Fraud is rife in the insurance sector as a whole, from short- and long-term insurance to medical and health insurance. Fraudulent activities are perpetrated not only by clients, but internally as well, and the cost of such fraud runs into millions. Implementing effective technology solutions is key to reducing fraud and the associated costs, improving models for insurance brokers and enabling them to pass the savings on to clients in the form of lower premiums.
The long and short of it
In the short-term insurance industry, fraud is either committed by policyholders themselves, who submit fraudulent claims, or internally by those within the provider chain. An example of a fraudulent claim would be a person who sells their car to a chop shop, reports the car as stolen and then submits a claim. Another example within the insurance chain include quotations by ‘approved’ panel beaters that may be unnecessarily inflated, which are then authorised by the insurance company.
In addition, home contents fraud is common, whereby policyholders may sell household items like jewellery, report them as stolen, and then claim from insurance for their ‘loss’. People may also claim for the loss of items they never owned in the first place, or set fire to their own property in order to claim fire insurance. Internally, approved providers such as plumbers and repair persons may once again inflate prices when submitting quotes for insurance claims.
Within long-term insurance, the most common fraudulent activities relate to identity and the lack of verification of information. For example, if someone dies, insurance companies may be unaware of this fact, and relatives may continue to draw a pension from their fund. It is also common for individuals to take out life insurance policies with incorrect or incomplete information, such as failing to disclose an existing heart condition. Insurance companies are obliged to honour the claim, however, many will try to renege on pay-outs to cover massive losses. The reality is that the onus is on the insurance company to verify that information provided is complete and accurate before insuring an individual.
The sickness in healthcare insurance
Within the healthcare sector, insurance fraud is a significant and costly issue on a global scale. There is no regulation of fees, so healthcare providers have free reign to charge at their own discretion. There is also no verification of what services are provided, and what equipment was actually used, particularly within the hospital environment. Inflated pricing is common, as are unnecessary charges to medical aids, and these are the main reasons why healthcare insurance is so expensive.
For example, a certain surgical procedure may have a standard list of equipment used. Patients, and their medical aids, will be charged for all of this equipment whether it was actually used or not. They will also inevitably be charged for a full hour of a doctor’s time for every visit, even if the doctor only spends five minutes with each patient. This is all billed through medical insurance or medical aid providers, who then have to increate premiums to cover inflated costs.
The IoT solution
Technology offers the solution to many of these challenges. For example, telematics devices and the Internet of Things (IoT) could revolutionise both short- and long-term insurance. Connected devices can be tracked, so insurance companies will be able to tell if they have actually been stolen or not. They can also be used to create an effective database of objects within a home for the purpose of accurate home contents insurance.
Telematics devices in cars can provide insight into where a car is being driven, whether it was subject to excessive force from an impact, where an accident occurred and more. Details can be verified so that insurance companies are better able to identify fraudulent claims. Biometrics can also be used on telephony systems to identify the likelihood that an individual is telling the truth, and voice recognition can ensure that the claimant is, in fact, the policyholder.
The IoT will also transform the medical industry. For example, every device within an operating theatre can be connected, and then its usage can be tracked and verified for accurate billing of surgical procedures. Smart devices can be used to track the time healthcare professionals spend with each patient so that their time can be billed more accurately as well. Improving the accuracy of billing will reduce the cost of medical treatment, creating more affordable healthcare and potentially enabling medical aid providers to charge lower premiums.
The Blockchain solution
The reality is that in the insurance industry, there is no such thing as ‘good faith’. Any and all information must be verified. Insurers need to have technology processes in place to do this. In addition to IoT devices, Blockchain could be utilised effectively to reduce fraud across the board.
As a distributed ledger system, Blockchain enables the secure retention of confidential information, creating a secure, auditable, authenticated and verifiable identity for people. Effectively, Blockchain solutions will enable each and every individual to maintain a digital record of all of their important information, from their birth certificate and ID number to financial and health-related information. This information cannot be tampered with, as all changes made create a full audit trail, and the authority to make changes can be granted or revoked as necessary. Information is therefore easily verified, significantly reducing fraud.
Reduce fraud, reduce premiums
All of the fraud issues highlighted above point to a lack of visibility and accountability within the insurance chain, as well as an inability to verify claims and information accurately. The result is that premiums and excesses are pushed higher and higher to cover the increasing cost of fraud, putting further pressure on the pockets of consumers.
Technology such as the IoT and Blockchain, along with solutions that are already in place like anti-money laundering, can provide the solution to curbing fraud across the board in insurance. This will help to reduce premiums and make insurance more accurate and affordable for all.