Category Fraud/Crime

Vital priorities in the insurance industry: Addressing fraud and fostering customer service

28 September 2016 TransUnion
Jonathan Lewarne, Senior Director: Insurance Business Development at TransUnion

Jonathan Lewarne, Senior Director: Insurance Business Development at TransUnion

There is a critical balance that needs to be attained between combating fraud across the lifecycle of a policy, and providing a positive customer experience at all times.

Both are essential and yet made more difficult by the fact that insurance fraud in particular, is not just growing, it is doing so faster than ever before. Indeed, in the United States alone, the last study on the matter by ID Analytics found that 10 000 fraud rings were operating in the country, while identity fraud is estimated to be costing its economy a staggering $40 billion every year due to non-health insurance related incidents. 

Fraud uncovered

While it may be tempting to lump all insurance fraud under one broad umbrella, there are actually two different types of fraudulent activity. The first of these is soft fraud, which tends to be opportunistic in nature, involving claimants who will paid an illegitimate claim. In some cases, claimants will go so far as to obtain falsified invoices or receipts in order to inflate the value of their claim. 

The second type of fraud, called hard fraud, involves the staging of an accident or another form of a claim. It is intentional and well planned, and most alarmingly, often has connections to organised crime. 

For those who think insurance fraud is relatively harmless as compared with more serious crimes, this needs to be viewed in context. At present, insurance fraud counts as the largest criminal enterprise in the United States after drug trafficking, according to Fraud not only affects insurers, it has a negative impact on honest customers as well, as it slows down legitimate insurance claims and increases premiums for all.

Lives and livelihoods

In the case of auto insurance claims, it can go so far as to jeopardise innocent people’s lives, due to fraudsters staging or even causing accidents. Fraudsters are not only becoming more extreme by staging deaths, but also more innovative. For example, there are now crash-and-buy scams, in which insurance policies are purchased after a crash, and ‘ghost brokers’ who trick young drivers by selling false policies online, over the telephone, and even in person. 

Clearly, fraud is a pressing issue that demands a serious response, as it needs to be caught and addressed at every turn. However, being thorough in checking claims so as to mitigate against fraud needs to be balanced with being customer centric in order to remain competitive. 

While great service is always a strong differentiator between suppliers irrespective of the industry, there is another reason why insurance companies need to keep it a high priority. It should come as no surprise that insurance companies that can offer customers a superlative experience when signing on for new policies not only have better retention, but also have to contend with fewer new customers ‘shopping’, or going to their competitors for alternative offers. 

Furthermore, it has been found that 79% of motor vehicle owners who put in a claim and are happy with the result are likely to renew their policy and recommend their insurer. In a similar vein, those who put claims in on their property insurance and report being pleased were far less likely to switch insurers. Contrary to popular belief, rate hikes don’t necessarily equate to driving existing customers into another insurer’s arms, as insurance premium increases are expected. 

Poor service, however, invariably comes as a nastier surprise and is far less easily forgiven. It is also damaging to an insurer’s reputation, as it tends to have an alienating effect on the end user. This can not only diminish any loyalty towards their existing insurance, but it can often prompt customers to switch due to dissatisfaction or on principle. 

Finding the balance

Combating fraud and providing excellent service need not be mutually exclusive of one another. Rather, the balance between addressing these issues can be found in treating users as good customers, unless proven otherwise, by using the latest tools and applying appropriate technologies. 

These allow a proactive approach so as to catch fraud early, rather than waiting until after the fact. They are also intelligent, relying on real-time analytics from many sources of data across multiple financial institutions, rather than just looking at historic data as a means of ascertaining the risk of fraud. Additionally, not only can using the right tools mitigate against keeping customers waiting on hold and incurring their irritation while they are checked, it can enable faster, more accurate quotations for genuine customers as well. 

Balancing both concerns is well worth the effort, resulting in considerably lower instances of fraud and beyond that, higher sales, as efforts are redirected to honest customers. Add in lower underwriting and claims expenses, and the argument to both address fraud and keep customers happy is compelling and undeniable. 

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