Technology is how we win the battle against insurance fraud

Last year, the local media highlighted an insurance fraud case where a husband and wife combo decided to fake the husband’s death and the death certificate, then have the wife claim compensation from their insurer.

Prior to this story, there had been a case involving 11 individuals who were arrested and arraigned in court, suspected to be part of a fraud ring conspiring to defraud a local insurer of Kshs.15 million by forging the insurer’s medical cards and hospital prescriptions and using them to acquire medical drugs from various health institutions. And then there was the case of an insurance investigator who was arrested and prosecuted in September 2015, accused of pretending to be in a position to influence motor insurance claim payment. Fake deaths, fake accidents, inflated damages, staged accidents, on and on the scams go.

Insurance fraud has been a consistently growing concern for insurers in Kenya with an increasing share of the claims payments done being attributed to the vice. According to the Insurance Regulatory Authority (IRA) Quarter 4 report for 2015, the Insurance Fraud Investigation Unit (IFIU) recorded a total number of 106 cases reported in 2015 which was an increase from the 87 cases reported in 2014. The amount lost increased from Kshs.102.76 million reported in 2014 to Kshs.366.90 million. Of the 106 cases reported, motor underwriting led the list with 42 cases, followed by agent/broker fraud at 25 and medical in third place with 17 cases.

Insurance fraud is prevalent across the entire insurance value chain with the most affected areas being claims and underwriting but as technology evolves and fraudster tactics become more sophisticated, insurers are now increasingly having to deal with other forms of fraud including internal fraud and money laundering as well as the emerging issue of cyber fraud. The KPMG East Africa Insurance Fraud Risk Survey 2015 highlights better assessment of risk at proposal stage and improvement of internal controls as some areas of focus that the region, and Kenya in particular need to concentrate on if the threat of fraud risk is to be curtailed. Also mentioned in the survey report is data analytics.

In the past, insurance companies have relied heavily on fraud investigators to look into suspicious cases and determine whether fraud has occurred. But as our world and technology evolves, we are witnessing a new breed of fraudsters (and fraud rings) using more advanced techniques. This new challenge demands that the insurance industry shifts to improved fraud detection initiatives. Insurers now need to be thinking about new data solutions, workflow streamlining and improved risk management.

To combat fraud more effectively, the ability to collect and analyze huge volumes and varieties of data is essential. Insurers already collect large amounts of data but what many lack is the ability to quickly and systematically evaluate that data in order to identify activities and patterns indicative of potential fraud. There are new technology tools and techniques in the market that can help insurers uncover complex or organized fraud activities using both structured and unstructured data. These include data analytics, predictive modelling, link analysis, automated red flags/business rules, and geographic data mapping.

Predictive modelling enables insurers to review historical fraudulent claims and identify factors and elements that can help prevent future fraud with the main goal being to detect the fraud early enough in the claims process. Link analysis examines relationships among claims, people and transactions thus helping link different players and identify the extent of the relationships between the parties, then giving off data that can be used to define indicators that point to possible fraudulent activity. Automated red flags/business rules can be inbuilt into an insurer’s core IT systems and are instrumental in helping anticipate certain types of suspicious claim activity based on past fraud through the identification of anomalies or irregularities during processing of claims. Geo-mapping can help the insurers evaluate risk and exposure during underwriting and during claims processing. For example, the insurer can now confirm that an incident actually occurred where the customer claims it did.

There are many other tools available in the market, but it is important to note that in order to take full advantage of any or even all of these technological capabilities, insurers must first address legacy technology issues and inefficient processes that have proven to be a great hindrance in the war against fraud. Adapting to modern technology significantly improves the insurer’s operational workflow and also helps manage claims investigations faster and more effectively.

With automated workflow solutions, insurers can be able to track daily activities and expenses and get at-a-glance reports to help flag any suspicious activities. With modern systems, underwriters are also able to confirm information by comparing the applicant reports with information available from other databases and public records online and thus confirm prior coverage, discover undisclosed information and eliminate policy application fraud before it occurs.

————————————————–The Author – Kizito Makatiani is the CEO of Turnkey Africa, a leading pan-African insurance technology provider, developing end-to-end insurance business software solutions. 

Contact: kizito@turnkeyafrica.com