Insurance as an official financial product started in the 18th century, and since then, the system has been constantly defrauded. In general, insurance fraud can be divided into two categories: criminal fraud, which is perpetrated by professionals habitually trying to milk the system and cultural fraud, which is a genuine claimant being opportunistic or exaggerating a claim.
Insurance fraud costs the industry billions each year. In 2016 alone, UK insurers detected 125 000 dishonest insurance claims valued at £1.3 billion, while in the USA, the cost is estimated to be in the region of $40 billion per year.
Brokers are usually the first point of contact with policyholders and have a vital role to play in counter-fraud. The Insurance Fraud Bureau launched a number of application fraud products in 2013 to allow brokers to tackle fraud at point of sale but there is still a lot more that needs to be done.
In the beginning, insurers started by applying quantitative data analytics to detect fraud. By analysing past fraud, insurers used predictive modelling formulas to produce a value for the propensity of fraud. Yet, as criminal syndicates became more refined with their fraudulent methods, using this alone made it harder to detect. Technology was the only other option and has, and continues, to play a central role in helping insurers identify fraudulent claims.
In the past, footage from security cameras and data derived from social media accounts and mobile phones, helped provide insurers with valuable insight to determine the validity of a claim. More recently however, insurers have turned to more innovative technology such as smart home gadgets, telematics and tracking devices. The possibilities are endless.
Smart locking systems and alarm systems can show insurers if a break-in actually occurred, fitness trackers can show if a homeowner was really out for a run while the house caught fire and developers using smart cement, that detects crumbling, cracking, warping and stressing, will have problems trying to claim for a collapsed building. Even medical technology is not immune to the insurance sector, with a court in the US recently permitting data from a pacemaker as evidence. It was the first time that something this was allowed in court, but it proved essential in ascertaining whether the claimant could have been in the physical state that they claimed they were.
In the UK, technology company Jolt, has set out to protect motorists from insurance fraud, especially in regard to the so-called crash-for-cash scheme that costs the industry about £340 million a year. Jolt technology turns an ordinary smart phone into a dash cam that can record looped video. When a driver is involved in an accident the software saves the video, as well as supporting data such as location, impact speed, and road conditions and users can send an incident report to directly to their insurer within minutes of the accident.
It is just one way that insurers can attempt to address the growing problem of fraud in their sector. Technology remains the key and insurers, brokers and their clients have never had as many tools at their disposal to combat fraud as they do today, although investment in these tools needs to increase in order for them to reach their maximum effectiveness.