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How to weather Covid's perfect storm of insurance fraud - Decisions, decisions, decisions…

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The pandemic has hit insurers hard. Despite lower claims volumes due to reduced crime, and fewer cars on the road, the sheer financial and reputational cost of Covid-19 has been enormous for the industry as a whole: since March 2020, Lloyds of London has made a loss due to £6.2 billion in Covid-related payouts. Now the industry needs to ready itself for another challenge we all know will come.

A perfect storm for insurance fraud has been brewing since the pandemic began, as I learned from listening to my peers at the Insurance Innovators ‘Fraud & Claims’ event recently. Career criminals were quick to exploit the pandemonium and will continue to find new ways to prey on the innocent. It’s a crisis for insurance: under greater pressure than ever to reduce their costs as margins tighten and the cost of motor claims continue to increase, CEO’s cannot afford to suffer further losses due to fraud.

Economic crashes are proven to produce an increase in fraud. Inevitably, the social impacts of this crisis opened the door for many opportunistic criminals to develop new types of fraud and exploit loopholes. With fewer opportunities to stage accidents, alternatives such as liability and indemnity fraud grow increasingly popular, and we should expect new threats to emerge as well as claims based on Covid risks.

The inevitability of fraud attempts means insurers must be one step ahead when it comes to detection and prevention. This isn’t easy as Covid accelerates digital demands and changes in long-established processes. There is growing recognition that intelligent decision-making is at the heart of this; the combination of AI-driven intelligence with people co-ordinating an effective decision management strategy for the business will allow insurers to spot and deal with fraudsters, while more importantly continuing to offer genuine customers the best experience possible. 

Fraudsters never let a crisis go to waste 

The insurance industry has been at the center of the Covid fallout. It was forced into quick changes of strategy over the last year, as well as readying itself for changes to personal injury claims policy. Simultaneously, customer service agents and claims handlers adapted to a new environment working from home, while handling complex Covid-related cases and striving to support vulnerable customers. An unprepared market was ripe for large-scale exploitation.

However, this increase in fraud will be met with resistance. Insurers know that technological innovation can dramatically improve their ability to detect, investigate and prevent fraud. Many of the panelists at the Insurance Innovators event referenced the promising results they were seeing from more intelligent use of data and rules to detect suspicious cases. But the panelists also discussed the need to collaborate with colleagues in marketing and other teams to ensure these measures aren’t to the detriment of the customer experience.

The next step? Insurers need to stop and consider how they work in a more collaborative manner across marketing, pricing, underwriting and claims business units to ensure they tackle this next surge in fraud in a truly customer-centric manner. Collectively these stakeholders should stop and begin to consider how to optimize the millions of decisions that are being made every day by the discrete systems and teams they manage.

Make the best decisions – whether human or I

The digitization of insurance has accelerated rapidly over the last year. Companies are finally realizing the need to build a complete and accurate picture of their customers across all channels and interactions. In turn, consumers are demanding decisions to be made quickly, whether making a claim or seeking minor changes in cover.

In this hyper-competitive market, AI-driven decision management is key for marketing, pricing and fraud detection. This means using automation to validate data, detect anomalies and support investigators, albeit not simply through automating current processes. New, intelligent decisions will outperform existing rules-based decision-making and break away from restrictive training methods based on previous scenarios and outcomes. It will drive free-thinking techniques that can spot even the newest types of fraud.

For instance, AI can automatically spot the signs of anomalous behavior, based on how customers behave when making claims through an online portal and comparing millions of customer journeys and key-strokes. Or, intelligent technologies can help to evaluate complex image data and deploy machine learning to check whether a car accident really matches up to what’s mentioned in the claim. These techniques give time back to fraud investigators by assigning tasks to their AI counterparts.

Ultimately, automation will prove invaluable to the critical task of decision-making in insurance. With millions of data points across the entire customer journey, this picture of the insurance lifecycle is vital for those seeking to optimize fraud detection while also minimizing disruption to the customer experience. These attributes are key to remain competitive in today’s market. Yet even organizations currently using data intelligently may be missing out on the bigger picture of how this data flexibility can unlock added value through prompting innovation and disruption.

Join up technology strategies and platforms to make anti-fraud invaluable 

The most surprising observation from the Insurance Innovators event was that so many technology investments and strategies in insurance are made in silos. In understanding that data is key to optimizing customer experiences, insurers should draw together data from across departments to put the customer at the heart of every decision made.

Fraud, pricing and marketing departments may appear to have few similarities on the surface. However, their hidden synergies point to the next big step forward for insurers. All will strive for hyper-personalization through data, in order to ensure the customer receives the best service at the optimal time. However, solutions aren’t working in a joined-up manner, so the potential for collaborative, cost-saving and hugely effective work is lost and this is normally most visible to their customers.

Insurers don’t yet realize the value of enterprise decision management, to break down silos between rules, models and data used across departments. Each department invests in niche solutions, from multiple different vendors, making decisions in isolation and creating unnecessary costs.

Imagine the benefits of a single platform with the ability to scale to coordinate intelligent decisioning models for the entire business. When automation is needed, insurers could reach into every significant touchpoint and ensure the optimal decision is being made. When critically skilled fraud analysts and investigators are asked to manage decisions, the same platform can provide decision support with vital insights just when they are needed. However, this tech must be embedded into how the business operates for maximum effect. The most forward-looking organizations will have a specific person to coordinate the decision management strategy for the business, and the eagle-eyed of you will have already spotted Decision Scientists are already appearing among the Data Scientist community.

This may sound far-fetched, but this approach is always going to be the most effective at tackling fraud. But the ability to combine third-party ID validation, online behavior and other cross-product and department customer insight is available today. With a three-dimensional picture of the customer, genuine claimants will have a frictionless experience as they move through the claims process. As just one part of a cohesive decisioning strategy, right from the start of the customer journey to the claim experience or renewal, fraud detection should be barely visible to honest customers seeking an easy, pain-free experience.

For insurers, a joined-up decisioning system also brings the benefit of greater visibility over where bias is entering the system, or where decisions are degrading in their accuracy. This ensures the decisions made remain at the highest quality and accuracy possible for many years to come, encouraging customer loyalty and sustainable growth.

Modern insurers should be capable of governing hundreds or thousands of models across many different decision points and customer touch-points. Those with this ability will be able to achieve the true value of hyper-personalization across every department, including fraud detection and prevention. Investing in an enterprise decision-management strategy is the strongest step insurers can take to future-proof their enterprises right now. The businesses that take this on are set to lead the market as we leave the pandemic behind. For those who don’t believe this is possible, maybe we should talk?

Paul Ridge, Head of Insurance, SAS UK & Ireland

Paul Ridge is Head of Insurance at SAS UK & Ireland.