Fraud is an ever increasing problem for the South African Financial Services Industry particularly within the Insurance sector with opportunistic, pre-meditated and organised fraudsters preying on the sometimes ineffective and inefficient systems and controls financial institutions have in place to combat this growing epidemic.
Current research suggests that anywhere between 10-15% of insurer gross premium income is to cover the undetected cost of insurance fraud resulting in individual monthly premiums being increased by as much as 15%.
As a further indication as to the scale of this global epidemic, it is estimated that anywhere between 25% and 35% of all automobile insurance claims are tainted with fraud whilst in the region of 35% of all death claims are also suspected to be fraudulent.
Failure to control fraud and lost economic opportunities may expose insurers to the risk of financial penalties, reputational damage including the potential loss of clients.
Fraud also contributes to the bottom line losses for South African insurers where demonstrable, smart and proactive anti-fraud controls are welcomed by commercial clients as a positive feature of placing profitable business.
Impact
Claims fraud impacts on insurers in many different ways, in the underwriting and claims life cycle, and no two insurers share identical fraud risks and exposures, and the same also applies to businesses.
Therefore, it is essential that insurers not only understand all their fraud exposures and deploy defences proportionate to the risk(s), but that when doing so it takes into consideration the needs and requirements of its clients, all of which without losing sight of the fundamental feature of South African insurer claims handling philosophy; that being to settle valid and genuine claims in the shortest possible timeframe also demonstrating that customers have been treated fairly in the process.
Having robust controls in place to mitigate the risk of fraud is good business practice and should be viewed as one of the key fundamental integrated controls for the operating model of insurance providers.
By not having appropriate controls in place to prevent fraud subjects insurers to poor business and operational efficiencies, leakage and waste, which results in unprofitability.
The Risk
The most common and costly form of general insurance claims fraud is opportunistic retail fraud. Opportunistic retail fraud is where individuals exaggerate or inflate genuine claims to increase the value of a pay-out. In a minority of cases, opportunistic fraudsters will fabricate an entire claim, including, for example, deliberately causing damage so as to be able to claim.
Opportunistic fraud in commercial general insurance is similar to opportunistic retail fraud but the policyholders are firms/companies, rather than individuals.
Organised fraud is where criminal gangs work to systematically defraud insurers. An example of organised fraud is where insurable events are staged (such as a traffic accident) to claim against the insurance policy of an insured party.
Fraud within the underwriting cycle is also prevalent and where the unlawful and/or intentional making of a misrepresentation causes actual prejudice or is potentially prejudicial to another (an insurer for example), an offence is committed. An example here would be the deliberate failure to disclose pre-existing medical conditions prior to taking out a policy of medical insurance so as to obtain cover.
Why PIC Solutions?
PIC Solutions is the largest provider of credit risk and retail consultancy services in South Africa. With offices in Cape Town, Dubai and Johannesburg, we deliver integrated analytics, consulting and software solutions to over 150 companies in 30+ countries.
We work worldwide with organisations to raise their performance, drive their strategies and enhance their profitability and specialise in providing fraud consultative services, in its broadest sense, focused on the ‘end-to-end’ insurance product life cycle with 4 key areas of focus, that being:
§ pre-point of sale/application
§ claim intimation
§ pre-payment/transactional and
§ subrogation/recovery
§ A robust and efficient rules-based claims management system for providers enables automated management of the claims process, allowing for more control over high-volume operational decisions.
§ Conceptually, this has five major benefits which, taken together, have a transformative effect on the performance and profitability of the claims process resulting in:
- faster claims handling
- improved call-centre efficiency
- fewer inaccuracies
- increased responsiveness to market developments and
- reduced fraud/leakage
To complement our technological solutions surrounding fraud management and aligned to the experienced anti-fraud consultative services PIC has on offer, insurers are promoted to adopt a ‘risk based approach’ with primary focus being on those lines of business/loss types that are viewed as presenting the greatest risk of fraud loss. This type of fraud is more prevalent in the short-term insurance business by virtue of general insurance products and the ease with which unscrupulous individuals seek to explore fraudulent opportunities within the insurance industry.
As part of understanding its claims fraud risks and exposures, to include those sitting within any outsourced claims providers/operations, South African insurers should routinely undertake fraud centric projects, with the objective being to identify and then deploy proactive claims fraud best practice, which is attuned to industry trends, intelligence and analysis.
Fraudulent claims are currently identified by insurers in a variety of ways, using, for example:
§ technology
§ data sharing
§ fraud intelligence
§ forensic scientists/accountants/vehicle examiners
§ telephone based fraud screening
§ conversation management
§ specialist fraud vendors
§ good and efficient claims handling
PIC Solutions has market leading and proven consultancy and technological solutions and these are some of the key areas where we can assist in terms of focused and robust fraud management:
§ developing an investigative ‘tool-box’ and advising organisations as to what tools/information to utilise, how, when, why and the interpretation of the throughput, which all play a significant part in the investigation and validation process;
§ allocated resource to investigate claims where fraud is suspected to ensure best practice is being routinely delivered and in a consistent manner;
§ counter-fraud vendors/providers; specially selected suppliers of a range of claims fraud services, can be utilized by insurers when and where appropriate;
§ data sharing & access to data/fraud intelligence, which should form part of any insurers’ identification and investigative approach and that claims data is routinely being shared with other South African insurers, industry bodies and associations, through controlled data sharing arrangements;
§ routinely sharing fraud data and intelligence to combat the threat of organized insurance fraud;
§ other streams of insurance fraud intelligence through a panel of fraud vendors and close working relationships with other insurers, brokers and intermediaries/agents;
§ delivering insurance fraud training, education and awareness, which forms a key part of embedding any fraud prevention solution ensuring that all key staff are equipped with the most up to date information, skills, tools, trends and expertise to identify, escalate and manage incidents of fraud;
§ competency based learning and accreditation so as to develop individual and organisational performance.
Our analytical capabilities and strategic relationship with alliance partner FICO provide PIC Solutions with cutting-edge technological solutions in terms of:
Analytical Applications
§ Profitability, affordability and provisioning models
§ Portfolio management information
§ Scenario analysis
§ Risk and policy based pricing
Partnerships/Alliances
§ FICO (Formerly Fair Isaac)
§ Reseller in Africa and Middle East
§ 11 year relationship
§ Value added reseller – project management, consulting, software customisation, software maintenance
§ Partnerships/Alliances
§ Products – Insurance Fraud Manager (IFM), Falcon Fraud Manager, TRIAD, Blaze Advisor
Fraud Management
§ First and third party fraud
§ Insurance, retail and banking space
Predictive Modelling
§ Scorecard development
§ Scorecard maintenance
§ Scorecard ‘HealthChecks’
Software Services
§ Professional services
§ Project management
§ Mendip reseller and developer
The Credit Academy
§ Specialist credit risk management seminars
§ Turnkey approach
FICO
FICO (NYSE:FICO) is the leader in Decision Management, transforming business by making every decision count. They use predictive analytics to help businesses automate, improve and connect decisions across organizational silos and customer lifecycles.
FICO's innovative solutions include the FICO® Score — the standard measure of consumer credit risk in the United States — along with industry-leading solutions for managing credit accounts, identifying and minimising the impact of fraud and customising consumer offers with pinpoint accuracy.
Most of the world's top banks, as well as leading insurers, retailers, pharmaceutical businesses and government agencies rely on FICO solutions to accelerate growth, control risk, boost profits and meet regulatory and competitive demands. FICO also helps millions of individuals manage their personal credit health.
FICO works with more than 5,000 businesses worldwide and their technology serves thousands more through partnerships. FICO serve global markets through offices in 12 countries.
Contacts
For further guidance and/or information in relation to PIC Solutions and our approach to fraud management, please contact:
Chris Andrew
Lead Consultant
PIC Solutions
P.O. Box 3350, Parklands, 2121, South Africa
Tel: +27 (0)11 759 0337
Fax: +27 (0)11 880 0466
Cell: +27 (0)76 473 6281
Email: CAndrew@ PICSolutions.com
Web: www. PICSolutions.com
Cape Town Dubai Johannesburg
