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Insurers have long understood that the ability to quickly detect fraudulent claims not only stems losses, but also minimizes the impact to legitimate customers as well. But as more complex financial crimes like money laundering, employee fraud, and corruption have gravitated toward insurers more recently, many don’t have the programs in place to combat these effectively.
The impact of financial crime is about more than money
While insurers are obviously concerned about direct monetary losses and overall profitability, business leaders and insurance boards have other real worries from the adverse effects of financial crimes. Reduced shareholder value, increased operating costs and exorbitant rates passed on to their customers. Customers particularly will be footing the bill ultimately in the form additional premiums to cover fraud losses. Insurers are already well acquainted with the impact insurance fraud can have on both regulatory scrutiny as well as the damage to a company’s equity, brand and consumer confidence. These are only exacerbated with the increase and emergence of agent fraud, money laundering schemes, know your customer obligations, and underwriting fraud.
According to the Coalition Against Insurance Fraud, more than 60% of insurers say fraud has increased in the past three years and, as a corollary, almost 75% of insurers are using automation to speed up the claims process. While there’s no shortage of information on fraud in insurance, there seems to be a lack of clear consensus on how insurers are finding and remediating financial crimes beyond claims fraud.
Creating a program around not just fraud, but financial crime prevention
While financial crime threats grow more varied and complex, insurers need to take an equally sophisticated approach to both identify and prevent them. Insurers see gaps between their fraud detection methods and the continual new technologies fielded by criminals.
IBM believes that insurers can cost-effectively identify and prevent a broad array of fraudulent activities. There are four main strategies to realizing this goal:
- Take a holistic approach to investigations: Similar to the approach many banking institutions have taken, start addressing financial crime as a whole, not just its sub-components of anti-money laundering, fraud and employee conduct. Often, there are natural overlaps between these areas, so integration will not only improve the quality of the investigation but also reduce duplication of efforts across multiple departments.
- Look for opportunities with AI: Technologies like artificial intelligence (AI) and robotic process automation (RPA) will not replace the role of human investigators. However, they can do a better job at uncovering suspicious behavior and individuals earlier in the process and identifying new fraud and financial crime patterns across large transaction sets.
- Reduce costs by consolidating systems: Instead of relying on multiple, disparate systems focused on one aspect of fraud or financial crime, consolidate into a system that can have shared benefit and shared use. As with the first point above, you may find the same criminals or schemes popping up in different areas of your business.
- Choose the model that works for your business: When trying to improve return on investment (ROI), look beyond large upfront investments that take a while to show value. Options like transaction-based pricing help insurers pay as they go and shift costs from capital expense to operating expense. IBM Financial Crimes Insight for Insurance provides this option to help insurers better use capital while improving their approach to holistic financial crime.
Where to go next
Even with substantial resources, the growing frequency and complexity of fraud and financial crime presents a sizable struggle for insurers. Add to the fact that financial crime prevention can be harder to quantify than claims fraud and this problem only increases further. But as criminals swiftly adopt next-generation techniques, insurers can no longer rely on yesterday’s approaches and solutions. Waiting to fall victim to a new crime schemes or be responsible for exposing their customers to those same risks in not a viable option. Insurers need to drive savings with successful investigations, litigation and prosecution – and to save time and resources by cutting false positive alerts to quickly identify emerging risks, whether traditional fraud types or newer threats.
Want to learn more about these trends in insurance? Tune into our upcoming RegTalk webinar on April 17th, “Hidden risks in insurance: Why you need to think beyond claims fraud,” learn more here.