Fraud, both detected and undetected, is a key concern area for everyone pivoting to digital lifestyles. According to an article published recently that talks about the global insurance industry, insurance fraud costs U.S. consumers at least $80 billion every year. It also estimates that workers’ compensation insurance fraud alone costs insurers and employers $30 billion a year.
Insurance fraud is a persistent problem that has not shown signs of slowing down. It is sometimes misinterpreted as a crime with no victims. Consumers, on the other hand, incur greater premiums and slower claims processing as a result of these crimes, in addition to the significant monetary and reputational losses suffered by insurance companies.
The ongoing Covid-19 pandemic is expected to increase cases of insurance fraud as reports already suggest the rise in Covid-19 related scams. A study released by the State of Insurance Fraud Technology found that AI has become an increasingly important tool for fraud detection, as con men are leveraging data online and on social media for such fraudulent activities. The good news is that India’s insurance industry has been able to curb fraudulent activities by digitizing fraud investigations. In a survey, 68% of respondents said their organizations were using digital solutions for investigations, while 19% said they were in various stages of planning the transition to digital.
Machine learning, predictive analytics, and data mining methods are increasingly used for fraud detection, as timely detection is key, considering there is a deterrent for fraudsters. Here are ways in which technology can help with the detection of fraud at the early stages.
A database network referred to as Blockchain, records transactional data in real-time. What this technology also does is it highlights concerns in terms of security, privacy, and control. This technology has also been hailed as an ideal solution to counter insurance fraud. A Blockchain ledger keeps a permanent record of transactions that is automatically synced without the use of a centralizing third party. It is a process where every block links to a previous block, and they all have time/date stamps. If a hacker attempts to change information on one of the blockchain copies, the other versions would reject it as contradictory.
Not just to protect our data but blockchain is also leveraged for preventing identity fraud in insurance practices. In today’s paradigm of passive, wholesale data sharing blockchain helps in segmenting data so that only those who need it have access to it. Custom permissions can be set depending on how data is stored on the blockchain. Your insurance provider, for example, may have access to your product policy, whereas your bank may just have access to your financial information.
Nonetheless, while Blockchain has received a lot of attention in recent years from a variety of industries, it does come with some risks and restrictions. Cyber-attacks remain a prominent issue: Blockchain poisoning, for example, is an attack that involves loading private data or illegal materials onto a network that renders it useless due to the conflict with local laws.
Anomaly detection is one of the key trends in cybersecurity practices, with numerous use cases such as fraud prevention. In the case of insurance fraud, machine learning (ML) models help in identifying what a normal claim looks like to establish a baseline. Once that baseline is defined, they can identify abnormalities and notify insurers. During claim processes, anomaly detection helps in examining legitimate customer claims. This creates a model of how a typical claim appears, which it applies to larger data sets. It can also be used by insurers to discover questionable conduct among users on their network.
For example, to detect fraud in large sets of insurance claims based on cases that are suspected to be fraudulent, the anomaly detection technique analyses past insurance claims to evaluate the possibility of each record being fraudulent. In transactional cases, if someone is not a frequent user of debit/ credit cards, but if large sums of money are transacted to purchase policies one after another from his/or her account within one day, banks will be able to identify anomalies and may block respective cards. However, these irregularities are not necessarily always indicative of intentional wrongdoing. Accidents and mistakes may happen even when no one is trying to defraud you.
As per MarketWatch, the Global Predictive Analytics market size will reach $34.1 billion by 2027. Valued at approximately $6.9 billion in 2019, it is anticipated to grow with a healthy growth rate of more than 22.17% over the forecast period 2020-2027.
Many of us consider predictive analytics as being one of the most important measures in trying to combat insurance fraud. Like anomaly detection, predictive analytics involves training artificial intelligence or machine learning algorithms using historical data, in order for them to ultimately forecast future incidents. The ability to determine vulnerabilities in the claim process is clearly appealing to insurers, who would be able to save time by acting to avoid fraud rather than reacting to it.
Predictive analytics helps in retaining a level of reactiveness rather than proactiveness. This solution relies on the use of historic data, which means that new schemes are unlikely to be detected as the models have not been trained to recognize them yet.
Speed up claims processing with chatbots
Reporting damage or theft to any insurance company generally initiates claim processing. Traditionally, it was done through brokers. However, with technological advancements policy holders could now leverage chatbots on insurance company’s website/mobile app to file the first notice of loss (FNOL). Chatbots would direct them to take photos and videos of the damage, which potentially lessens time for the fraudsters to change the data. These natural language processing (NLP) driven customer assistants speed up claim processing, without the requirement of human intervention.
Technology has become a day-to-day necessity for us as it has made our lives easier. Be it the usage of chatbots to interact with companies or home assistants like Alexa to manage something as simple as changing the audio loop. In the insurance sector, while the usage of technology started in customer support, continually refining machine learning algorithms have expanded its applications to multiple aspects, such as claim management, fraud detection, risk assessment, and pricing. While technology has changed the way the insurance industry works, it must be noted that this is not a replacement for human intervention but is aimed at making lives and processes easier.
Disclaimer: The views expressed are the author’s own and APAC News Network is not responsible for any of them.