Fraudulent claims continue to threaten insurers despite protective measures

The State of New Jersey Department of Banking and Insurance has named insurance fraud the second-largest white-collar nonviolent crime, following tax evasion.

According to a 2023 article by The Wall Street Journal, banks’ annual losses from fraud have reached US$2.7 billion while in 2022, insurancefraud.org reported that insurance fraud alone measures in at $308.6 billion annually.

The FBI, the main prosecutors of insurance fraud cases, stated in a report that the size of the industry “contributes significantly to the cost of insurance fraud by providing more opportunities and bigger incentives for committing illegal activities”.

Fraud-related losses for insurers are passed onto all policyholders. According to an Insurance Journal blog post, if insurance fraud were wiped out premiums would be 10% lower overall.

Attitudes to insurance fraud

As observed in the survey ‘Who Me? Who Commits Insurance Fraud and Why’ by insurancefraud.org, of attitudes surrounding insurance fraud, almost 9% of respondents justified insurance fraud as not being criminal based on their belief that “insurance companies rip people off”.

Alongside this, the survey revealed a high percentage of respondents (28.6%) believed insurance fraud was “not a real crime” (8.5%) or that it constituted a “business practice with no real victim” (20.1%).

In addition, age can determine whether an individual considers insurance fraud a crime. In the Who Me? survey, respondents aged 45 and older were much more likely to consider insurance fraud a crime. Of the youngest respondents, aged 18 to 24, just under 65% did not see it as a crime while 96% of respondents 65 and older did.

Technological developments

Advancements in predictive modelling and the establishment of artificial intelligence (AI) have improved insurers capabilities when identifying and investigating potentially fraudulent claims.

Equally though, AI is being weaponised to infiltrate insurers’ fraud detection systems.

Some insurers are no longer accepting photos due the risk of them being AI-generated fake photographs. Instead, they are returning to loss adjustors physically visiting the alleged scene.

On top of this, AI-enabled manipulation of one’s voice can enable criminal third parties to bypass insurers’ voice recognition technology, and initiate a policy being surrendered to a non-policyholder, non-beneficiary.

Insurers might benefit from educating younger generations on the criminal severity of insurance fraud. Companies may also join forces with other parties battling insurance fraud such as state insurance department fraud units, local and federal law enforcement, and organisations such as the Coalition Against Insurance Fraud and the National Insurance Crime Bureau.

Although the advancement of technology continues to pose a threat to insurers, in 2023 business insurance company Allianz Commercial reported having detected £77.4 million worth of claims fraud. Allianz claimed that with the use of its machine learning tool, Incognito, fraud detection had increased by 10% from 2022.