Tackling Insurance fraud:
Rising challenges and effective strategies
From the surge in opportunistic claims to the growing menace of synthetic identity fraud, the sector faces a complex battle against fraudsters.
To combat these evolving threats, insurers must leverage advanced data analytics, foster industry-wide collaboration, and ensure cohesion within their organisations.
With help from Insurance Post and a panel of insurance experts, we share insights from our annual Insurance Fraud Survey Report to provide a closer look at the current state of fraud, the alarming rise of synthetic ID fraud, and the importance of data and collaboration in crafting robust fraud prevention strategies.
The current state of fraud in the insurance sector
Insurance fraud has escalated in recent years, with both opportunistic and professional fraud becoming more prevalent. According to our recently released Insurance Fraud Survey Report, 83% of insurance fraud leaders reported an increase in opportunistic claims fraud, making it the most significant challenge facing the industry. This was closely followed by professional or organised claims fraud, which 52% of respondents highlighted as a growing concern. Notably, identity fraud has surged in prominence, moving from sixth place last year to the fourth-largest area where fraud is on the rise, as noted by 31.5% of those surveyed.
The pandemic initially suppressed some forms of fraud, but the return to normalcy has seen a resurgence in criminal activity. During our roundtable conducted to garner personal insight and quotes for the report, Fiona Reeve, Head of Fraud at Ageas, observed a noticeable uptick in both application and claims fraud, particularly through the use of synthetic identities. Similarly, Aviva’s Senior Development Manager, Kat Cunningham, reported a 25% increase in application and identity fraud in the first half of 2024 alone, underscoring the growing sophistication of fraudsters.
The industry’s response has been multifaceted, with many insurers prioritising investment in advanced technology and data analytics to detect fraud earlier in the customer journey. Additionally, it’s worth noting that insurers have reported an increasing annual expenditure to combat fraud, highlighting the growing importance of these efforts.
However, as Charlotte Gray, Claims Manager from QBE Europe noted, the battle against fraud requires not just technology but also continuous investment in people and processes. Insurers are increasingly adopting a holistic approach, seeking to combat fraud at every stage, from inception to claims, to protect genuine customers and reduce the financial impact of fraud.
The rise of synthetic identity fraud
One of the most alarming trends in insurance fraud is the rise of synthetic identity fraud. Synthetic ID fraud, which involves creating fake identities by combining real and fabricated personal information, has become the most challenging type of fraud to detect. According to the survey, 72% of respondents ranked identity fraud (including synthetic ID fraud) as the hardest to spot, a significant increase from 32% the previous year.
The use of advanced digital tools, including generative AI, has made it easier for fraudsters to create convincing fake identities. As Charlotte Gray explained, the shift towards digital fraud has accelerated, driven by the limitations imposed by the pandemic and the subsequent cost-of-living crisis. Fraudsters are exploiting emerging technologies, such as number spoofing and deep fakes, to bypass traditional detection methods, leaving insurers struggling to keep pace.
The consequences of synthetic ID fraud are severe, not only for insurers but also for the victims whose identities are compromised. Fiona Reeve highlighted the devastating impact on genuine customers, who may find themselves burdened with debt, fraud markers, mental health issues, and even criminal accusations due to the misuse of their identities. The insurance industry is working hard to combat this threat, but the challenge is exacerbated by the fraudsters' ability to stay one step ahead.
To counter synthetic ID fraud, insurers are increasingly relying on data analytics and advanced technologies. However, as the survey results indicate, much of the technology used by fraudsters is still ahead of the tools available to investigators. This gap underscores the need for ongoing investment in fraud detection technology and the importance of staying vigilant against new and emerging threats.
Uncovering the Hidden Threat:
Synthetic Identity Fraud in the UK
Uncovering synthetic identity fraud could save your business thousands of pounds in fraud losses and debt write offs.
The power of data, collaboration, and cohesion
While the challenges posed by fraudsters are significant, the insurance industry has powerful tools at its disposal: data, collaboration, and internal cohesion. This year’s Insurance Fraud Survey Report revealed that 65.4% of respondents prioritised access to broader and shared data as a key area for investment. This reflects the growing recognition that effective fraud prevention requires a comprehensive view of the risks, which can only be achieved through better data-sharing across the industry.
Collaboration networks can be a powerful force in combatting these growing threats of fraud. Not only do they include data from the insurance sector, but the cross-industry nature of these networks means that millions of records and billions of transactions can be cross-referenced to provide a holistic view of customers.
However, collaboration is not just about sharing data between companies; it also involves breaking down silos within organisations. As Charlotte Brown, Underwriting Fraud Manager from NFU Mutual explained, a unified approach that aligns the objectives of different departments is crucial for developing a robust fraud prevention strategy. By ensuring that underwriting, claims, and fraud prevention teams work together, insurers can create a seamless and effective process that mitigates risks at every stage of the customer lifecycle.
Industry-wide collaboration is equally important. As Director of Insurance and Investments, Paul Brockway from LexisNexis® Risk Solutions noted, achieving a unified approach to fraud prevention requires buy-in from all stakeholders, including brokers, claims managers, and aggregators. Despite the challenges, the benefits of collaboration far outweigh the risks, enabling the industry to stay ahead of increasingly sophisticated fraudsters.
The insurance sector is at a critical juncture in its fight against fraud. The rise of synthetic ID fraud and the growing sophistication of fraudsters demand a proactive and collaborative approach. By leveraging data, fostering collaboration, and ensuring cohesion within organisations, insurers can strengthen their fraud prevention strategies and protect their customers more effectively.
Find out more:
Insurance Fraud Survey Report 2024
For the third consecutive year, the Insurance Post, in collaboration with LexisNexis® Risk Solutions, commissioned an in-depth report to explore which issues are concerning fraud prevention experts most across the insurance sector.
The report highlights the biggest challenges facing fraud teams, claims teams, underwriters, and those operating on the frontline, and reveals why firms are struggling to gain a holistic view of their customers and quote more effectively.
