Fragmented approach to fighting financial crimes
- Key pointBased on conversations with IBM® insurance clients this year, insurers point to three industry trends in financial crime. First, they fight a growing range of offenses such as fraud in all forms (claims fraud, underwriting fraud, and fraud by agents and providers such as medical providers or repair shops) and identity theft. Over 60 percent of insurers say fraud has increased in the past three years,1 and identity theft is on the rise.2
Additional crimes include money laundering, bribery and corruption, collusion and insider threats. Insurers must comply with regulations around Know Your Customer (or Know Your Employee, Know Your Business partner, etc.), privacy, security and more.
Crime syndicates, gangs and terrorist groups are increasingly committing large-scale financial crimes to fund operations.3 Financial crimes often cross multiple industries; insurers say 84 percent of the cases they investigate involve more than one industry.1 These heightened risks are why insurers are investing more in anti- financial crimes technology.1
Figure 1: IBM Financial Crimes Insight for Insurance
- Key pointStandard technologies and methods used to combat various kinds of financial crime – and comply with regulations – are similar. They all need to:
− Be integrated into the respective operational processes and systems.
− Use all available data – structured and unstructured – for effective decision making.
− Determine who is who and who knows who.
− Use multiple layers of analytics to assess the risk.
− Efficiently triage and investigate the alerts that are raised.
− Access management information to manage the efficiency and effectiveness of the program.
Traditionally, different types of financial crime are addressed by different teams, processes and tools, using disconnected metrics and data from various silos. Complications include incompatible, duplicated or stand- alone technologies. To ease the fragmentation issues, insurers are looking for a partner with the know-how and platform to help fight an array of financial crime types, instead of buying similar capabilities over and over.
For example, a global insurance company headquartered in Europe has started the transformation of its financial crime prevention organization. Grouped under one leader, the anti-financial crime group will harmonize processes, share data and tools, and integrate management reporting. They aim to transform the people, process and tools required to effectively address a gamut of financial crime with an integrated platform. Figure 1 shows the insurance company’s current state and challenges and the desired state of transformation.
Figure 2: Financial crimes policies, procedures and leading practices
Need to optimize people, process and technology to fight complex threats
- Key pointThe second trend insurers see is that financial crime is increasingly complex. Technology alone is not a silver bullet to address today’s sophisticated financial crimes. For example: to realize the benefits from a more advanced detection system, insurers also need to make sure their financial crimes teams have the skills, processes and capacity to deal with this sudden avalanche of more and more complex alerts. Insurance leaders are looking for a partner with industry expertise in more than just software implementation.
To successfully fight complex crimes, insurers need to consider and optimize a holistic approach that includes skills, business procedures and intelligent technology. A set of transformative leading practices such as a financial crimes policy and common language, organization, skills, core processes and key performance indicators (KPIs) is shown in Figure 2.
Budget restraints and underfunding
The third trend is that budgets for investments in enhanced capabilities remain tight.4 Anti-crime units compete with other internal funding priorities. Investigation teams often can’t buy what they need to stay up-to-date in the arms race with the perpetrators.
Adoption of advanced capabilities is happening, but slowly. While 90 percent of insurers continue to invest in basic automated red-flag technologies 5, anti-financial crime units lack financing for the cutting-edge skills, processes and tools they need now.
Transaction-based pricing has clear benefits over perpetual or fixed pricing models. When spread out across many transactions, the per-unit investment is just a small fraction of the total cost of a claim.
- Key pointInsurers know that the right cost accounting method and pricing model can lower expenses and better support use cases. Transaction-based pricing has clear benefits over perpetual or fixed pricing models. Rather than acquire new capabilities through an IT capital investment, insurers are looking to shift to an operational expense on a per- claims basis, turning the investment into an allocated loss adjustment expense. When spread out across many transactions, the per-unit investment is just a small fraction of the total cost of a claim.
Figure 3: A comprehensive financial crimes insight platform supports multiple use cases
End-to-end solution for the detection and investigation of financial crimes
- Key pointFrom the first notice of loss (FNOL) through the end of the claims management lifecycle, Financial Crimes Insight for Insurance (FCII) from IBM delivers comprehensive integrated capabilities for the detection and investigation of all types of financial crimes:
- Integration with enterprise systems
- Security and access control
- Entity resolution
- Multi-layered analytics for text, business rules, machine learning, anomaly detection, link analysis and more
- Triage and case management
- Reporting and dashboarding
The solution is designed to protect IT investment by enhancing existing systems, without the need to “rip and replace.” Figure 3 illustrates the platform’s capabilities, which can be configured to support a range of financial crimes use cases.
Leading practices, maturity model, assessment tool and transformational roadmap
Client-defined scope is linked to leading practices
Maturity model defines requirements
Assessment tool enables visualizations of strengths and gaps
IBM Design Workshops develop the road map to improved outcome
Figure 4: IBM consulting methodology
Consulting method addresses trends and leading practices
IBM helps insurers evaluate and advance from current to desired states. Figure 4 shows the client engagement method workflow. It is tied to leading practices and geared to meet insurance financial crimes challenges and trends. The scope of work, maturity model, assessment tool and transformational roadmap across people, process and technology are designed to lead to improved outcomes. IBM has completed several such consulting engagements for clients.
Cost control with consumption-based pricing and flexible delivery
IBM FCII offers transaction pricing and other pricing models as well. FCII can be either a stand-alone solution or integrated with existing detection engines. There are a range of engagement options, from advisory and managed services to implementation of domain- knowledge machine-learning capabilities. Flexible delivery and deployment choices include cloud, hybrid or on- premises, with global delivery capability.
For more information
To explore how insurers prevent financial crime and deliver more precise risk assessments, visit Financial Crimes Insight for Insurance. Find out more about how detect and prevent multiple kinds of financial insurance crime with an advanced end-to-end solution. Sign up for the IBM solution brief “IBM Financial Crimes Insight for Insurance.”
Martijn Wiertz, Principal Consultant, IBM Financial Crimes, IBM Industry Platform
About IBM Watson Financial Services
IBM works with organizations across the financial services industry to use IBM Cloud™, cognitive, big data, RegTech and blockchain technology to address their business challenges. Watson™ Financial Services merges the cognitive capabilities of IBM Watson® and the expertise of Promontory Financial Group, an IBM company, to help risk and compliance professionals make better-informed decisions to manage risk and compliance processes. These processes range from regulatory change management to specific compliance processes, such as anti-money laundering, know your customer, conduct surveillance and stress testing.
1. Coalition against insurance fraud. “By the numbers: fraud statistics.”http://www.insurancefraud.org/statistics.htm
2. National Association of Insurance Commissioners.” https://www.naic.org/cipr_topics/topic_identity_theft.htm
3. International compliance Association. “What is financial crime?” https://www.int-comp.org/careers/a-career-in-financial-crime-prevention/what-is-financial-crime/
4. Insurance Information Institute. Background on Insurance Fraud, November 6, 2017. https://www.iii.org/article/background-on-insurance-fraud
5. Coalition against insurance fraud. “The State of Insurance Fraud Technology: A study of insurer use, strategies and plans for anti-fraud technology.”https://www.sas.com/content/dam/SAS/en_us/doc/whitepaper2/coalition-against-insurance-fraud-the-state-of-insurance-fraud-technology-105976.pdf