How AI Helps Prevent Insurance Fraud

With identity theft and fraud on an upward trajectory, and fraudulent claims making news headlines, we take a look at how AI is preventing fraud in insurance today.

Insurance claim fraud is a global problem, and it’s getting worse.

What Is Insurance Fraud?

Insurance fraud is a serious problem that undermines the principle of mutual benefit, which underlies the insurance industry.

The Insurance Information Institute defines insurance fraud as “a deliberate deception perpetrated against or by an insurance company or agent for financial gain. Fraud may be committed at different points by applicants, policyholders, third-party claimants, or professionals who provide services to claimants. Insurance agents and company employees may also commit insurance fraud. Common frauds include “padding” (inflating claims), misrepresenting facts on an insurance application, submitting claims for injuries or damage that never occurred, and staging accidents.”

There are numerous types of insurance and many ways in which people commit insurance fraud. In addition, fraud can happen internally (by employees within insurance companies) or externally (by individuals or entities as diverse as policyholders, medical providers, beneficiaries, vendors).  

Although fraud comes in a variety of creative methods, claims fraud in the P&C segment (property & casualty) is the most common. Auto insurance and workers’ compensation make up the biggest percentage of fraudulent claims.

More needs to be done in detecting and preventing fraud, but this cannot be done at the expense of customer service.

What Are The Effects of Insurance Fraud?

Insurance fraud is not only harmful to insurers and honest customers—it also undermines trust in society as a whole. The vast majority of honest customers end up paying higher premiums because they’re subsidizing dishonest claims from others who try to cheat their way out of paying their fair share of costs or compensation for genuine losses caused by theft or damage to property or vehicles.

Business Tech Article: Huge jump in fraud claims in South Africa (10 May 2022)

The Association for Savings and Investment South Africa (Asisa) has published its life insurance claim statistics for 2021, showing a significant increase in fraudulent and dishonest claims.

South African life insurers detected 4,287 fraudulent and dishonest claims worth R787.6 million across all lines of risk business in 2021. This is a significant increase from 2020, when 3,186 cases of fraudulent and dishonest claims to a value of R587.3 million were uncovered.

The data shows that funeral insurance once again attracted the highest incidence of fraud and dishonesty, followed by death cover, disability cover, hospital cash plans and retrenchment benefit cover.

Full story here: Huge jump in fraud claims in South Africa

So, How Does Artificial Intelligence Help In Detecting and Preventing Fraud?

Real-time Processing

Think of insurance and what comes to mind? Laborious processes, endless paperwork and a whole lot of wasted time. This is arguably one of the strongest selling points for machine learning and artificial intelligence which has the ability to process data fast and efficiently. The upshot of this is massive time-saving, less resources spent on recovering from fraud and more time focusing on customer service and fraud prevention.

Predictive Analytics for Probability of Claims

Using predictive analytics, systems can predict the probability of an incident using historical data, which can also estimate the possible value of the claim. 

It’s All About Patterns

At the core of Artificial Intelligence is pattern recognition. Using AI, it is quick and easy to determine repeated applications for claims as well as claim rejections.

Machine learning and deep learning algorithms are superior at recognising repeated patterns that might be abnormal or suspicious. They can also be used to monitor customer behavior over time, which can help identify unusual patterns or anomalies in their behavior that could indicate a fraudulent claim.

This is because they can analyze vast amounts of data in a short time, which allows them to learn from their mistakes and improve over time.

They are able to spot patterns that humans might not be able to see, as they can compare millions of pieces of data in milliseconds.

These algorithms can be used in fraud detection in insurance companies to make it easier for them to spot fraudulent claims.

The highly publicised case of Nomia Rosemary Ndlovu who was found guilty of the murder of five of her relatives and one of her lovers to cash in on life and funeral policies, highlighted the darker side of insurance fraud. In an eNCA interview, the issue of red flags is addressed as this should have alerted authorities to the fraud sooner.

Identity Fraud

More and more, fraud is being committed by falsifying identity.

Identity verification is the process of establishing a person’s identity. This is a vital necessity for many companies today, especially with fraud being a growing concern. 

Identity fraud is everywhere, from simple scams like posing as a customer to highly sophisticated plots where fraudsters create false identities, businesses and shell corporations which then, in turn, invest in other companies using kickbacks from fraudulent business deals.

Companies and financial industries rely on their ability to handle legitimate transactions from real customers. Retaining a sound identity verification system helps your company avoid criminal activities, including false identities, money laundering, and similar felonious activities.

visionAI’s Computer vision technology combined with 8-way checks and third-party integrations such as Home Affairs, helps reduce fraud by automatically verifying your customers’ identity and personal information. Not only does this help eliminate fraud, but it also makes the customer experience seamless and efficient.

 AI Is Not The Future It Is The Present

For so many years we’ve looked at Artificial Intelligence and Machine Learning as something that lives in the future. That being the case, the future is here and now. 

Artificial Intelligence is playing more and more of a role in our daily lives and being used increasingly in organizations to deliver benefits. The benefits are enormous and the savings make it worth the investment.  

Insurance fraud is a problem that has existed since the dawn of insurance, with fraudsters using every means at their disposal to get away with making false claims. However, the rise of artificial intelligence (AI) has led to new challenges in combating this type of activity.

The Insurance industry is highly targeted by criminals, and fraudulent claims cost tens of billions of dollars worldwide, every year. Consider what a mere 10% reduction in fraud equates to? It just makes sense to implement measures that can minimize and ultimately eliminate fraud altogether. 

Using these systems to improve customer service is an added bonus.

References and additional reading:

Insurance Crime Bureau:

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