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Interview of the week



Within Europe one out of every ten claims is fraudulent. In certain regions, such as CEE including SEE and CIS, this threat is at least three times the European average. So what does this mean for the insurance companies? In a word: loss.

XPRIMM: Is fraud a threat for the insurance business? Which are its effects in this field?
Yes, fraud is a real threat to the insurance business and throughout the insurance processes including both claims and underwriting. For claims, we know that within Europe one out of every ten claims is fraudulent. In certain regions, such as CEE including SEE and CIS, this threat is at least three times the European average. So what does this mean for the insurance companies? In a word: loss. This loss then is passed on to customers resulting in higher premiums. This cycle affects us all. Considering that the average European claim is between EUR 1,000 and EUR 2,000, you can understand the extent of the problem and the cost to the industry. Moreover, it is also is a social responsibility of insurer to make sure that the honest clients don't suffer from the fraudsters in your portfolio. It has been estimated that an average European family pays an extra EUR 150 per year in premium to cover for the fraudulent claims.

Manual detection of fraud does help but technology is needed to enable a more cost-effective and efficient process for the companies in detecting possible fraud cases. Organized fraudsters are able to operate across various insurance companies and across country boarders. New, better fraud detection methods must be introduced to alert companies of possible fraud before the claims are paid out or the new policy is written. Preventative risk management is needed.

XPRIMM: What tools can insurers use to combat fraud?
The tools available today to detect fraud in insurance consist of predictive models (based on historical data), behavioral models (used to detect variations from normal behavior patterns), expert models (rule engines with if-then-else type rules ) and social link analysis (determines if network links exist between customers, third-parties, objects, phone numbers, bank accounts, address, etc). The best model, or hybrid model, is comprised of all four types of models to produce the most accurate detection, the use of which is seven to nine times more accurate than manual fraud detection. Also, the addition of external data sources to the solution, such as social demographic, credit scoring, government statistics, company registrations, for example, provide even greater insight into detection. The more data is analyzed, the more accurate the results.

And FRISS is continuously adding new techniques to the platform. At the beginning of this year we announced a partnership with Iovation (www.iovation.com) for screening of the devices on a global scale. Also are we doing pilots with photo screening technology to check to see when a photograph was taken and if a photograph was altered in any way. This technology will help a great deal in claims processing. Also, new technology will soon be used to check online claims entries to verify if the individual is in fact the policy holder and will analyze the stress in the voice to detect possible fraudulent claims.

XPRIMM: Is communication between insurers important to fight fraud?
Communication is the key in fighting fraud. It is of utmost importance for insurance companies, claims managers and underwriting managers to communicate what is happening in their business across the departments and share data and the issues they face surrounding the detection of fraud.

On a country level, all insurance companies in a particular market will benefit by sharing a shared claims database and an incident database. Companies would only see hits on the fraud indicators and not be able to see all data so there is no issue for data protection. Thus, all member companies could protect themselves by sharing accumulated data, as the more data the better the fraud detection for everyone. Also, the companies are better protected from fraudsters moving from one company to another.

FRISS is working on a platform to take this even a step further and set up a system for cross border claims. This means that, in the future, moving to another country is being detected.

XPRIMM: Are there any visible trends throughout Europe regarding the fight against insurance fraud?
With the recent economic crisis in Europe and the recognition in the insurance industry of the problem of undetected fraud, Europe is proactively taking action to combat fraud, on country levels and in insurance companies.

In the past year alone, FRISS has opened the CEE Offices in Greece and the DACH office in Germany, and soon to open a CIS office in the near future, just to meet the demand and to indicate the extent of the interest in fraud detection in Europe.

This shows the increased interest of insurers across Europe to not only discuss the topic but actually prevent and detect insurance fraud.

XPRIMM: Which markets are the most exposed to insurance fraud?
Fraud is everywhere, and throughout Europe, both in developed countries and emerging markets. It is not a fair statement to say that fraud exists in certain markets or regions. We must take many factors into account. Generally, the greatest presence of undetected fraud exits in the CEE, SEE and CIS regions where fewer controls are in place. That is why the great interest of insurers in the region to really adopt a fraud detection policy and implement a solution to protect their business and their profitability.

XPRIMM: Does the development of online channels pose any threats for the company or for the customers?
Introducing online channels is a big project for many insurers. But the focus of these projects is mainly marketing and technology. What we have seen at many insurers it that the introduction of a new online channel attracts a whole different group of clients. Clients that are out there to do "market research" and find the weak spots in the defenses of the insurer. But not alone fraudsters/organized crime is targeting these new online channels. The online channel attracts a whole new type of client. A type of client that's a different risk. And one that is not captured in the historical data of the insurers. Therefore we see very often that the pricing turns out to be incorrect and also the tendency to switch much easier to another insurer making the total cost of sales per policy high.

XPRIMM: Does a universal profile of the insurance fraudster even exist?
No, unfortunately not. Fraudsters are constantly changing their patterns in their behavior (modus operandi). That is why we need to make use of fraud detection solutions. The more data sources we can check against, the more accurate the fraud detection. We can, therefore, find patterns of data and network links which help us to better identify possible fraudsters.

Also, the system needs to learn. It's not enough putting a system in place and configuring it with the latest insights. They will become outdated. So it's permanent monitoring, learning and tuning. When selecting a solution, make sure you can not only learn but also implement the findings yourself and very fast, because the fraud cycle continues.

XPRIMM: How can you determine if a fraud is imminent?
Using the FRISS solution, a user is able to conduct an online, real-time or batch screening, from that screening a FRISS score is provided. This FRISS score is checked against an internal score threshold which indicates the action needed to be taken. For example, a RED score will indicate immediate action to be taken by a senior official and provide indication on which fraud indicators were hit, or where the fraud is coming from, such as a suspicious phone number connected with a previous fraud case. The senior officer can then act quickly to check the alert and to make recommendations to stop any claim payment or to continue with legal proceedings, for example. The FRISS solution has over 600 standard fraud checks built into the solution, which can be added to and changed if necessary.

XPRIMM: What tools does your company provide to fight insurance fraud?
We provide a dedicated insurance fraud prevention platform. All applications run on the FRISS Platform. These applications can be used separately, but when combined they form the most complete, effective and intuitive solution available to manage fraud, risk and compliance.

During fraud and risk detection, investigation, analysis and visualization, new insights and knowledge are gained. The FRISS VALUE CYCLE© takes this new intelligence and uses it to improve expert rules, risk profiles, text mining, network detection and predictive models. The entire process from underwriting to claims will automatically get smarter while using the FRISS Platform.

The FRISS Platform is connected to numerous databases and can extract data from a wide array of internal and external sources. The main applications on the FRISS Platform work along the entire insurance process.

The FRISS solution can be used by any insurance company, small or large. The FRISS solution can be used as a SaaS (software as a service) or implemented on-premises, according to the data protection laws of the country in question and the preference of the company. The screening through the detection engine can be done in batch, online or via web service.

Editor: Mihai CRACEA | Published on 04.06.2014

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