Nearly two-thirds of claims handlers are noticing an uptick in fraud

Insurtech Sprout.ai’s latest report, ‘The rise of AI-enabled insurance fraud’, contains insights into the growing challenge of artificial intelligence (AI) driven fraud and offers strategies to help insurers protect themselves and their customers.

AI plays a dual role in the battle against insurance fraud. On the one hand, it is a tool that fraudsters increasingly use to create fake documents, images, and data that can deceive insurers. On the other, it is the most effective weapon to combat this type of fraud.

Only sophisticated AI can effectively combat the fraud facilitated by other AI technologies, which Sprout.ai’s research shows is on the rise.

The role of AI in claims

The insurer Allianz has seen a 300% increase in incidents where apps were used to manipulate real-life images, videos, and documents between 2021–22 and 2022–23. It noted that this trend has “all the signs of becoming the latest big scam to hit the insurance industry”.

Sprout.ai pointed out that financial losses due to fraud are substantial, contributing to higher premiums for all customers. The erosion of trust between insurers and policyholders further complicates the situation, making robust fraud detection and prevention measures vital.

What’s driving the rise of AI in insurance fraud?

Detected fraud in the UK costs over £1 billion each year and adds £50 to the annual cost of household insurance, according to the Association of British Insurers. Undetected fraud is estimated to cost a further £2 billion on top of that.

Concurrently, the UK and other countries are dealing with significant cost of living crises, with wages stagnating and essential goods and services becoming more expensive. UK inflation has fallen from a peak of 11.1% in October 2022, but prices are still rising, albeit at a slower rate.

One fallout of this might be increased willingness to commit insurance fraud, said Sprout.ai. In 2023, as many as one in four young adults said they would ‘likely’ consider an act of insurance fraud if they were struggling financially, a marked increase from the year before.

Impact of AI

The research found that 83% of the 200 claims handlers surveyed suspect that at least 5% of claims are fraudulently created or altered using AI.

Within this group, 19% believe that AI and digital tools are being used in 11–25% of all cases, while 64% suspect AI is involved in 5–10% of claims.

The role of AI in detecting and preventing fraudulent claims

Insurers are increasingly using AI to detect anomalies in claims data that might indicate fraud, such as inconsistencies in documentation or unusual patterns in claim submissions.

By 2026, 83% of anti-fraud professionals expect they will be using generative AI, according to a survey by the Association of Certified Fraud Examiners (ACFE) and SAS, which included responses from fraud fighters worldwide across sectors such as entertainment, insurance, utilities, and warehousing.

Optical character recognition (OCR) and natural language processing (NLP) can be used to extract and analyse data from claims documents. OCR converts physical documents into digital data for quick analysis, while NLP interprets textual data to identify anomalies and potential signs of fraud.

Taking on new technology will help insurers stay ahead of fraudsters, protect their financial health, and keep premiums low for honest customers, said Sprout.ai.