Insurance Frauds – Biggest Scam North America
Insurance Fraud is an illegal act to exploit an insurance contract. It remains one of the top challenges across all jurisdictions around the world, especially in North America.
The ever-growing insurance industry, which collects over $1 trillion annually, continues to be exposed to frauds from all segments. Various factors, including a massive level of monetary losses and the expansion in the level of Cyber fraud, are critical factors to drive the market.
A survey by the Coalition Against Insurance Fraud (CAIF) in 2018 shows that nearly 75% of insurers that participated say that fraud has increased by an 11-point since 2014. (https://www.sas.com/content/dam/SAS/en_us/doc/whitepaper2/coalition-against-insurance-fraud-the-state-of-insurance-fraud-technology-105976.pdf)
However, a knowledge of the possible insurance fraud schemes will protect you against its susceptibility.
Types of Insurance Frauds Schemes
Insurance Fraud can either be on the part of an insurer (seller) or buyer of insurance. According to the FBI, the most common schemes that occur on the seller side include:
- Fee Churning: happens when reinsurers or intermediaries are involved in an insurance deal. They take a commission from several companies such that the initial premium is reduced and there’s no more money left to pay for claims.
- Premium Diversion: premium diversion, the most popular type, involves the embezzlement of premiums. In a worse scenario, an insurance agent may even sell insurance without a license.
- Asset Diversion: is unlawfully taking assets for an insurance company, such that the acquired company assets are used to settle debts.
Workers Compensation Fraud
Usually, this is common among businesses and employees. An example is Car Insurance Fraud. This may occur when a car owner sells a car and then reports the vehicle as stolen to receive a replacement or settlement payment. The vehicle could have been initially hidden in a remote location or sold to a third party, or deliberately pushed into a river.
Additional examples of insurance fraud schemes include:
- Falsely billing for health insurance firms;
- Faking death to collect life insurance benefits. For example, when an insured, criminal fakes death and his spouse is paid life insurance benefits;
- Property theft claims;
- Staged home fires.
What are the Trends in Fighting Insurance Frauds?
Conversely, insurers have introduced several anti-fraud technologies, including insurance fraud technology, artificial intelligence, and predictive modeling to combat increased fraud effectively. Below, we discuss some of them comprehensively.
To prevent future lawsuits and other costly & time-wasting efforts, it’s vital that insurers, as well as insurance firms, use more-sophisticated tools against fraud – rather than the traditional tools. This begins by engaging proactive anti-fraud efforts toward fraud detection.
In addition to adopting more agile know your customer (KYC) processes, insurers can also deploy the following trends in fighting insurance frauds:
- Leverage Artificial Intelligence (AI)
Machine Learning – a form of AI – is a powerful technique that has been effective in fraud prevention and detection. Insurers can leverage Machine Learning to discover automated patterns across large volumes of streaming transactions. And they can efficiently identify which insurance deals are most likely to be fraudulent, while significantly reducing false positives.
- Using Data Analytics
Data analytics can be deployed to detect fraud. By using analytics software reactively or proactively to identify past trends, patterns, and anomalies, insurers can use predictive modeling and identify future fraud trends. Thereby preventing it.
All the schemes of insurance fraud can also be referred to as the “perfect crime.” No one is lesser or greater than the other.
In addition to the discussed trends in fighting insurance fraud, the best yet is to identify fraud before a claim arises. Hopefully, as insurance firms and individuals continue the fight against fraud, we’ll succeed in reducing its rates or cause fraudsters to put an end to them.