Survey Shows U.S. Insurers think Fraud Costs are on the Rise

Insurance Fraud ? By Trace America on October 12, 2012 at 2:15 PM

A new survey is out that shows that 45% of insurers estimate that insurance fraud costs make up 5-10% of their claims volume, while 32% say it could even be as high as 20%. The Insurance Fraud Survey takes the responses from 143 insurers throughout the U.S., who were surveyed in August of 2012.

According to the Insurance Journal, the survey was conducted by FICO, a provider of predictive analytics and decision management technology, and the Property Casualty Insurers Association of America (PCI).

Over half of the insurers surveyed ?fifty-four percent, expect to see an increase in the cost of fraud this year on personal insurance lines, which are policies designed to protect individuals and families. On the smaller end of the number scale, just less than three percent of those insurers expect to see a decline in the cost of fraud on personal lines.

While it is common to think that insurance fraud accounts for up to 10% of property and casualty insurance losses, this new survey shows that some in the industry think fraud could be much more common. It also highlights areas such as application fraud where insurance companies see opportunities to improve ways to detect fraud and keep costs low for consumers.

Areas of fraud	Areas Identified As Most Exposed to fraud
	New Applications	Claims	Inaccurate Disclosures
Personal auto fraud	74%	67%	82%
Personal property fraud	72%	71%	78%
Commercial auto fraud	80%	71%	82%
Commercial property fraud	74%	66%	80%
Workers compensation fraud	77%	76%	86%

Areas of fraud	Areas Identified As Well protected against fraud
	New Applications	Claims	Inaccurate Disclosures
Personal auto fraud	26%	33%	18%
Personal property fraud	28%	29%	23%
Commercial auto fraud	20%	30%	18%
Commercial property fraud	25%	34%	20%
Workers compensation fraud	23%	24%	16%

According to those taking the survey, they think the most significant increase in the cost of fraud will affect personal property, workers? compensation and auto insurance.

The survey also found that 67% of insurers expect to see an increase in personal property fraud, 65% are expecting an increase in workers? compensation fraud, and 60% expect to see a rise in personal auto fraud. Sixty-one percent attributed the increases in fraud to the economic hardships for current policyholders.

And while only 17% of insurers think the expected increase in fraud can be attributed to the sophistication of criminal gangs, 60% expect a rise in workers? comp fraud rings and 61% expect a rise in auto fraud rings.

The survey also found that 76% believe there is a higher risk of fraud in no-fault states, compared to states with tort systems; 45% see the risk as only significantly higher, while 31% see it as somewhat higher.

Recently, insurers have placed an emphasis on putting in place more meaningful reforms for no-fault insurance systems in several large states due to sky-rocketing medical costs (40% higher than in states with tort systems) and rampant fraud. Much of this fraud is attributable to sophisticated fraud rings.

?The insurance fraud problem is estimated to exceed US$40 billion globally and is showing no signs of abatement,? said Russ Schreiber, who leads FICO?s insurance practice. ?The findings of the FICO PCI Insurance Survey demonstrate that insurers recognize the problem and are looking to improve ways to detect and prevent fraud earlier in the claims process.?

Robert Passmore, senior director of personal lines policy at PCI said, ?It is clear insurers understand the scope of the insurance fraud problem, and are taking steps to reduce it. However, we also want that the public and policymakers to recognize that consumers are paying what amounts to a ?fraud tax? that is far too expensive for hard-working citizens.?

When insurers were asked about fraud-fighting ideas that can have the greatest impact on insurance fraud, 45%of respondents identified predictive analytics was as the most effective. Also on the list of useful fraud-fighting approaches were insurers who would include the use of anti-fraud teams for specific books of business (37%), link analysis for detecting fraud (31%), business rules for stopping known fraud types (29%), and external databases (29%).

?Early detection is the key to mitigating fraud losses for insurers,? Schreiber continued. ?Solutions like the FICO Insurance Fraud Manager not only help detect outright fraud, but also combat abuse and waste, the gray area of insurance claims.?

Tags: Survey

Source: http://www.thefraudreport.com/index.php/2012/10/survey-shows-u-s-insurers-think-fraud-costs-are-on-the-rise/

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