An act of deliberate dishonesty in providing misinformation in order to gain financial profit against or by an insurance company or provider — this is just one of the most common descriptions of insurance fraud. Driven by profitable opportunities, insurance fraud has become a lucrative business. Next to tax evasion, it has been considered the largest crime committed in the U.S. today. The irony is that most people who commit this crime don’t realize the negative consequences when convicted of insurance fraud. Prison time, huge amount of fees to the insurance company, legal fees, and negative effects on social and professional standing are just some of the major consequences that come with it.
Different Types of Insurance Fraud
As we know it, there are tons of insurance fraud nowadays. To make it simple, we have categorized it into two major types: external fraud scheme, which is committed by individuals such as policyholders and their beneficiaries against the insurance company, and internal fraud scheme, which is committed by the insurance company staff themselves.
The most common types of external insurance fraud include life, health care, automobile, and real estate property. Health insurance billing fraud and unnecessary medical procedures are the most common types of health care insurance fraud. Theft, accidents, and exaggerating damage are the usual types of automobile insurance fraud. You can imagine how many people commit these faked incidents every day. On the other hand, policyholders are also warned about some insurance companies that secretly launder and steal insurance premiums and assets.
Red Flags: Detecting Insurance Fraud
For most of policyholders, detecting potential insurance fraud may sometimes become painstaking. The best that we can do is watch out for red flags. Before signing up, make sure to review the provisions and coverage of the policy, especially for new companies. Be cautious about short-term policies that promise huge claims. Know your agent. Ask more questions.
If you are working in an insurance company, there are certain red flags to watch out for. You already know that screening each potential policyholder is a must. Review their history and current background before signing them up; even policyholders who pay their premiums up front can be suspected of potential insurance fraud. Any suspicious activities of policyholders in terms of their coverage should raise a red flag. Learn how to study behavior.
Digitization is becoming the greatest tool of some major players in the insurance industry. Taking advantage of technology, insurance providers are now able to eliminate the complicated process of screening, tracking, and filing their policyholders’ information. Examples of fraud detection through digitization include social network analysis (SNA), predictive analytics, and social customer relationship management (CRM).
The most common automobile fraud schemes include false declarations in order to benefit a third party, circumvent cases not covered in the policy, and benefit the insured. The most common insurance fraud schemes committed by professionals are perpetrated against a company by executives, employees, or managers. Life insurance fraud schemes include when a fictitious death certificate is given and when an insurance application is “postdated” to attempt to insure a deceased person.
Fraud on the rise
It seems however that insurance fraud is on the rise and something needs to be done about it. Published in the Ernst & Young Fraud and Insurance on the Rise “Fraud risk exposure from claims or surrender is a major concern area for industry players.” Also published in the report, it was documented that 40% of respondents to the survey says that they have reported an increase of fraud within their company, of which 22% reported an increase of 30-40% yearly increase.
This increased risk, coupled with the lack of proper risk management infrastructure and frequent review of its policies is fundamental in the protection against the rising illegal activity. One of the most beneficial protection schemes is the proper use of analytics.
Is Analytics the Answer?
Analytics has proved to be a significantly influential factor in protection against insurance forward, however, there exists a reluctance to use it, due to the hefty price it costs to initially setup the software. If companies are looking to prevent insurance fraud it is a necessary measure that must be implemented despite initial set up costs. Not only has it shown to save time to refer a questionable claim by 95% it also increased the success rate in pursuing fraudulent claims from 50-88% (Infinity Insurance Company Case Study). It is without doubt the only way forward if we are serious about stopping fraud within the insurance industry.
Stop Insurance Fraud
If you ever wondered why insurance fraud has been treated as a serious crime, realize this — everybody is a victim. When insurance fraud takes place, not only the insurance company suffers. For the most part, those honest policyholders who pay their premiums shoulder the loss through increased insurance costs. This crime has to stop. People put a lifetime of investment in their insurance policies. Don’t be a part of a plot that would take that away from them.