How to Effectively Fight Insurance Fraud

How to Effectively Fight Insurance Fraud

Insurers facing continued uncertainty about profitability, pressure on pricing and low interest rates on their fixed-income investments are focusing on ways to control costs and improve overall risk management. Fraud control is an area with strong potential for increasing insurers profitability. According to a recent Accenture survey conducted among property and casualty insurers, over the last three years 71% of respondents experienced an average increase of 10% in the number of fraudulent claims processed. 1 1

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Key findings from the Accenture 2013 Europe and Latin America Claims Survey Accenture conducted a quantitative survey among 48 property and casualty (P&C) insurers in Europe and Latin America from December 2012 to March 2013. Face-to-face interviews were carried out with C-level executives involved in the claims function,most of them heads of claims departments or the equivalent. Sixty-seven percent of insurers participating in the survey had net premiums written (NPW) in excess of 1 billion, while 63 percent had overall individual-lines premium income of 1 billion or more. Survey respondents were from the following countries: Austria, Belgium, Brazil, Chile, Colombia, Denmark, Finland, France, Germany, Italy, Netherlands, Norway, Spain, Sweden, Switzerland and the United Kingdom. Key findings Accenture s survey highlighted respondents concerns about the modernity and flexibility of their claims systems. Among their main priorities is a desire to reduce overall claims loss costs and improve customers claims experience. Yet, among their major challenges is meeting customers rising expectations and regaining their trust. On the technology front, insurer respondents face a number of critical IT challenges in meeting strategic priorities, including: supporting multi-channel access with core applications; integrating new layers of technology; managing unstructured data; and handling complex claims using existing core applications. Among survey respondents, fraud prevention is a top priority over the next three years As mentioned earlier, fraud is a growing concern for P&C insurer respondents with seven in ten indicating they have seen an increase in fraudulent claims over the past three years. However, respondents are slow to implement initiatives considered to be the most significant in improving fraud detection, namely improved support from IT, improved data collection and the use of fraud modeling techniques. (See Figure 1.) While the average increase in fraudulent claims over the last three years is 10 percent, the increase varies significantly across countries and carriers. Yet, there are simple responses to the issue. According to the surveyed insurers, better fraud detection capabilities could help shave 5 percent of their claims costs. The challenge for insurers is improving their detection and prevention capabilities without adversely affecting the processing of legitimate claims. This also brings to the forefront the need to address legacy technology issues and inefficient processes that can hinder the detection of fraudulent claims. Survey respondents see an attractive opportunity for investing in claims fraud analytics and other anti-fraud solutions. Respondents also believe the most important initiatives for strengthening their anti-fraud capabilities would be to use fraud modeling techniques (52 percent claim this is critical), improve the collection of both internal and external data (37 percent), and obtain greater support from IT (31 percent). Looking ahead, the major focus is on organizational restructuring, training and process improvement to help strengthen fraud detection. However, the priority over the short to medium term is to use fraud modeling techniques (76 percent), improve IT support (67 percent) and improve data collection (61 percent). Figure 1. Key Initiatives Implemented to Improve Fraud Detection Which initiatives to improve fraud detection are already implemented in your company? Which ones would you like to initiate over the next 3 years? Organization restructuring Training to improve employee skills Process changes Enhanced control mechanisms Overall improvement in customer service Improved data collection (internal and external) 15% 30% 27% 36% 36% 36% 42% 55% 61% 61% 73% 70% Improved support from IT Use of fraud modeling techniques to detect fraud 24% 21% 67% 76% 3 Currently used Plan to over the next 3 years

Optimizing fraud detection by using a combined approach Industry experience indicates that an effective fraud detection program can yield benefits including savings in the range of one to three percent of total claims paid out (depending upon the maturity level of the policy). These possible savings can be generated through a combined approach that: 1) Provides better service levels and more efficient claims processing to generate positive customer feedback, helping increase customer loyalty and deterring individual episodes of fraud; and 2) Uses advanced analytics tools for greater focus in detecting and fighting fraud. Proven strategies can help insurance companies address fraud, from simple individual incidents to complex, organized cases of multiple fraud. These include: Using business rules to detect irregularities Business rules can allow for the identification of anomalies or irregularities during the processing of claims. Such rules, for example, compare claims based on various types of fraud (individual or organized fraud), and determine whether to have the personnel in charge investigate the fraudulent incidents, and if so, when. Companies also have access to sophisticated analytics tools to detect such irregularities, allowing insurers to save money, time and effort. Employing predictive modeling Predictive analytics methods and models can be used to review historical fraudulent claims and identify factors and elements that can help prevent future fraud. The goal is to detect potential fraud as early as possible in the claims process and thus reduce payments made to fraudsters. Although it is not new to fraud prevention, when combined with other analytical tools as part of a concerted global effort, predictive modeling can be highly effective. Undertaking network analysis Analyzing the relationship that exists between concerned parties can help specialized investigators detect organized insurance fraud. Technological developments in this area can help investigators in their efforts to link different players. These new technology solutions can help identify the extent of the relationships between the investigated parties, and the information and insights gleaned can be used to define indicators that point to possible fraudulent activity. Closing the loop and intervening These fraud detection strategies including the integration of fraud indicators within the claims handling process can work in combination to increase the overall effectiveness of fraud prevention. When a risk is identified, immediate action can be taken, including investigation by a team of specialists, interaction with the claims management unit and the insured. 4

Working with Accenture s Service Center to help fight fraud Accenture can help insurance companies develop a claims analytics platform that uses a common infrastructure, scaled horizontally and that includes a broad range of models, including those for addressing injury, subrogation, litigation and large loss claims. These solutions can help insurers create value and improve their return on investment. Fraud analytics is a critical component of an effective fraud management strategy where deterrence and control are as important as detection and where the combination of a vital role for human / soft skills as well as technology, is crucial. Accenture s managed analytics service is highly effective at fraud detection, but can also be expanded to address other claims issues. The broad use of analytics and statistical tools and methods, along with improved productivity in managing claims and a reduction in payments for fraudulent claims, can help insurers generate important cost reductions. Insurers seeking to combat fraud can also benefit from: Achieving greater statistical certainty in cases of suspected fraud through improved data analysis using current analytical models Reducing the manual effort needed in analyzing data and devoting more time to value adding reporting Reducing the number of fraudulent claims managed by optimizing the validation of claims process and through improved process effectiveness delivered by more robust analytics tools and models. Increasing business productivity as data analysis is now at the heart of fraud detection. Insurers are turning to predictive analysis for several reasons, including: - The advanced capabilities of these tools and their predictive methods - The availability of data for decision making purposes - Predictive analytics ability to improve the quality of customer service and reduce the costs associated with opportunistic fraud Figure 2. Accenture Approach to Fraud Detection Assessment and preparation of the pilot (managed locally) Evaluates your capabilities in terms of: process, organization, model and data Identifies the quick wins and formalizes the business case Identifies data necessary for the pilot and validates the scope (Lines of Business) - Analytics support in helping grow their business in a slowing market Accenture works with many insurers to help them optimize their fraud detection processes and to help improve the enterprise s return on investment in fighting fraud. The Accenture Analytics Innovation Center provides access to the skills, expertise, leading-edge thinking, techniques and tools that can help enhance fraud detection capabilities, as a managed service. As a first step in our approach, we complete an assessment of existing fraud detection capabilities and then prepare a pilot project to demonstrate the feasibility of the enhanced fraud detection process. We then proceed with its implementation (Figure 2). Accenture s approach can provide many advantages to clients in their efforts to fight fraud in addition to helping deliver real benefits and tangible results. Implementation of the pilot in a Managed Services mode through the Analytics Innovation Center Implements a pilot with support of Accenture Analytics Innovation Center - focused on identifying quick wins Benefits from Accenture s business rules and other techniques Avails the Accenture Claims Analytics Record (CAR) fraud model Creates a link with the Fraud Claim processes in order to help limit the losses ( stop loss process) 5

Figure 3. Advantages, Real Benefits and Tangible Results Advantages Real benefits Tangible results Does not require a significant investment on the part of the client (no additional costs for the software and hardware, no installation costs and training) as the platform is provided by Accenture Have access to experienced data processing professionals as part of the fraud detection action steps Can help generate positive and quick return on investment (<1 year) Can increase the number of fraudulent claims managed Can increase your organization s fraud detection rate Can increase your fraud avoidance and recovery rates Can produce greater statistical certainty in the case of suspected fraud Can result in a reduction in manual effort to conduct data analysis Can result in a reduction of fraudulent claims Can deliver more efficient fraud checks and audits Can help improve the efficiency of the vendor network The growing constraints and demands on insurers capital and profitability can make the fight against fraud an unavoidable issue that needs to be addressed. In addition to the advantages, benefits and results for insurers mentioned above, more robust fraud protection capabilities can also help in a number of other areas: Protecting the company s reputation and image Reducing the enterprise s overall capital and operational costs Increasing speed of implementation Flexible and scalable solution, with improved computing capacity Improved and innovative predictive modeling skills to fight fraud The use of advanced analytical techniques appears to be an important tool to help insurers reduce cost and improve their performance. According to an Accenture Insurance Equity Analyst Survey, 79% of respondents believe that over the next three years, data analytics will be one of the most important value drivers for insurers. 2 Working with clients across the globe on insurance fraud assignments, Accenture and its Analytics Innovation Center are dedicated to fighting insurance fraud and responding effectively to the challenges and demands of this business imperative. 6

References 1 Accenture 2013 Europe and Latin America Claims Survey. Published June 2013. 2 Accenture Insurance Equity Analyst Survey Outperforming the market in uncertain times. Published September 2012. Contacts Eva Dewor - Head of Global Insurance Risk Management eva.dewor@accenture.com Tel. +49 89 93081 68602 Mobile: +49 175 57 68602 Jean-François Gasc - Head of EALA Insurance Management Consulting jean-francois.e.gasc@accenture.com Tel. +33 153 23 55 06 Mobile: +33 6 03 68 74 12 Antoine Dandois - Belgium antoine.dandois@accenture.com Mobile: +32 499 865047 Philippe Lefèvre - France philippe.lefevre@accenture.com Mobile: +33 6 25 88 83 53 Edel Lynch - Ireland edel.lynch@accenture.com Tel. +353 1 646 2000 Mobile: +353 87 9290787 Gearoid Madden - Ireland gearoid.l.madden@accenture.com Tel. +353 86 8816185 Fabrizio Sarrocco - Italy fabrizio.sarrocco@accenture.com Tel. +39 065 9566847 Mobile: +39 335 7496703 Davide Germanà - Italy davide.germana@accenture.com Mobile: +39 328 3903251 Jurgen Wildvank - Netherlands jurgen.wildvank@accenture.com Mobile: +31 65 2386957 Jacob Tovborg-Jensen - Nordic jacob.tovborg-jensen@accenture.com Mobile: +45 25 28 81 91 Miguel Proença - Portugal miguel.proenca@accenture.com Tel. +351 21 380 3748 Ramón Bustamante - Spain ramon.bustamante@accenture.com Tel. +34 91 546 9362 Philippe Schiltknecht - Switzerland p.schiltknecht@accenture.com Tel. +41 44 219 5928 Mobile: +41 79 540 5928 Heather Adams - United Kingdom heather.d.adams@accenture.com Tel. +44 20 7844 8539 Mobile: +44 07801 335 015 Jeremy Lefebure - United Kingdom jeremy.lefebure@accenture.com Mobile: +44 07803 987173 About Accenture Management Consulting Accenture is a leading provider of management consulting services worldwide. Drawing on the extensive experience of its 16,000 management consultants globally, Accenture Management Consulting works with companies and governments to achieve high performance by combining broad and deep industry knowledge with functional capabilities to provide services in Strategy, Analytics, Customer Relationship Management, Finance & Enterprise Performance, Operations, Risk Management, Sustainability, and Talent and Organization. About Accenture Risk Management Accenture Risk Management consulting services work with clients to create and implement integrated risk management capabilities designed to gain higher economic returns, improve shareholder value and increase stakeholder confidence. About Accenture Accenture is a global management consulting, technology services and outsourcing company, with approximately 266,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$27.9 billion for the fiscal year ended Aug. 31, 2012. Its home page is www.accenture.com. DISCLAIMER: This document is intended for general informational purposes only and does not take into account the reader s specific circumstances, and may not reflect the most current developments. Accenture disclaims, to the fullest extent permitted by applicable law, any and all liability for the accuracy and completeness of the information in this document and for any acts or omissions made based on such information. Accenture does not provide legal, regulatory, audit, or tax advice. Readers are responsible for obtaining such advice from their own legal counsel or other licensed professionals. Copyright 2013 Accenture All rights reserved. Accenture, its logo, and High Performance Delivered are trademarks of Accenture. 13-1196_lc