European insurers relying on manual detection or ‘business rules’ to highlight fraud are falling behind their peers

Despite a rise in global fraud, two-thirds of European insurers saw the volume of detected fraud increase by less than four per cent, according to new research from SAS, the leader in business analytics software and services. The online survey of insurance companies across Europe reveals that those who do not use automated detection, or only use ‘business rules’, saw significantly lower levels of detected fraud than their peers using advanced analytics.

“Outdated techniques and a reliance on manual processes are hampering European insurers when it comes to fraud detection,” says David Hartley, Director of Insurance Fraud Solutions, SAS. ”With undetected insurance fraud costing the UK an estimated £2.1 billion every year1, proactively tackling fraud can make a real impact to profitability.”

The survey, conducted during Summer 2014, found that among insurers using business analytics, 57 per cent had seen the amount of fraud they detected year-on-year increase by more than four per cent. In contrast, only 16 per cent of those with no solution, or using only a business rules based approach, saw a similar increase. Almost 20 per cent of insurers stated that they did not use any technology to assist with fraud detection, relying on manual review of thousands of claims. In the face of widespread organised fraud, such as ‘cash for crash’ schemes, automation can help rapidly alert insurers to suspicious claims or networks of claims. Eighty-one per cent of insurers surveyed say they are using some form of automated detection technologies with 49 per cent in total using advanced analytics.

“From the research and our experience on the ground, the message is simple: investing in advanced fraud detection and analytical technologies; making use of multiple analytical techniques and combining the results will enable an insurer to detect and prevent fraud before it happens,” commented Hartley. “The industry is waking up to the rapid growth in fraud and it’s encouraging to see investment in dedicated teams and appropriate technologies.”

When it comes to organised fraud, over a quarter of respondents confirmed they already have detection systems in place, or are in the process of implementing a solution. An additional third do not currently have a solution but have a project set up. However, a significant proportion of European insurance providers (40 per cent) have no detection systems in place or immediate plans for such a solution. Results for opportunistic fraud were similar but implementation of solutions to tackle this type of fraud tracked slightly behind organised fraud (10 per cent).

The majority of respondents already have either a dedicated fraud investigation unit (33 per cent) or a team that operates across the insurers’ different departments (35 per cent). However almost a third stated that they had no full time fraud investigation specialists, and two in 10 insurers only had one or two people in this role. Just one in 10 had more than ten people working solely on fraud detection. It’s universally accepted that 10 to 15 per cent of insurance claims contain some element of fraud. With some of the largest insurers processing millions of claims every week experts devoted to investigating suspicious claims are vital for preserving insurers’ profitability.

“Our experience of working with insurance companies across the globe has shown that having a dedicated detection team is a must in fighting fraud,” continues Hartley. “Fraud specialists and investigative units have a very different skill set to traditional claims handlers and their expertise is essential in detecting and investigating suspicious claims. When these teams are armed with the latest advanced analytics technologies, we are seeing them drive up detection rates; deliver operational efficiencies and obtain a rapid return on investment in new systems and solutions.”

Worryingly, 28 per cent of insurers indicated that they do not have precise metrics around detecting fraud within their organisation. Also concerning is that only 21 per cent of insurers are currently monitoring fraud levels in real-time while 64 per cent are only measuring these levels on a monthly or quarterly basis.

As Hartley explains: “Being able to monitor current fraud levels and measure the effectiveness of current activities is key to all insurers, both to help identify areas of improvement and to gauge the impact of introducing new processes and automated technologies. Insurers should be able to measure peaks and troughs in fraud and adjust their processes and resources accordingly. All insurers should put in place precise metrics around fraud, including the ability to look at fraud levels once a month at a minimum, with the optimum level being daily or real-time.”

“Cracking down on fraud should be a top priority for all insurance companies. It’s encouraging that most insurers are starting to detect more fraud year-on-year but there’s a lot more work to do. To turn this positive trend into sustained industry-wide success, firms need to continue to invest in specialist teams, as well as in the latest advanced analytics technologies, to enable them to proactively tackle the problem and deliver a truly preventative approach,” Hartley added.

Read the full report, “Insurance Companies: Are You Equipped to Successfully Combat Fraud?”to understand the challenges insurers are facing today in tackling growing levels of fraud and the kinds of processes and technologies they can put in place to combat it.

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