Bill Trueman CEO of leading UK Fraud prevention consultancy and analyst UKFraud believes that if the insurance industry has a significant opportunity to drive fraudsters away. Here he outlines the steps the sector should take …..
The insurance industry should accelerate its activity in the management of fraud and fraudsters. For whilst huge in-roads have been made into combatting insurance fraud in the UK, there is an enormous opportunity in these times of big data analytics, for the insurance industry to up its game. This they can do through the more effective sharing of fraudster and criminal information and through better collaborative data management. So in a bid to encourage the industry to be more aggressive with insurance cheats and to keep pace with other sectors such as banking, here is a four point plan for the insurance industry. Its biggest and first aim is to prevent fraudsters from ‘entering the system’ in the first place.
1. Know Your Customer and Anti Money Laundering Standards Must Be Applied To The Insurance Sector
In the insurance sector, there is no legislative requirement upon insurers to identify a customer’s identity, or to follow KYC (Know Your Customer) or AML (Anti Money Laundering) standards. This is in sharp comparison to nearly all other professions which must now follow both KYC and AML requirements. Sectors already included are: banks, lawyers, accountants, mortgage and rental providers, card companies, utility providers, gambling organisations and telecom companies. Technology enables professional service companies in all these sectors meet these stringent requirements even before accepting a client’s business. The compliance levels adhered to also include the Prevention of Terrorism Act and Drug Trafficking regulations. Why then, asks UKFraud is the insurance sector free of these standards, even when it is a frequent victim of fraud and can claim annual fraud losses of between £1billion and £2billion, or up to 10% of our premiums in some portfolios?
There is no rationale for this lack of KYC/AML authentication, believing that the absence of such tools encourages fraudsters to target the sector. The solution is for the insurance industry to demand KYC / AML regulations to be extended to the insurance sector, as this move alone could significantly reduce the risk of fraud. This would also reduce the costs of dealing with fraud and change the industry’s entire customer service mix.
2. Deter Fraudsters At The Outset
With the KYC and AML systems in place, all industry stakeholders and interested parties should then also adopt a range of other systems to deter fraudsters and money launderers right at the beginning; at the underwriting stage. This can be achieved through industry wide collaborative reviews of IT systems, document management processes, telecoms applications, call centre logs, internal fraud management policies and marketing collateral. This review should also be backed up by the introduction of the latest fraud prevention systems capable of identifying behavioural pattern anomalies at an early stage, which should include the use of the latest ‘neural’ fraud detection systems to react quicker to changing fraud trends. Using 1980s scoring and red-flag type indicators is particularly outmoded and yet still commonplace.
3. Keep A Database of the Cheats
88% of all people we surveyed last year believed that a comprehensive industry wide database of such information already existed and was being used extensively across the insurance sector. Only a few inspired insurance companies though, regularly share in anything more than an ad-hoc manner, details of known fraudsters. This is despite the forceful warning messages that most customers hear when they call in to some insurers. Fraudsters know that such databases are rare and exploit this weakness to their advantage. The exceptions are the leading insurers that do share data with the banks, telecom companies and many other sectors through CIFAS who operate such services and are now working positively with many other sectors including a number of leading public bodies. Amongst this group of leading insurers are the really forward thinking companies who find more of the liars and cheats using device identification technology in the sales process (as well as the claims process) and then make sure others are aware.
4. Zero Tolerance
Complacency to the risk of fraud is the biggest potential risk in the insurance sector. Insurers, says must not get complacent and must not only always look for the next major anti-fraud initiative, but evolve the thinking in the sector and drive forward new initiatives to catch up with and stay ahead of the market – whether this is just the UK market or the global insurance market.
The industry must then work together and collaborate closely to drive such a strategy. In doing so, they should adopt and reinforce a ‘zero tolerance’ approach to driving fraudsters operationally ‘out of insurance’ for the long run. The tools are there, including the latest developments in personal identity verification systems, device identity technology and behavioural analytical systems together with use of big data analytics, and change-event screening / scoring. This must also include increasing the number of ways in which companies share experiences and data with others.
The sector needs to find a renewed and strengthened attack and momentum. In my view, there needs to be a much stronger, infrastructural change in what the industry does to drive a major part of the problem away from the insurance sector once and for all. Between £30 and £60 of every policy is added to pay for fraudsters. And with up to £2billion in insurance fraud each year something has to be done. It is no good just dealing with the problems when they arise, the industry as a whole should be doing much, much more to prevent, deter and to stop the liars and cheats setting up policies in the first place; or to find them much sooner if they manage to do so.
Global Banking & Finance Review
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