Fraud has been a persistent and growing issue for the insurance industry since 2008. Although ghost brokers and organised fraud rings make the headlines and cost the industry millions, Experian analysis showed the majority of insurance fraud is carried out by non-professional fraudsters, with 90% of fraud in financial services committed by first-party fraudsters.
As more than a third of converted policies have at least one potential indicator of application fraud, the net result is that, just for motor insurance quotes in the broker channel, the industry loses a potential £1.42 billion in premiums. That's before you take into account the increased propensity of these customers to make a claim — the costs of which could be as high as £1.36 billion.
According to the Insurance Fraud Survey 2015, only 22% of insurers feel they are dealing with application fraud successfully. Consequently, insurers that take action now to protect themselves against such behaviour can focus on their quality clients, leaving the laggards to quote more competitively for, and hence win, the problem customers whose business they really don't want to write.
The key lies in using technology to capture and monitor the behaviour of individual customers in real-time across the whole insurance market to identify when application fraud is occurring. Insurers can then decide whether to push ahead with a quote if the manipulation is not too severe, refer it to a broker to verify details or decline altogether for the 2% or 3% of customers that cause the worst losses.
This is exactly the level of insight provided by solutions such as SSP Verify, enabling insurers to identify and respond to the actions of dishonest individuals. Proven ghost brokers, fraud rings and suspect devices can also be added to watch lists to flag up any activity.
As consumers respond to a hardening market and the Insurance Premium Tax rise, it is likely they will carry out greater levels of manipulation and become more sophisticated in the way they do this. Our insight into customer behaviour showed the details that are much harder for insurers to verify already coming to the fore –and this trend is only set to intensify.
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While there are no shared databases for the validation of vehicle usage, counter-fraud technology tackles this evolving behaviour head on, providing a significant competitive advantage for early adopters.
This article first appeared as an editorial in Modern Claims Magazine issue 18