Fair Isaac Corp. (Fair Isaac) and the Property Casualty Insurers Association of America released the results of a new survey of property & casualty insurers on October 4, 2012 reporting that 54% of those surveyed expect to see an increase in the cost of fraud in 2012 on personal insurance lines.
While fraud has been commonly thought to account for an estimated 10% of P&C insurance industry loss costs, the new survey suggests some in the industry believe fraud to be much more prevalent. According to the report, 45% of P&C insurers estimate that insurance fraud costs represent 5 to 10% of their claims volume, while 32% said the ratio is as high as 20%.
According to Russ Schreiber, Fair Isaac’s insurance practice leader, “insurance fraud . . . is estimated to exceed $40 billion globally and is showing no signs of abatement.”
Of those insurers surveyed, 61% attributed the increases in fraud to sustained economic hardship by policyholders. Other reasons for the expected increases in the incidences of fraud are attributed to a rise in the sophistication of criminal gangs (17% of respondents), a rise in workers compensation fraud rings (60% of respondents), and a rise in auto fraud rings (61% of respondents).
Predictive analytics was identified by insurers as the most effective means by which insurers may combat fraud (45% of respondents). According to Schreiber, “early detection is the key to mitigating fraud losses for insurers.”
The insurers surveyed also identified the following fraud-fighting techniques as effect: the use of anti-fraud teams for specific books of business (37% of respondents), link analysis (31% of respondents), business rules for stopping known fraud types (29% of respondents), and external databases (29% of respondents).