The commercializing of the World Wide Web two decades ago was a major technology breakthrough that changed how businesses and consumers communicate and do business. The Web also changed how insurance providers marketed and sold policies.
This opened new opportunities for insurance fraudsters to exploit vulnerabilities that came with this change in the landscape.
The Web had 16 million users at its inception.1 Today, that number is more than 3 billion — about half of the human population. Going forward, developments like the Internet of Things will impact both front- and backend insurance applications, with more users taking advantage of them.
Where technology will be five years from now is widely debated, but one thing is certain: Technology is developed and implemented faster than the insurance industry can anticipate its consequences.
Tech development speeding up
In 2011, industry veteran Thomas Mulvey examined where claims handling and fraud investigations were likely to be in 2016.2
It’s interesting that many of the themes Mulvey discussed — like social- networking uses, predictive analytics, telematics, and point-of-sale (POS) defenses — came to some form of fruition not in five years but in two.
This highlights the speed with which technology development is moving. If the Internet, which once was described as the “information superhighway,” is fast, then current innovation is on the unrestricted Autobahn.
“[Technology] creates new opportunities for organized crime to exploit business vulnerabilities ...”
In many ways, technology is positively changing the way consumers use insurance. Simultaneously, it creates new opportunities for organized crime rings to exploit business vulnerabilities, technology flaws and weak operational policies, processes and procedures.
Technology is the trend
Historically, when researching insurance fraud trends, I have seen a focus on some new type of crime being committed. In fact there are few crime types that are truly new. For example, crash rings, premium evasion and identity theft are still top schemes.
While crime remains a concern, the hottest insurance trend today is technology development — and the growing number of tools available to insurance companies to combat fraud.
Instead of being reactive and thinking about solutions after major fraud losses have occurred, many forward-thinking insurance-fraud units are proactively turning the tables. They are embracing technology and considering the large number of options available to fight the range of frauds being committed.
Some of the tools that are available include: predictive analytics, social network analysis, Internet of Things (which includes wearables and telematics), mobile phones, metadata/IP intelligence, geolocation and digital footprints.
The industry has come a long way; it wasn’t that long ago that many insurance companies were slow technology adopters. However, a paradigm shift has occurred over the last several years. More companies embrace the above technology tools. These insurers are leveraging the benefits the tools provide to improve uncovering fraud and improving customer service.
Quick adoption critical
Moving quickly and efficiently, in addition to operational fluidity, are key concepts in the battle against insurance fraud. Insurance companies must have the ability to make rapid environmental changes quickly.
Quick adoption of new tools will be critical to the future of insurance-fraud investigations. The faster an insurance company’s Special Investigation Unit can respond to external fraud threats, the sooner it will mitigate fiscal damages that significantly diminish return on investment and negatively affect the bottom line.
Device explosion affects SIUs
Some industry pundits predict that 50 billion devices will be connected to the Internet by the year 2020.3 Whatever the final number, insurance companies must be prepared for a significant increase of new data, new data sources, the growth of business applications — and criminals targeting devices on the back end.
“Insurance companies must have the ability to make rapid environmental changes quickly.”
About one-third (31 percent) of insurers surveyed by Accenture in 2015 already use some form of IoT technology.4 A cross-industry survey found IoT usage at 29 percent in 2015 with another 33 percent predicting their businesses expected to have IOT in play within one to two years.5 The device explosion also will impact SIU staffing and operations, which are critical program components. It’s important to note that this likely will shift the kinds of investigations conducted by SIU personnel as well.
Along with this technology explosion, it is fair to expect a new type of insurance-fraud investigation process will need implementing. In the near future, device analytics will factor heavily into substantiating the legitimacy of claims submitted. This will help determine if a claimant is truthful or committing insurance fraud.
We also will see a need for more-specialized tools. Establishing suspects through identifying who manipulated the device will become increasingly more-challenging in an enhanced digital environment. The chain of custody and evidence collection must evolve technically as well.
Traditional investigative techniques still will be valued, yet now must be used in conjunction with a new skill set: device analytics and data collection. Other investigative skill sets also will be in demand, given the increase of organized crime rings looking to exploit new technology.
Counter organized crime
Knowing your adversaries is important in the battle against insurance fraud because it helps determine how to shape fraud defenses. While opportunistic fraud always will be part of the equation, a bigger piece involves the profit-driven, global, organized criminal element. Given the large predicted increase in device connectivity, insurance companies should expect to see an increase in organized criminal activity. Digital rings have proven especially adept at manipulating technology-based devices to their advantage.
Organized crime rings use subject-matter experts and vendor specialists to achieve specific tasks. They are extremely efficient, use technology tools exceptionally well, adapt rapidly to change, and exploit weaknesses identified via the due diligence they conduct.
Prosecutor interaction needed
Getting fraudsters convicted today requires a high level of prosecutor interaction. SIU personnel often have to clarify the evidence, its interpretation, and applicable documents and policy provisions.
Likewise, juries will need assistance in understanding new forms of evidence. New technology generates a need for increased educational efforts on what constitutes insurance fraud and how it is committed. The information captured from suspects’ devices can help criminal prosecutions succeed.
“Getting fraudsters convicted today requires a high level of prosecutor interaction.”
Going forward, getting fraud convictions likely will depend on how well the investigator understands emerging technology and can explain it in lay-person terms.
Know the bad actors
It always has been important to know in which direction fraud is moving in order to build proper defenses. The future of insurance fraud detection, and the ability to prevent fraudulent transactions, depends on the ability to know who the bad actors are, predict where they are headed, and quickly migrate defenses before they get there.
Rapidly changing technology and big-data landscape dictate that to avoid large-scale losses, insurance companies must figure out fraud trends and migration patterns in a shorter period of time.
A key part of that exercise involves using predictive-analytic tools, and conducting organizational fraud defense assessments and gap analyses on all systems. Then, an organization should determine what enterprise shortcomings exist, and how they can be fortified before large-scale frauds are committed by sophisticated organized crime rings.
The challenges of large-data influx are threefold: First, insurance companies must create effective data-management programs. This means planning for additional costs of head count and training, among other things.
Next, insurance companies have to identify how to process and analyse voluminous amounts of new data that currently are not used today. Lastly, companies must integrate the intel obtained from the data back into claims, policies, underwriting, actuarial, marketing and anti-fraud initiatives. Clearly this is no small task, given the large number of data that devices are expected to generate.
More tools coming
There are more technology tools available to fight fraud today, and the trend shows no signs of slowing down.
In coming years, insurance companies will continue to leverage technology to enhance the customer experience, develop new insurance apps, capture new data and reduce costly customer churn.
Technology also will have a significant impact on the back end. It will affect: the kinds of insurance frauds committed, the ways fraud is investigated, and the skills needed to investigate them.
SIUs must explore the technology trend now: Develop plans to address operational policies, processes, procedures and investigative practices in order to keep pace with looming innovation.
About the author: Dan Draz is a Fraud Evangelist at BAE Systems. He focuses on the financial-crime landscape, and emerging trends across a number of industry verticals. Draz has an M.S. in Economic Crime Management and is a Certified Fraud Examiner. He also is a frequent industry trainer, keynote speaker, author and often-quoted fraud expert in industry, online and news publications.
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