The impact of fraud on the industry, insurers’ bottom lines and the insurance buying consumer is well documented. The detection and prevention of claims fraud has been a primary focus for insurers who have invested in technology, specialist service providers, in-house experts and collaborative data initiatives to reduce their exposure. Significant progress has been made and the industry is now increasingly applying a similar ‘zero tolerance’ approach to application fraud.
Today’s consumers have high service expectations and are increasingly using technology to make purchasing decisions. This trend looks set to continue as the current ‘online generation’ permeates the market and becomes more influential. It is a recognised fact that insurance cover purchased online is more prone to fraud via ‘risk manipulation’, where applicants massage information to achieve a more favourable premium. The anonymity of the buying process assists the fraudster when purchasing a new policy, making mid-term adjustments or renewing cover.
Validating a risk at point of sale is vital for insurers and brokers to ensure they are providing the right cover at the right price and are not subject to application fraud. The acknowledged challenge is to validate the risk without jeopardizing the sale or alienating an honest customer. Swift, efficient processes are essential and must accommodate the variety of distribution channels used by the market.
Insurers recognise the business benefits of being information rich when assessing risk and setting underwriting rules. Much of the industry is already using a selection of data sources like the Motor Insurance Database, Claims and Underwriting Exchange, vehicle registration data, electoral roll, postcode validation and credit checks when premium payment is requested by instalments. And more data sources are to become available to the industry. The second half of 2012 will see the launch of the Insurance Fraud Register, which will hold information on individuals who have committed insurance fraud.
To enable speedy verification of information provided at point of sale, access to multiple data sources is becoming business critical for insurers and brokers. There is notable caution around introducing new processes that could impact on established internal systems. Insurers want to be able to take data feeds and use them to underwrite against real time risk information without increasing administrative burden or impacting operational efficiency. Insurers can gain competitive advantage when they have the capability to interrogate third party data sources and seamlessly integrate the findings with their back office system and rating engine software. Risks are accurately assessed and can be declined if they fall outside the insurer’s risk profile or present anomalies linked to a potentially fraudulent application. Relevant risks, meanwhile, are quoted for the right cover at the right price. The result: reduced loss ratios and reduced exposure to fraud, both of which lead directly to an increased bottom line.
Insurers with legacy technology systems are becoming further disadvantaged in this brave, new, data driven world. The growing insurance community using Landscape, the packaged insurance system from RDT incorporating rating engine software and a full cycle policy and claims administration solution, are benefiting from future proof, flexible technology. Landscape can integrate with any number of data sources irrespective of their technology platform, interrogate the data and process the results real time, to feed the rating engine. In addition, insurers have the ability to swiftly and simply adjust their rating engine and business rules to ensure they adapt to market influences and are consistently competitive. The future looks bright for those with the right technology; less so for those locked in the past by their IT infrastructure.
Mark Bates, CEO – RDT
