Insurance fraud: the best defense is a good offense

Most insurance companies tell their customers, “We’ve got your back.” But how many can confidently say, “We’ve got your back and your front?”  

While the war between insurance companies vs. fraudsters has been raging for decades, the age of digitalization has taken the battle to new heights. Today’s fraudsters are sophisticated, agile, and organized. They’re skilled at using advanced technology to steal personal information from unsuspecting policyholders. They’re quick to adapt to the changing behaviors of insurers and consumers. And many are involved with organized cybercrime entities that can launch large-scale attacks on vulnerable websites and software.

To win the battle against fraudsters, insurance companies must get ahead of the action by identifying and stopping fraud before it starts. This requires an advanced fraud solution that can detect — and stop! — fraudsters in real time.

What is insurance fraud?

Insurance fraud is a deceptive act that’s committed to defraud an insurance process. Any sector of insurance can be impacted by fraud including homeowner’s insurance, business, healthcare, unemployment, property and casualty, life, automotive, and more.

There are two different categories of fraud:

• Organized fraud: Also referred to as “hard fraud,” organized fraud is deliberate. For example, when a policyholder deliberately destroys property or creates an accident to claim insurance money, or when a fraudster uses stolen credentials to create a fake policy.
• Opportunistic fraud: Sometimes called “soft fraud,” opportunistic fraud occurs when a person exaggerates a legitimate claim or purposefully gives misinformation when applying for an insurance policy. This type of fraud is typically unplanned and arises when an opportunity presents itself.

Over the past decade, insurance companies have become prime targets for digital fraudsters due to the sensitive data they hold. From social security numbers to financial details to personal information, the sheer amount of data is a goldmine for fraudsters looking to scam insurers and policyholders. Between 2021 and 2022 global digital fraud attempts in the insurance industry increased by a whopping 159%.

Common types of online insurance fraud 

Like many industries around the world, insurance companies have gone digital to streamline and enhance the customer experience. Consumers no longer have to schedule in-person appointments with insurance representatives at brick-and-mortar locations — today’s applications can be completed online in under 15 minutes. Online quoting tools can instantly generate premiums and policy offers within seconds — no need for multiple phone conversations with agents just to do a price comparison. And managing the ins and outs of an existing policy, or looking up policy details, doesn’t require stacks of paperwork when policyholders can easily access their documents online through account portals.

While the digital landscape has opened the doors to better customer experiences, it’s also created new opportunities for fraudsters looking to exploit and deceive insurers, policyholders, and consumers shopping for new coverage.

Common forms of insurance fraud today include:

• Fraudulent policy applications and renewals: Fraudsters use fake or existing IDs to open new policies or intercept current policies during the renewal stage. Legitimate customers and policyholders can also falsify information during these stages by manipulating answers to obtain lower quotes.
• Synthetic identity fraud: Fraudsters combine false details about a person (such as address and date of birth) with real details (name and social security number) to create a new identity.
• Account takeover (ATO): A fraudster gains access to a policyholder’s login credentials and alters account information (email address, password, authorized users, etc.) to steal for financial gain.
• False claims: Upon gaining access to a policyholder’s account, the fraudster submits false claims to the insurance company to reap the monetary benefits. Existing policyholders can also commit insurance fraud by exaggerating or “padding” otherwise legitimate claims to collect larger monetary payouts.

Catch the fraud before it hits

Your insurance company can protect customers and your bottom line from fraudsters by playing offense on the frontlines. The key to tipping the scale in your favor is using an advanced fraud solution that detects and stops fraud before it wreaks havoc on your customers and your digital experiences.

The best fraud solution will leverage advanced technology to detect, analyze, and prevent fraud in real time.

Behavioral biometrics provide insight into user behaviors and patterns. From mouse movements to typing speed to the amount of pressure applied on a mobile device, this technology captures signals (in real time!) on how visitors behave while on your website or app. Behavioral biometrics can detect fraudulent bots, spot synthetic identity fraud, and block suspicious transactions and malicious application processes based on rules set by your company.

Sense and trace technology scans fraud intelligence networks to spot and follow compromised accounts. Mule accounts can be traced to reveal other compromised identities, and trigger-based alarms can be programmed to notify your departments and systems in real time when fraud is attempted.

Advanced anomaly detection enriches insurance fraud prevention using machine learning to recognize abnormal activity. It runs behind the scenes to instantly identify suspicious data patterns such as bot attacks, DDoS attacks, and password harvesting. The right technology enables you to set the criteria to alert your company to data anomalies that may signal fraud.

A comprehensive ID Graph builds a complete digital profile of every individual (anonymous or known) who visits your website or app. The graph captures all visitor behaviors and interactions — hesitations, IP addresses, pages visited, time spent per page, etc. — to reveal anomalies or suspicious behaviors. Every digital profile serves as a benchmark to paint a clear picture of typical activity for a particular user. From there, it’s easy spot and stop fraudsters before they attack.

To the victor go the spoils 

The goal of an insurance company is to provide best-in-class protection for policyholders. Additional goals include protecting your stockholders, bottom line, and reputation. Any insurance company can be reactive and do this on the back end. But an elite insurance company knows premium protection starts with a proactive solution to fraud detection and prevention.