Insurance fraud is the deliberate giving of false information to gain an advantage or a benefit. As insurance companies protect us from insurance risk, they too face the risk of insurance fraud. While most people may not be conscious of insurance fraud, its adverse effects on insurance companies, individuals, and communities are far-reaching. The most direct effect is an increase in premiums for other policyholders.
Insurance companies incur up to $40 billion every year as a result of insurance fraud. This prompts most companies to increase their reserves against potential claims.
Consequently, the company adds the increased cost to premiums. According to the FBI, an average family in the US spends an extra $400 to $700 due to insurance fraud. Here are some measures for companies to deploy in insurance fraud mitigation.
Fraud investigators are responsible for carrying out investigations when suspicious cases come up. They are responsible for tracking fraud, identifying vulnerabilities, and implementing insurance fraud mitigation mechanisms. This can be less efficient as fraudsters increase and use more sophisticated techniques.
In the contemporary world, fraudsters are using more advanced techniques. Therefore, insurance companies must shift to the latest technology to detect fraud, reduce risk, and improve efficiency. Using AI technology speeds up fraud detection as it can analyze more data within a short period. This way, potential fraud is detected early, and countermeasures are deployed.
Financial institutions ought to come up with a zero-tolerance policy for fraud. However, this is easier said than done. It is impossible and irrational to investigate every incident to prevent fraud. Resources are not adequate, and honest policyholders would lose their patience due to lengthy investigations. In some instances, it would even lead to the clients seeking alternative avenues.
Insurance companies should detect fraud and use those found guilty to set an example for any future fraudsters. If an insurance company is perceived as tough on fraud, it will attract more honest clients. In addition, fraudsters will avoid the insurance company. As a result, the company reduces insurance risk.
Automated solutions optimize claims workflow, increase efficiency, and enhances customer experience. It permits human beings to undertake complex underwriting, adjudication cases, and investigations. AI, on the other hand, will carry out the high volume and less sophisticated cases. Therefore, services are fast and less erroneous.
Eliminating challenges in the claim process results in fewer risks. Companies can process more claims promptly, and detection of fraudulent and incorrectly adjudicated claims is significantly improved. Detection of more fraud translates to fewer damages hence low fraud risk.
Data analytics aid in detecting fraud by examining previous fraud records and implement preventive modeling to establish a “suspicion score.” This score approximates the probability of fraud occurring in a particular claim. A claim adjuster feeds data into the system, and data analytics give the adjuster the score to triage potential fraud claims.
Data analytics apply to different insurances like health insurance, life insurance, homeowners insurance, auto insurance, commercial insurance, etc. Effective interaction between employees and data is crucial in insurance fraud mitigation. Identifying potential fraud through data analytics significantly reduces insurance fraud risk.
Insurance companies must understand their limits. Reducing fraud risk involves outside experts in carrying out investigations and detecting fraud. Some cases may be too complex for your team to handle effectively.
Involving experts will aid come up with competent data related to facts in the claim. This could mean engaging the FBI, private investigators, or forensic experts. Therefore, the company will carry out its job effectively within the law.
Dealing with insurance fraud risk can be a daunting task for most insurance companies. We can help you curtail fraud while providing excellent customer service. Sign up for a free trial today to stay one step ahead of your competition.