Research Proves Insurers Lack on Fraud Detection

Let’s face the facts. In 2019, the Norwegian insurance association, Finans Norge, stated that the total amount of proven fraud cases totalled more than €11 million, based on only 827 proven fraud cases. In 2018 the Danish insurance association, Forsikring & Pension, stated that Danish insured people pay way too much for their premiums because of insurance fraud.

Unfortunately, it is unknown how much fraud is committed in Denmark since not all insurance fraud is uncovered. On the other hand, in 2014 91% of the Danish people answered to a survey that they expect insurance companies to do everything in their power to fight fraud. Insurance companies have one obligation to ensure that no compensation is paid to persons who are not eligible for compensation. It is in the interest of all insured that money doesn’t flow to fraudsters. So, insurers should act in times when fraud is on the rise. In their annual market survey, Finans Norge shows that insurance fraud is more socially acceptable than other types of crime, especially among youngsters. This is a serious problem for the industry. Most cases detected are those where the customer reports a fictitious loss and/or exploits/takes advantage of. These types of insurance fraud are also the most common in Denmark according to Forsikring & Pension.

Figures in the US show the same trend. There, the total cost of P&C insurance fraud is more than $80 billion per year in the US alone, according to the Coalition Against Insurance Fraud. That means insurance fraud costs the average US family between $400 and $700 per year in the form of increased premiums.

Effective fraud detection approach

Based on the research of Finans Norge, an effective fraud approach is needed. Only 827 fraud cases are known and are responsible for €11.6 million in losses. This means that a fraud case on average costs €14,000. So, it is fair to say that the know fraud represents only the top of the iceberg. This raises the question: what do you do to prevent fraud?

Folksam is one of the largest insurers in Sweden and offers a wide variety of insurance products, serving about 4 million customers that represent more than 3 billion premium income and almost 1 million claims each year. Folksam is aware of the threats from fraudsters and acknowledges that about 10% of all claims are potentially fraudulent. “We want our customers to feel safe that we are doing our utmost to protect their premiums and their money from being exposed to fraudulent people.” says Klas Beskow, head of investigations of Folksam. T

hey decided to move to a more structured process to fight fraud. To get there, Folksam choose for FRISS. In the process of finding fraud in claims, FRISS enables Folksam to improve its loss ratio by increasing the chances of detecting fraud and limit false positives to a minimum. This helps Folksam to become more effective at fraud investigation by directly recognizing claims that need further attention or require active follow-up.

In 2018 the Norwegian insurer Frende Forsikring, with over 250.000 customers in both the private and corporate market, decided to implement FRISS’s AI powered fraud detection solution. From the very beginning their main focus has been the customer experience, especially when it comes to the customers experience in claim handling. Thanks to the predictive fraud models the insurer is now capable of delivering faster customer service while detecting fraud instantly.

Effective fraud investigation

Believe it or not, fighting insurance fraud is still a manual operation within many organizations. That makes fighting fraud a time consuming and error prone process. Organizations with an automated solution, like Folksam or Frende, are more effective at fraud investigation by directly recognizing claims that need further attention or require active follow-up. The automated and AI powered solutions enable straight-through processing, which help insurers to give their customers a touchless claims experience. By leveraging the possibilities of real-time fraud prevention you will stop fraudsters from entering your books, detect more fraudulent claims and stop organized crime.

Looking at the mentioned costs for society, insurers should feel the obligation to prevent fraud from happening. It is not only to increase the insurance portfolio value, it is also fair treatment for your sincere customers. How do we reinstate societies' trust in insurance and work together to prevent fraud?