Insurance fraud in India costs the industry about ₹900 crores every year. This accounts for around 15% of total insurance claims. Organised groups and individual fraudsters employ diverse tactics to exploit the insurance ecosystem for personal gains. Such instances affect the industry's reputation, increase the risk for insurers, and drive premiums higher, affecting the accessibility and affordability of services. For this reason, detecting, minimising, and penalising fraud is vital for an insured society and the IRDAI’s ambitious goal of ‘Insurance for All by 2047’.
Segment-Wise Types of Insurance Fraud
Insurance fraud in India initiated by customers differs across the types of insurance products. This is because they have different coverages, risk assessment criteria, claims processes, claim verification processes, and document requirements. The types of insurance fraud by product categories are:
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Certain types of insurance fraud in India are not initiated by customers. The customer may be scammed by someone posing as a representative of a reputed insurance company. Compromised insurance agents or process routes often lead to such instances. In both cases, the insurer bears the brunt of reputational damage and poor reviews of customer service. These types of fraud may occur during the purchase of an insurance product or during underwriting, making them even harder to detect.
Challenges in Detecting Insurance Fraud
Detecting insurance fraud requires access to massive amounts of data and reliable risk assessment. Current fraud detection mechanisms have certain shortcomings:
Insufficient, fragmented, and poor-quality data
Fraudsters use continuously evolving techniques with technological advancements
Insider fraud and agent fraud are difficult to detect
Absence of a mechanism to share data among insurance companies to learn from each other’s experience of attacks
High false positives and undetected negatives
Inadequate safety and security across digital touchpoints
Combatting Insurance Fraud
The battle against fraud is critical to protect the interests of policyholders and the integrity of the insurance industry. In the increasingly digitising world, leveraging cutting-edge technologies can be instrumental in putting a stronger front against insurance fraud in India. Insurance companies can collaborate with InsurTech solution providers to formulate and implement fraud detection mechanisms.
Here's how tech-driven solutions can transform everything from risk assessment to fraud detection and prevention.
Optimise Data Analytics
Big data offers deep insights into patterns, anomalies, and fraudulent behaviours. Harnessing the power of data requires comprehensive analysis from diverse sources. This is impossible to do manually and with legacy systems, as every piece of data (including policyholder's information, application source, claims, and medical history) needs to be scrutinised. No signs of suspicious activity, red flags, or hidden connections should be ignored.
Getting Proactive with Data Analytics
Assessing customer details at the time of application and underwriting is critical to reducing risk and preventing fraud. These improve the efficacy of claim investigation and may help the insurer promptly allocate the necessary resources. Thus, analytics not only helps prevent fraud but also improves the disbursement of services by insurance companies. InsurTech leverages cloud-based data management solutions to collect, organise, and assess data from diverse sources. It can also facilitate seamless and anonymised data sharing among insurance companies. Around 34% of companies in India already contribute to a data-sharing consortium to help detect and prevent fraud. This can enable insurers to put forth a collective fight against insurance fraud in India.
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Smarter Insurance Processes
Technologies, such as biometrics, machine learning and artificial intelligence, can facilitate the monitoring of claims for insurance companies. Digitisation has created a convenience for customers, but too much interference can affect customer journeys. While insurance companies must set up guardrails to prevent fraud, it’s important to ensure that customers do not experience inconveniences.
AI Drives Seamless Scrutiny
Automated claims processing and assessment can filter suspicious cases faster, reducing the load of manual verification that follows. AI-powered underwriting and claims processing can maintain the simplicity of operations and effortless application for customers. While AI engines like ChatGPT are popular, they are not designed for the insurance sector. Industry-specific large language models and NLP systems are necessary to combat insurance fraud. While doing so, prioritising user privacy is essential. InsurTech solutions providers have the necessary expertise and resources to offer AI-powered industry-ready applications. Switzerland-based Zurich Insurance Group, for instance, reported a 20% improvement in risk assessment accuracy and a 50% reduction in fraud detection time after leveraging AI/ML-powered risk process automation.
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IoT and Blockchain
Immutability, transparency, and distributed data ledgers are the foundational stones of blockchain technology. Incorporating blockchain in the insurance sector can play an instrumental role in improving customer verification and claims validation.
Data from devices that monitor and reward an individual’s lifestyle or vehicle use can be used by insurers to identify false claims. This can also help insurance companies to offer flexible premiums based on the risk associated with a policy.
Enhanced Visibility
Different sources of data offer different insights, providing a wider range of visibility into user patterns and divergent behaviours. Blockchain and IoT devices (wearable or attached to vehicles) can provide a wealth of data that InsurTech solutions providers can assimilate. This streamlines customer, vehicle, and identity verification. Such data can be used across insurance products through predictive modelling and generative techniques to assess the risk of fraud. This can also reduce the instances of customers trying to lower premiums by furnishing inaccurate information or applying for claims by fabricating injuries or manipulating evidence. This can also accelerate claims settlement and improve customer experience.
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Technology-Human Collaboration
The collaboration between smart technologies and experienced fraud investigators is important. This increases the accuracy of fraud detection and can help uncover new fraudulent tactics. While the latest technologies make data assimilation and initial analysis faster, fraud investigators can verify the critical aspects of the information collated and use their judgment in decision-making. For instance, AI can assist in assessing risk levels associated with a claim, while the fraud investigator can make the decision to ask a policyholder to furnish an FIR for a stolen vehicle claim.
Takeaways for Insurers
Insurers in India lose about 10% of collected premiums to fraud. Stringent verification, awareness campaigns, forensics, and advanced technologies need to come together to combat fraud. The volume and sophistication of fraud are rapidly increasing. Insurance companies must fortify their fraud assessment, detection, and prevention measures without hindering customer experience. Identifying data consistencies and potential loopholes in data can be instrumental in redefining insurance fraud management. Collaborating with InsurTech solutions providers is key to staying ahead of the competition in the fast-paced, hyper-digital world of today.
Bibliography: (Last Accessed on August 16, 2024)
