Industry Insights

The top 3 financial crime trends insurers face today

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Insurers are investing more in anti-fraud technology because the risks are growing. Terrorist groups, crime syndicates, and national and international gangs increasingly carry out large-scale financial offenses to create illegal profits and fund even worse activities.  And these crimes involve multiple industries – insurers say that 84% of fraud cases they investigate involve more than one industry.

Leaders of insurance and financial services firms worry about how financial crime hurts shareholder value and raises costs. Insurers know well the losses and regulatory fines that damage brands, customer confidence and profits.

It’s a complex picture. Beyond claims fraud detection and prevention, the industry has expanded anti-financial crime and compliance efforts to include agent fraud, anti-money laundering, Know Your Customer, and underwriting fraud. Medical provider fraud and data breaches add to a growing variety of crimes. Insurance identity theft, a consequence of medical, financial or driver’s license identity theft, is rising.

Tight budgets for investments in enhanced IT

The most frustrating trend (a.k.a. problem) for many insurance anti-financial crime units is a lack of resources for up-to-date IT4. Investigation and financial crimes units are often underfunded. So how do insurers keep up with aggressive approaches and technologies that financial criminals quickly rollout?  One answer is having a pay-per-use pricing scheme that allows you to change the investment model from a capital IT expense to a recurring business expense.

Transaction-based pricing has clear benefits for insurers over perpetual or fixed pricing models. Spread out across many transactions, the per-unit investment is just a small fraction of the total cost of a claim. Cost accounting methods too can lower expenses and better-support successful case studies. Expenses, when treated as an allocated loss adjustment expense, are tied to results.

For more about anti-crime approaches aligned with market trends, see the IBM smart paper “Stay ahead of three emerging trends in insurance financial crime.

Fragmented technologies and business processes

Another long-term trend that makes it hard to fight increasing financial crime is a fragmented business and technical approach. Anti-financial crime efforts in the industry are addressed by different teams with multiple processes, teams and tools – that all deliver similar capabilities.

Rather than buy comparable capabilities over and over in separate tools, insurers are looking for more integrated ways to fight all types of financial crime. They want to resolve problems of incompatible, duplicated or stand-alone technologies. They need a complete picture of metrics but the data may live in separate silos. For such issues, advanced technology like AI and predictive analytics help. But technology alone is not a silver bullet.

Optimize people, process and technology to fight complex threats

Yet another trend is an emerging holistic approach against financial crime. It includes a common set of leading industry practices such as a financial crimes policy and common language, organization, skills, core processes and key performance indicators. These transformative methods can be summarized by three ideas: People (skills and roles), processes (procedures and policies) and technology.

Addressing people, processes and technology together is more effective than piecemeal efforts. It takes into account the fragmented resource picture, funding issues and the increasingly complex financial crimes landscape.

Putting it all together

These industry developments help explain what type of help insurers can really use today. For a deeper dive into the market trends discussed in this blog, read the IBM smart paper “Stay ahead of three emerging trends in insurance financial crime.

IBM has designed an anti-financial crime solution aligned to insurance industry trends. It’s based on a holistic approach and has a flexible platform to fight multiple kinds of financial crime. Of course, it uses cognitive AI. That means it delivers predictive analytics to detect and fight crimes before they happen. It also offers pay-per use pricing. To explore the solution visit Financial Crimes Insight for Insurance.

Footnotes

1 National Association of Insurance Commissioners. https://www.naic.org/cipr_topics/topic_identity_theft.htm

2 Coalition against insurance fraud. “By the numbers: fraud statistics.” http://www.insurancefraud.org/statistics.htm

3 Insurance Information Institute. Background on Insurance Fraud, November 6, 2017.  https://www.iii.org/article/background-on-insurance-fraud

4 UK Insurance Fraud Taskforce: final report. https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/494105/PU1817_Insurance_Fraud_Taskforce.pdf

5 The United States Department of Justice.
https://www.justice.gov/opa/pr/justice-department-recovers-over-47-billion-false-claims-act-cases-fiscal-year-2016

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