Fraud Event Generates Strong Discussion
The topic of fraud, whether it is detection or prevention, is crucial and one that is top of mind with insurers everywhere. In a recent roundtable discussion with French insurers, Guidewire had an open discussion on the challenges carriers face to fight fraud while maintaining high standards in client service quality.
Qualifying fraud is no easy task. Although, the definition of fraud is subjective, and has different significance for each person, it can generally be divided into two major categories: organized fraud and opportunistic fraud.
In the organized fraud category we find the "real cheaters". These are people who file a false claim and have a tendency to defraud multiple insurers on a regular basis. They can act alone or as part of an organized team. This type of behavior is seen mostly in bodily/psychological injury scenarios. The whole claim or parts of it can be falsified. The injuries can be false – i.e. the person had them before the accident took place, or perhaps the accident witnesses are of dubious character and have a tendency to witness various suspicious ‘accidents'.
The usual suspects that fall into the opportunistic category are considered the "honest cheaters". This specific profile has a real claim but often exaggerates the damages suffered. Most insurers agree that those who fall into this category tend to be policyholders that think that they will be under-compensated for their claim/damage, and this is the time to "get even" with the insurance company after many years of paying their premiums. The "honest cheater" will inflate the damages reported during FNOL to receive a higher compensation for their claim.
Service Provider Fraud
One of the main challenges faced by insurers is that fraud can come not only from policyholders but also from service providers. Most insurers participating in this discussion recognized that this challenge is due largely to the pressure service providers have been under over the past several years to reduce their service costs. Insurers widely believe that these service providers then make up their margins by any means they can.
One of the main challenges faced by insurers is that fraud can come not only from policyholders but also from service providers.
Most of the insurance companies in France rely heavily on highly trained and experienced claim handlers as well as on robust fraud detection technology solutions. One insurer shared its data regarding claim handler performance. For every 100 claims suspected of fraud by the claim handler, only 10 are found not to be fraudulent. Insurers agreed they need to make sure their experienced claim handlers have the best technology with which to do their jobs.
Data Sharing Challenge
In France, regulations impose significant limitations on insurer's fraud strategies. The information that insurers can share with each other is limited, as is the information they can capture and retain about their customers. An organization was created to facilitate the sharing of information (ALFA) but few insurers use it. The reason is that the data that can be shared is highly regulated and sharing certain data on a client can result in high penalty fees for the insurer.
How can insurers in France most effectively address fraud? Strategies which are preventive instead of repressive are the best answer. Insurance companies need to improve their communication to policy-holders regarding their insurance coverage, i.e. the terms and conditions of their insurance contract. Better setting expectations with the insured during the contract process will improve the insurers' ability to successfully live up to their policyholders' expectations.
Getting What You Pay For?
Today, people just buy the cheapest insurance policy they can find, and as one insurer put it, "if you pay almost nothing for a policy, it is obvious that you'll be compensated with almost nothing in return". Policies and coverage have to match each insured's needs and expectations, as many opportunistic fraudsters would not commit fraud if they had the right policy coverage that properly indemnified them for their loss.