In discussions of insurance costs and profitability, insurance fraud is the elephant in the room. According to the Coalition Against Insurance Fraud (CAIF), insurance fraud steals more than $300 billion from consumers each year. Approximately 10% of all property and casualty losses involve some sort of fraud. As insurers look to boost their bottom lines, they would be wise to pay attention to insurance fraud trends and the available solutions.
Fraud Follows Natural Disasters
Insurance fraud can occur at any time, but, according to the National Insurance Crime Bureau (NICB), it’s a particularly prevalent problem after a natural disaster, when dishonest contractors take advantage of homeowners. The NICB says insurers lost up to $9.2 billion to post-disaster fraud in 2021, which accounted for as much as 10% of all catastrophe losses.
As natural disasters increase in frequency and severity, post-disaster fraud will become a bigger problem. According to the National Oceanic and Atmospheric Administration (NOAA), there have already been 23 disasters with losses exceeding $1 billion this year, as of September 11, 2023. This is a record, but it’s not an anomaly: it’s a pattern. In recent years, the number of billion-dollar events has been increasing steadily, even when adjusted for inflation.
Generational Shifts May Lead to More Fraud
Younger consumers appear to be more accepting of insurance fraud. If this trend persists, the rate of fraudulent claims could increase.
CAIF found that 84.25% of consumers consider insurance fraud to be a crime. However, there is noticeable variation by age group. Among people aged 55 and above, more than 95% believe insurance fraud is a crime. However, among people aged 18 to 24, only around two-thirds think insurance fraud is a crime.
This isn’t just a point of philosophical debate. Among people aged 55 to 65, only 2.16% say they would definitely submit a claim for vehicle damage caused in a prior car accident. Among people between the ages of 18 and 24, that figure shoots up to 23.44%. In other words, nearly one in four young adults would commit auto insurance fraud if they had the opportunity.
It’s not just college-aged individuals who express these views, either. Only around 75% of 25- to 44-year-olds consider insurance fraud to be a crime, and more than 20% say they would submit a fraudulent auto claim.
Scammers Are Taking Advantage of Remote Claims Handling
Fueled by improved technology, labor shortages, and pandemic-related distancing requirements, remote claims handling has become an increasingly popular option. In photo-based estimating programs, policyholders can use an app to submit photographs of their losses. According to Claims Journal, it seems like a win-win for both insurers and policyholders, but some claimants are taking advantage of the technology to submit fraudulent claims.
For example, someone could download a photo of car damage from the internet and submit it as a photo of their own vehicle. This is easy to do because there are so many photographs available online. Dishonest claimants could also submit old photos of previous damage or submit the same photo to multiple insurers. The rise of AI-generated art also opens the door to completely fabricated photos that claimants could use when filing claims.
AI Can Help Catch Fraud
Fraud is a growing problem, but insurers are not helpless against it. In particular, new AI tools can help insurers catch more instances of fraud. According to Brookings, AI and machine learning are particularly well suited for detecting fraud. The private sector is already adopting widespread use of algorithms that detect fraud.
Insurers can leverage AI to fight fraud in multiple ways:
- Programs can analyze vast amounts of data to search for inconsistencies in insurance applications and other signs of fraud that humans might overlook.
- Predictive analytics can identify potentially-fraudulent claims.
- Tools can analyze photos submitted by claimants to look for duplicates on the internet or other indications of fraud.
Better Data, Better Fraud Detection
The insurance sector’s best hopes for fraud detection are rooted in AI. Since AI depends on data, insurers need solid data to put a dent in fraudulent insurance applications and claims.
Although VCA does not provide fraud detection services, we are on the leading edge of claims management. The VCA system easily be customized to capture the fields you need to better detect fraud and identify subrogation opportunities. VCA integrates with most other systems to help you access the reports you need in real time. Learn more.