Life insurance fraud: A holistic claims view key to detection

July 18, 2019 / 4 min read

Life insurers can face a myriad of challenges today. Some of those issues have plagued the industry for years—such as stagnant premium growth and low interest rates—while others are new—like changing customer expectations and disruptive innovations such as on-demand policies and selfie underwriting (yes, that’s a thing).

Add to that the ever-present threat of fraud coupled with the limitations of legacy systems, and the resulting environment has many life insurers in desperate need of finding ways to increase efficiency and reduce losses. Fortunately, there are opportunities for companies to streamline the claims process and mitigate fraud—which can lead to better operational efficiency and an improved bottom line.

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Fraud schemes in life insurance claims

Fraud is an evolving threat that’s on the rise in life insurance. According to one study, 80 percent of life insurers experienced claims fraud in 2017, and 83 percent said fraud has increased the past 24 months.

Fraudsters can use different types of schemes to deceive life insurers, and without the right systems and solutions, their tactics can go unnoticed. In a recent Verisk study, we examined two types of claims—death claims and waiver of premium for disability—to detect suspicious activity. The results were eye opening.

In analyzing death claims, we identified several instances where the insured’s name appeared in home and auto claims after their reported death. In looking at waiver for disability claims, we found instances of unreported wellness. Though the insureds’ premium payments were waived due to illnesses that would impede them from driving, they subsequently appeared in auto claims as the driver. Unfortunately, these types of incidents are often undetected because most life insurance systems are siloed and don’t provide the full picture of an insured’s claim history.

Integrated claims systems improve detection

In order to help effectively prevent fraud leakage, life insurers with property/casualty books need to connect the dots on claims across multiple lines of business—and they need a systematic and automated way to do it. Take the waiver of premium for disability examples mentioned. Identifying unreported wellness often requires consistent follow-up with the insured, but that can be challenging and cost prohibitive.

But automatically checking auto claims to make sure the insured in the above example with a disability waiver wasn’t driving is a quick and simple way to keep tabs on unreported wellness. Another systematic method to discovering potential wellness is identifying when a companion claim—the related casualty claim to the waiver claim—closes.

The same methods are applicable to death claims. In our evaluation, we found an insured who appeared to have been in a car accident about a year after his death. Both his car and his insurance were used in the auto physical damage claim. After further review, it appears that a relative of the deceased continued to drive the car under the deceased policyholder’s name.

The good news is the death claim was rightfully paid. The bad news is that the assumption of coverages and the accuracy of rating following the death had not been sorted out by the survivors creating uncertainties. That’s why it is crucial that insurers’ life and property/casualty systems communicate.

Getting the full claims picture

So, what does this mean for life insurers? If you aren’t cross-checking your claims with your property/casualty system or a larger claims database, then you’re probably more susceptible to fraud and leakage.

The more integrated your claim systems are, the better you can become at detecting fraud and improving efficiency. Beyond integrating internal data, it’s also important to get a broader industry view of an insured’s loss history. This can help ensure you’re getting the most detailed analysis and insights to mitigate fraud and process claims effectively.

ISO ClaimSearch helps life insurers detect fraud and enhance efficiency by connecting their claims to a broader set of property/casualty claims data. The platform matches an insurer’s claims to more than 1.3 billion loss history records, and automatically delivers alerts and insights about suspicious claims. With access to this broad dataset, life insurers can get a more holistic view of their claims.