that are committed to fighting financial crime and lead the way on how we can do this better, more efficiently and effectively.
25-26th January 2022