Page 42 - Insurance Times Octoberr 2022

Today, insurance providers are increasingly turning to data
analytics to quantify fraud detection and weed out bogus
claims more efficiently than ever before. With the help of
accurate underwriting, the potential of fraud is being
detected faster now. However, for data analytics to
successfully identify and eliminate frauds, it is imperative not
to repeat the mistakes of the 'Identify, Analyse, and
Recommend' statistical model that insurance companies
used after the fall of claim agents.

Antifraud legislation

The problem is that the law punishes insurance companies
but does not provide any recourse to them. If insurance
companies prove that a person has actually tried to commit
invents a loss such as a theft of a motor vehicle or setting
fraud, they get away with very light punishment. In order
fire to property covered by an insurance policy. Soft fraud,
to stop the fraud in the insurance sector, it is important that
which is more common, occurs when a policyholder
strict laws are created as well as implemented. These laws
exaggerates on an otherwise legitimate claim, or
will act as a deterrent to professional frauds that are making
intentionally omits or lies about information on an
a career out of cheating insurance companies. Insurance
application to obtain a lower premium. Soft fraud is often
fraud is any act committed to defraud an insurance process.
considered a crime of opportunity.
It occurs when a claimant attempts to obtain some benefit
or advantage they are not entitled to, or when an insurer
The most common type of fraud scheme among insurance
knowingly denies some benefit that is due. Insurance fraud
producers is premium diversion. This occurs when an
received little attention until the 1980s, when the rising cost
insurance agent or broker keeps policyholders' premium
of insurance and organized crime rings' growing involvement
payments instead of sending them to the insurance
in fraud spurred efforts to pass stronger antifraud laws.
company. Other types of diversion schemes include selling
insurance without a license and collecting premiums without
To successfully bring a fraud case to trial, insurers must be
paying claims. Fraud affects the lives of innocent people as
able to provide information to prosecutors on individuals
well as the insurance industry. Insurance fraud has existed
suspected of fraud. Immunity laws, which allow insurance
ever since the beginning of insurance as a commercial
companies to report information without fear of criminal or
enterprise. It takes many forms and may occur in any areas
civil prosecution, now exist in all states. However, not all
of insurance. Insurance companies, their intermediaries or
laws cover insurance fraud specifically, nor do all regulations
those pretending to be either of them may also perpetrate
allow information to be reported to law enforcement
frauds. It is important that fraudulent activities are
agencies or to state departments of insurance. Many are
eliminated from the industry and it is the duty of all
limited in other ways, like only providing protection against
stakeholders to do their bit in dealing with insurance fraud.
libel suits or violation of unfair claims practices acts in auto
The IRDAI has come across certain instances of fraudulent
insurance fraud. Some experts believe that immunity laws
activities and has issued alerts to the public about them.
should be extended to include good faith exchanges of
certain kinds of claim-related information among insurance
Continuous customer evaluation is vital
companies.
for fraud detection
Categories of frauds Consistently assessing existing customers is the key to
Two categories of fraud exist: hard fraud and soft fraud. detecting frauds early. For instance, a major red flag for
Hard fraud occurs when a policyholder deliberately destroys potential fraud is the address or beneficiary change for new
property with the intent of collecting on the insurance policy. customers. Insurance providers should verify any change in
A hard fraud occurs when someone deliberately plans or address, considering most customers would be oblivious to

42 The Insurance Times, October 2022