Insurers need to maintain a fine balancing act between meeting the demands of digital-savvy consumers and trying to prevent the attacks of equally savvy fraudsters. From application to claim stage, insurers must find increasingly sophisticated ways of creating a seamless customer experience while limiting exposure to criminal acts.
Andrei Izmailov, Head of Insurance Products, and Adam Agius, Vice President of Insurance, both of TransUnion Canada, discuss what a recent study reveals about the insurance fraud landscape and what insurers can do to stay ahead of the game.
Digitalization is changing market dynamics
When it comes to customer experience (CX), insurance organizations aren’t just having to contend with what their competitors are offering. They’re up against the expectations set by every other business or institution their customers have dealt with. As digital solutions become both more sophisticated and widespread, insurers have the opportunity to transform the way they engage with consumers, delivering a faster service and more online options for their market. But with these opportunities comes the task of managing the associated risks.
In a study commissioned by TransUnion and conducted by Forrester Research1, 63% of insurance professionals agreed that customers expect speedy, seamless and high-quality digital experiences. The challenge is to balance these with fraud detection measures that don’t negatively affect CX. “As customer interactions become increasingly digital, and consumers themselves demand exceptional and seamless experiences, insurance firms must contend with how these changes will impact the way they detect, mitigate, and prevent fraud”.i
While insurers are becoming increasingly aware of the importance of a seamless digital experience, 65% of them agreed their current tactics to detect fraudsters can negatively impact good customers. What we are seeing is a gap between the measures put in place to protect consumers from fraud, and the measures needed to protect their experience with insurance companies.
To understand why this gap exists, we need to look at the fraud landscape and the challenges both lenders and insurers are facing.
Insurance companies report increases in fraud
Insurers participating in the Forrester study reported increases in all types of fraud, with 62% reporting an increase in soft fraud, compared with 57% for identity fraud and 34% for hard fraud (see the table below for definitions).
Study participants also acknowledged that it’s difficult to stay ahead of fraudsters who are constantly changing their tactics to outmanoeuvre fraud detection systems. In fact, 66% agreed that fraudsters are always one step ahead, leaving insurers with less confidence in their ability to detect and mitigate fraud, and feeling vulnerable to risk.
Implementing greater controls can be one solution, but as we’ve mentioned, this may have the unintended consequence of creating lengthy, cumbersome processes for potential customers to follow. In looking to mitigate fraud, it’s critical that insurers consider the impact such controls will have on CX. Fraud is most likely to be detected early in the policy lifecycle, when customers are applying for insurance. In fact, the Forrester study determined that the largest gap between frequency of fraud and likelihood of detection happens at claims stage.
The more effective fraud detection is at the application stage, the better it is for the insurer, as it can mean there’s less of a chance that they’ll have to deal with fraud later on, particularly at claims stage. The challenge here, though, is that this is the stage when customers are perhaps most likely to get frustrated with what they perceive to be overly cautious and onerous requirements for simply applying for an insurance quote.
Fighting fraud at application stage (or before)
One way of minimizing the effect on consumer experience during this crucial stage can be through understanding the type of fraud you are facing. Identity fraud is the most likely type of insurance fraud to take place at application, or quote, stage. In our previous blog, we looked at ways organizations could address this risk through the use of identity management processes and tools. Here, we look at some other ways of using credit bureau information to detect and prevent fraud early on.
A device verification check can be built into an early stage of the application, often making the application process easier for low-risk consumer while directing potentially higher-risk, or even fraudulent, consumers to a process of further investigation.
Device verification can also be used with other authentication tools throughout the policy lifecycle, for example, to verify customers logging in to view their policy information or transact with the insurer online.
Using address data to detect rate evasion
Where permitted by law, premiums for auto insurance vary according to location, and consumers looking to save dollars may use a different address on their application to qualify for a more favourable rate.
Comparing the address information the consumer provides with the information in our consumer credit bureau database again gives you an opportunity to fast-track applications when there’s no address discrepancy, while allowing insurers to follow up with consumers who have a mismatch between addresses to request additional information or documentation in order to continue with the application. With consumer consent, this check can be run on your portfolio at any time, giving you an indication of what percentage of your book of business may have engaged in rate evasion.
Taking appropriate and timely action
There may be several reasons the information on the consumer credit file does not match what you have on record. One is simple forgetfulness or carelessness on the part of the customer. They may have changed addresses and notified only some of their creditors or you, the insurer, but not all parties. As the address information on their consumer credit file is sourced from multiple data supplying sources, all of these reasons could explain the mismatch.
Either way, you have a possible customer engagement opportunity: helping them rectify their outdated information within the insurer’s records and reminding consumers to update their address with all of their creditors. If you suspect that your consumer may be rate evading, you can step in and look at re-underwriting their policy. However, it is generally preferable to stop fraudsters coming in the door in the first place rather than trying to combat fraud at the point of a claim.
Staying ahead of insurance fraud might seem like a daunting task, but with the right tools and insights at their disposal, insurers can empower themselves to better protect their customers and their reputation. Fraud can occur during any stage of the consumer lifecycle, but detecting fraud during the application stage puts you in a much stronger position to prevent fraudulent claims and losses later on, which can make this the least expensive stage for fraud detection.
To find out how TransUnion’s Enhanced Bureau Verification Service, Device Verification and other identity verification tools can assist you in improving fraud detection as well as CX, visit transunion.ca/product/identity-verification.