Property and Casualty Insurance Best Practices
Some of the best practices used by P&C insurance companies when detecting and handling potentially fraudulent claims include designing an enhanced fraud-fighting strategy, leveraging the latest technology, and conducting pre-insurance inspections.
Best Practices on Detecting Fraudulent Claims
Enhanced Fraud-Fighting Operating Strategy
- According to Deloitte, one of the best practices for combating fraud in the property and casualty insurance industry is by establishing clear fraud management goals and performance objectives across the national and global enterprise.
- This includes detailing the objectives that need to be achieved and the way success will be defined. It also includes detailing the performance metrics to be tracked and targeted outcomes.
- An important aspect of achieving the goal is to "recruit professionals with the core skills in fraud investigation and provide training to continue to develop the skills of existing professionals, both SIU staff and other claims professionals."
- Staff training can be done using resources provided by the "national fraud academy, a joint initiative of the Property Casualty Insurers Association of America, the FBI, the NICB and the International Association of Special Investigating Units, it is designed to fight insurance claims fraud by educating and training fraud investigators. It offers online classes under the leadership of the NICB."
- This should also incorporate "early-warning systems that identify fraudulent or suspicious claims by locations, channels, and products." There should also be consistent processes and procedures on how to handle suspected fraud cases that take into account the fact that there can be false positives.
- The fraud detecting unit should also be integral to all aspects of the company's development. In fact, a study found that 50% of property-casualty insurance companies won’t introduce a new product to the street until the SIU analyzes the fraud-risk exposures.
- The company has to assess and determine the high priority areas and activities that account for the majority of the company’s fraudulent or suspicious claims and how aggressive they want to be in pursuing fraudulent claims.
- The company will also need to assess if a centralized anti-fraud unit or decentralized anti-fraud unit, or a mixture of both would best serve its purpose.
Use of Technology
- The use of technology to detect fraudulent claims is one of the best practices in the property and casualty insurance industry. About 90% of surveyed insurance companies state that they use technology primarily to detect claims fraud.
- Insurance companies are also investing in technologies such as automated red flags detectors, predictive modeling, data exploration, and link or social network analysis.
- Companies are also "leveraging advanced modeling techniques such as neural networks, random forests, and regression to uncover subtle fraud patterns and sing geographic coordinates to identify spatial patterns and anomalies."
- Companies are also using technology to identify trends, circumstantial anomalies, and outliers through exploratory data analysis.
- The benefit of technology is not just to detect fraudulent claims, but to improve the quality of referrals thereby preventing fraud at the root.
- Photo inspection used in the auto insurance industry has proven to be very effective and is one of the best practices adopted by insurance companies.
- In New York state alone, photo inspections uncovered about $1.8 billion in pre-existing auto damage between 2014 and 2018, saving insurance companies from paying $128 million in false claims on vehicles.
- A study found that "for every dollar invested in pre-insurance inspections, $34 in false claims payouts were avoided." Companies in the industry are adopting this practice to help curtail such fraud in states in the US where it is legal to do so.