In an insightful discussion with Soul Abraham, Chief Executive for Retail Insurance at Old Mutual Insure, we delved into the pressing issue of the rise in insurance fraud and the challenges it poses for the industry.
The conversation revolved around the definition of insurance fraud, the reasons behind its surge, its impact on the insurance industry, and the strategies employed to counteract this growing threat.
Defining Insurance Fraud – Soul defined insurance fraud as the intentional misleading of an insurance company for financial gain. In simpler terms, it occurs when claimants are aware that the item they are claiming for was not insured or is not a valid insurance event, yet they attempt to claim it from the insurer.
The Cyclical Nature of Insurance Fraud – Abraham acknowledges that insurance fraud has always existed, often following cycles. Economic challenges, both global and local, play a significant role in driving fraudulent activities. As disposable income decreases due to factors like rising interest rates and inflation, individuals resort to fraudulent claims, contributing to an increase in insurance fraud.
Impact on the Insurance Industry – The surge in insurance fraud places a burden on insurance companies, requiring increased time and effort to detect and prevent fraudulent claims. Old Mutual Insure, being the oldest short-term insurer in the country, emphasizes a commitment to settling claims swiftly. However, the rise in fraud introduces an additional layer of scrutiny, affecting the overall customer experience and potentially leading to increased premiums for honest policyholders.
Technological Advancements and Fraud – Abraham noted a marked increase in fraudulent activity, citing technology as a key enabler for criminals. The advent of generative AI (Artificial Intelligence) and the fourth industrial revolution has made it challenging to identify fraudulent claims that were once easy to spot. Criminals leverage technology to create claims that are difficult to distinguish from legitimate ones, necessitating a proactive approach from insurers.
Consequences for Perpetrators – Abraham emphasised the severe consequences for individuals caught committing insurance fraud. Reporting fraudulent activities to relevant authorities can lead to blacklisting, impacting bank accounts, credit scores, and insurability. The message is clear: insurance fraud doesn’t just affect the insurer; it has far-reaching consequences for all clients of the insurance company.
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Countering Fraud: Collaboration and Innovation – Abraham highlighted the importance of collaboration within the insurance industry to combat fraud. Old Mutual Insure is actively working with industry entities to prevent crime and fraud. Internally, the company is adapting its processes, employing a multi-faceted approach that includes advanced analytics and AI capabilities.
Old School vs. New Tech Approaches – Old Mutual Insure employs a predictive fraud model based on advanced analytics and AI capabilities to assess the likelihood of a claim being fraudulent. Simultaneously, the company emphasises the importance of traditional methods, such as engaging with customers and brokers directly to ensure that the claim is legitimate. In addition, we are investing in voice analytics technology to detect deception during the claims process.
Broker Role and Responsibilities – Brokers play a crucial role as intermediaries between customers and insurers. While acknowledging the invaluable role brokers play in limiting fraud, Abraham urges brokers to remain vigilant. The technology enabling criminals is advancing, and brokers must adapt by ensuring consistent customer stories, understanding financial situations, and reporting any inconsistencies.
A Collective Effort for a Fraud-Resistant Future – Finally, Soul underscored the importance of a collective effort in combating insurance fraud. By combining advanced technology, traditional investigative methods, and the vigilance of brokers, the insurance industry can create a more resilient defence against fraudulent activities.
Ultimately, the fight against insurance fraud is not only the responsibility of insurers but requires collaboration across the entire industry to protect the interests of honest policyholders.