The evolving nature of fraud

The evolving nature of fraud | Insurance Business Canada

The evolving nature of fraud

The insurance market was set to hit new highs in 2020. Then COVID-19 happened. That forecast – and the global economic outlook – is now far less certain. But while market growth projections are in a state of flux, the rate of fraud isn’t expected to slow down. Insurance fraud is anticipated to cause anywhere from US$80 billion to US$100 billion in lost revenue this year. As insurers seek to combat fraud, there are five key trends they need to keep in mind.

1.The new era of fraud investigation
Modern fraud is transnational and agile. Not so long ago, fraud investigation was a labour-intensive process. Teams on the ground would go door to door to examine cases. Today, this process isn’t just inefficient – it’s insufficient.

As fraud evolves, so must investigators. Today’s fraud fighters need nuanced skill sets and agile ways of working to be able to iden-tify the scams and tactics modern fraudsters are adopting. But they must also strike a delicate balance. While investigators need to gather data and build a case that will result in criminal prosecutions, they must also consider today’s much more stringent privacy implications. In the age of GDPR and CCPA, it’s not just a new era for insurance investiga-tion, but a new era for evidence collection, too.

2. The significance of social media
Investigators must also acknowledge the central role that social media plays as a primary source of intelligence. Mining social media for information to uncover hidden relationships and connections between entities is vital to the counter-fraud engine of many insurers. Leading insurers are placing huge value on social media, employing dedicated teams of social media analysts.

But while human expertise will always be critical, the uptake of automation and artificial intelligence is accelerating. There are several tools available to automate social media investigations. The challenge isn’t the availability of the technology, but the compat-ibility and stability of the platform.

3. The necessary collapse of silos
Until recently, fraud scams were fairly rudimentary. Fraudsters would steal an iden-tity, create synthetic IDs and execute criminal activity. It was a repeatable, linear and some-what predictable process. Today, however, criminals are more subtle and nuanced.

One area that insurers need to be particu-larly conscious of is silos. Whether they’re within departments or interdepartmental (i.e. between cyber and risk divisions), silos enable fraudsters to execute their scams. That’s why insurers are moving to embrace a 360-degree view of fraud and break down the silos. Accordingly, insurance carriers understand that they need to manage their data differ-ently to be able to identify and thwart fraud.

4. The crucial role of consortiums
The value that consortiums offer the insurance industry is increasing. They provide a bird’s-eye view of transactions and shine a spotlight on suspicious activity across multiple carriers and lines of business.Currently, the maturity of insurance consortiums varies between regions and countries. Organizations like CANATICS here in Canada are adept at analyzing cross-carrier activity and providing invaluable surveillance intelligence.

5. The increase in fraud variety
As more insurance products are intro-duced, the surface area for insurance fraud grows. Fraudsters seek to adapt and exploit the volume and variety that those prod-ucts offer. For example, life insurance can be gamed by entering incorrect details on the application to avoid high premiums, while health insurance can be manipulated by masking existing or underlying condi-tions.In the US, workers’ comp insurance is subject to mod factor gaming: Higher salaries are hidden, shell companies are created, and employee classifications are massaged to bring premiums down.

Paradoxically, the one thing about fraud that never changes is the fact that it’s constantly changing. As this pernicious prac-tice continues to evolve, carriers need a partner with a track record of anticipating trends and evolving faster than the fraudsters.


Dennis Toomey is the global director of counter-fraud analytics and insurance solutions at BAE Systems. He has nearly three decades of experience and is a certified fraud examiner in the US.