If you work in life insurance claims long enough, you see every kind of scam – from false identities and account takeovers to unauthorized beneficiary changes and fake deaths.
While insurance fraud is nothing new, data indicates that it is on the rise globally. A quick look around the world provides some alarming statistics:
Unsurprisingly, many of these reports indicate the COVID-19 pandemic has fueled increased fraudulent activity. Fraudsters were quick to take advantage of opportunities created by pandemic-driven disruption and uncertainty. Modified underwriting and claims practices to assist policyholders coupled with challenges in obtaining and verifying documents produced a range of new openings to exploit. The problem became so widespread in the U.S., for example, that the Department of Justice established a dedicated hotline to report COVID-19-related insurance fraud.
As life insurance claims departments face a variety of major challenges – stemming from both the pandemic and the ongoing evolution of the industry – fraud prevention must remain a priority and integral to progress. Importantly, taking steps to reduce fraud should not be considered at odds with improving the customer experience. By adhering to the following best practices, insurers can continue to reduce documentation requests and speed claims processing while limiting fraud risk:
1. Implement proper claim controls and processes. This seems obvious, but basic safeguards are too often taken for granted. As insurers move toward accepting copies or waiving death certificates, for example, it is recommended random post-claim audits be conducted to ensure the legitimacy of the death. In addition, it is important to take advantage of available industry resources, such as fraud alerts from the International Claim Association (ICA) and a more holistic view of policyholders provided by reinsurers. RGA sees hundreds of thousands of claims each year from a variety of sources, which provides a broad-based understanding of complex, contestable, and fraudulent claims. This also enables RGA to view claims for the same individual from multiple insurers and flag potential fraudulent activity across companies.
2. Consistently train and educate your claims team to stay current. Fraudsters continually adapt and innovate to find new avenues to exploit. Meanwhile, claims examiners often receive only initial fraud prevention training without any ongoing follow up. As a result, they may not be aware of the latest schemes and are ill-equipped to identify emerging red flags. Proper preparation requires vigilance in staying up to date on fraud trends paired with consistent training.
3. Ensure everyone in your organization, not just claims and underwriting, is aware of fraud schemes and can identify red flags. It is not uncommon for call center staff, policyholder services professionals, and other employees throughout the company to identify suspicious activity that may signal fraud. For example, someone in the accounting department might notice discrepancies with names on checks or even that the payee receiving a beneficiary check has no insurable interest on the deceased.
4. Attend conferences. Industry conferences such as the upcoming RGA Fraud Conference enable attendees to share knowledge of challenges, best practices, and lessons learned. To keep pace with those looking to defraud it, the industry needs to work together. Through industry-wide collaboration, which also includes membership in organizations such as the ICA and the Coalition Against Insurance Fraud, companies receive a broader view of fraud trends along with the latest strategies to address them.
5. Collaborate with other business units. Information on a policyholder crosses all steps of the customer journey – from application through claim payment. Breaking down silos and readily sharing this information, as well as tools and techniques, can help identify and connect potential fraud red flags. Communication between underwriting and claims is particularly important, even more so following modified underwriting requirements adopted during the COVID-19 pandemic. Claims teams should work with underwriters to become aware of policies issued using relaxed requirements for future claims processing as an extra precaution.
6. Apply data and predictive analytics. Though the application of data analytics for fraud detection remains more common with disability claims, life insurers are exploring and implementing new approaches to connect data points and identify combinations indicating potential fraud. Data scientists at life insurers continue to make progress, and it will be an area to watch in the coming years.
While detecting and preventing fraud is very important for insurers, it is more important – and more rewarding – to follow these six best practices only to prove a claim’s legitimacy. When insurers issue a policy, they make a promise to provide financial protection to that policyholder. With the right fraud prevention systems and processes in place, paying a claim demonstrates a policy was underwritten, administered, and fulfilled appropriately. The insurer can be confident and take pride in knowing that the policyholder’s family will benefit from a promise kept.
