ItÃ¢â‚¬â„¢s been commonly understood that insurance fraud accounts for up to 10 percent of property/casualty insurance industry losses, but a new survey of U.S. insurers indicates that fraud may be much more prevalent.
Some 45 percent of insurers responding to the FICO and Property Casualty Insurers Association of America (PCI) survey estimated that insurance fraud costs represent 5-10 percent of their claims volume, while 32 percent said the ratio is as high as 20 percent.
The survey also found that more than half (54 percent) of insurers expect to see an increase in the cost of fraud this year on personal insurance lines, while less than three percent of insurers expect to see a decline in the cost of fraud on personal lines.
Insurers responding to the survey said they expect the most significant increase in the cost of fraud will affect personal property, workersÃ¢â‚¬â„¢ compensation and auto insurance. The majority (61 percent) attribute the increases in fraud to sustained economic hardship by policyholders.
While only 17 percent of insurers attributed the expected increase in fraud to a rise in the sophistication of criminal gangs, 60 percent expect a rise in workers compensation fraud rings, and 61 percent expect a rise in auto fraud rings.
The survey also found that 76 percent of insurers believe there is increased risk of fraud in no-fault states compared to states with tort systems.
When asked about fraud-fighting initiatives that can have the greatest impact on insurance fraud, predictive analytics was identified as the most effective by 45 percent of respondents.
Insurers also included the use of anti-fraud teams for specific books of business (37 percent), link analysis for detecting fraud (31 percent), business rules for stopping known fraud types (29 percent), and external databases (29 percent) as other useful approaches to fight fraud.
In a press release, Russ Schreiber, who leads FICOÃ¢â‚¬â„¢s insurance practice, says:
The insurance fraud problem is estimated to exceed $40 billion globally and is showing no signs of abatement. 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.Ã¢â‚¬
Insurance Journal has more on this story.
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