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Expert Suggestions to Detect & Prevent Underwriting Fraud in P&C

Last updated: 03 May, 2022 By | 6 Minutes Read

While the property and casualty industry continues to flourish, repetitive insurance back-office activities needing a little less attention than the crucial ones are increasing the chances of fraud in the underwriting process. Although it is not common, it can cost the insurance industry billions of dollars if you closely look into the fraud-vulnerable depths of the process. This necessitates underwriters to actively look for red flags that can lead to fraud so that to mitigate them on time.

Fraud Affecting Insureds

Non-medical insurance fraud costs can approximately go as high as $40 billion a year. – National Association of Insurance Commissioners

In addition, these frauds not only cause losses to insurance businesses but also cost customers roughly $80 billion a year. – Coalition Against Insurance Fraud

This should be taken as an alarm requiring insurers to monitor underwriting operations more comprehensively so that to avoid monetary loss for both themselves and customers. While many insurers outsource underwriting support services to keep the system functioning smoothly with a backup, there’s a lot besides that you (as an insurance business owner or MGA) can do to avoid fraud. For further help, let’s check some of the greatest solutions provided by other insurance business owners and industry experts.

Experts’ Opinions on Detecting & Preventing Underwriting Fraud

Daivat Dholakia, VP of Operations,Essenvia

When looking for underwriting fraud, pay attention to the details. Validate the details of occupancy and ask for proof that the property owner lives at their address. Be sure to inquire about long-term plans for the property and don’t gloss over any application questions. Property owners should read the application fully and attest to answering all questions accurately.

Josh Snead, CEO of Rainwalk Pet Insurance

This one is always going to be a balancing act; the more information you gather, the more accurately you can set premiums, but all of that information-gathering is expensive, forcing you to raise premiums still further until at some point you price yourself right out of the market. One of the practices that help us in our particular line of work is a series of quick, easily-accomplished verification tasks before issuing any policy. We always ask for a photo of the pet in question, both to verify its existence and to get a quick visual assessment of its age and health, and we always ask for contact information for a veterinarian.

A quick call with these professionals can confirm the pet’s existence and age, and also give us insight into not only their health but how often they’re getting medical attention. Similar practices in other industries are doubtlessly standard. A good extra step when using photo verification is a reverse image search, which can easily detect fraud.

Alan Harder, Mortgage Broker at Alan Harder

I recommend that you automatically uncover networks to detect and mitigate underwriting fraud. Organized fraud involving numerous related claims is rampant, and it’s just getting worse. To combat organized fraud rings, insurers should automatically examine and analyze social networks to spot fraud-related relationships and patterns. By modeling relationships between claims and new business entities, network link analysis helps discover organized fraud operations. The claimant or the new business application are examples of critical entities.

Other types of entities, such as locations/addresses, bank accounts, phone numbers, IP addresses, vehicle registration numbers, and similar may also be significant. Patterns and problems can be identified once many seemingly unconnected claims are routinely examined. Multiple claims from linked parties, such as members of a single family, or the typical ring associated with staged frauds, could be discovered quickly using network link analysis. The analysis of network links should be automated. This means that the system will keep updating the interconnected networks with new claims and policies while also rescoring for fraud.

Teo Vanyo, CEO of Stealth Agents

Data is the most precious commodity for analytically detecting and preventing insurance fraud. Fraud analytics assists insurers in detecting suspected fraud that would be difficult or impossible for a human to see quickly or readily. Information silos are unfortunately common in the insurance sector. Insurers usually have many new business and claims systems, with each line of business or distribution channel often having its own system (direct, aggregator, agent, broker, bancassurer, etc.).

When insurance has a customer with several profiles, these disconnected systems become a concern. In these situations, the software must recognize the consumer as the same person across numerous systems and merge disparate data into a unified entity. In some circumstances, insurers can employ simple business rules based on data such as a person’s date of birth and phone number.

However, this is insufficient in many circumstances, mainly when fraudsters purposefully conceal or falsify identities. To address these issues, insurers employ complex analytical approaches such as probabilistic matching to evaluate the statistical likelihood that two items are identical.

Other Important Tips for Underwriting Fraud Prevention

Although it is not easy to stop fraudulent activities in underwriting, having underwriting specialists with an eye for detail can help you protect your business and customers against fraud.

    While underwriting fraud isn’t always easy to spot, paying attention to the details can help underwriters protect themselves and their insureds. Here are a few tips to help you reduce fraud risks.

    Important information must be accurate

    Ensure that the insurance seeker thoroughly reads the application and attests the answers to all questions as truly genuine. There should be room for misinformation and to make it certain, ask crucial questions that clear doubts; for example, do you use the property to run a business?

    Validate ownership and occupancy details

    A customer needs to provide proof of property, but it is your responsibility to validate the details of ownership and occupancy. Therefore, make sure to get the answers to the following questions;

    • Does the owner use the property?
    • What are their long-term plans regarding the property?

    In case the customer is planning to purchase another property, they should be questioned about the use of the first one and validate the information collected.

    Examine details to detect potential red flags

    • Does the property owner have another property nearby?
    • Does the property include a basement or a room or an area that could be rented out?
    • Do your company’s mails to the owner always return?

    Try to find answers to these questions and you may also use genuine third-party data sources to collect as much information as you can in order to detect fraudulent activities well in time. That way you not only secure your firm’s finances but also ensure that customers don’t apply for early closure of their policy due to fraud.

    Pay a little more attention to risk mitigation

    A customer may quickly purchase a low-premium policy; however, if you later find an intentional or unintentional underwriting fraud, it would not only have repercussions on your business’s financial health but also your agents could lose their license.

    Conclusion

    As the insurance industry runs steadily toward growth, the chances of fraud continuously increase. Taking a thorough review of an insurance policy can help ensure no room is left for fraud. Doing this can help prevent potential underwriting frauds, securing your and your customers’ money. Considering the importance of effective underwriting practices, know that you can always rely on us for expert support.

    Cogneesol is a globally trusted insurance bpo firm helping insurers across lines gain underwriting excellence and optimize the process. We have more than 450 insurance specialists to provide high-quality insurance support services, including outstanding underwriting support to clients across the globe. To learn how we can help you, talk to one of our experts today. Dial +1 646-688-2821 or send an email to info@cogneesol.com

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