Fraud Spotlight: Working together to prevent insurance fraud

Insurance companies face an uphill battle when it comes to mitigating fraud. However, beyond the external threats of increasingly sophisticated fraudsters, there lies a significant internal challenge: competing priorities between different departments within the same organisation. 

We explore the three key areas where these challenges manifest: the whole market’s approach to fraud, internal operational misalignments, and the need for improved data-sharing and collaboration across the industry.

Whole of market challenges

The insurance industry operates in a complex environment where multiple stakeholders must collaborate effectively to combat fraud. 

But achieving a unified approach is no easy task.

“It’s not just the insurance companies; it’s the brokers, the claims managers, and the aggregators,” notes Paul Brockway, director of insurance and investments at LexisNexis Risk Solutions. “All need to buy into a common goal.”

The lack of a shared objective across the market can be attributed to the different priorities and operational goals of each player.

For instance, aggregators such as Compare the Market are, according to the firm’s 2023 annual report, focused on sourcing third-party vendors who can provide insurers with better and more accurate data.

This data enables insurers to make informed decisions regarding risk and trust before offering quotes to customers – a strategy that’s vital for improving the overall accuracy and effectiveness of fraud detection. 

Despite these efforts, there remains a disconnect between different entities in the market. The question then arises: how can these disparate elements be aligned to create a more effective market-wide fraud prevention strategy?

It’s not just the insurance companies; it’s the brokers, the claims managers and the aggregators. All need to buy into a common goal.

Paul Brockway, director of insurance and investments, LexisNexis Risk Solutions

End-to-end internal operations

Within individual organisations, the issue of misalignment between departments is a persistent problem. Different parts of the business, such as underwriting, claims, and fraud prevention, often have divergent objectives, leading to friction and inefficiencies. This disunity hampers the development of a comprehensive fraud prevention strategy that can effectively mitigate risks at all stages of the insurance process.

As Charlotte Brown, underwriting fraud manager at NFU Mutual, explains, her organisation has successfully implemented a solution that spans claims, underwriting, and all lines of business. She says: “We have a holistic view of any risk and where that fraud risk is. What that means is we have got all of our management information, our data, in one place, and all our reporting [is] coming out consistently.”

This unified approach has enabled NFU Mutual to tell a consistent story to all stakeholders, from the board to the pricing and sales teams, ensuring buy-in across the organisation.

A cohesive approach brings together the various functions within an organisation. By aligning the objectives of different departments and creating a unified strategy, companies can reduce friction and improve the effectiveness of their fraud prevention measures.

Collaboration and data-sharing across the market

Collaboration is key to combatting fraud, not only within individual organisations but across the entire market. The need for improved data-sharing between companies is evident, as it allows for a more comprehensive view of potential risks and enables more informed decision-making. However, achieving this level of collaboration is easier said than done.

One of the main challenges is the reluctance of companies to share data, often due to concerns about privacy and competitive advantage. 

However, as Brockway points out, the benefits of collaboration far outweigh the risks: “Organisations need to build those operations into one. It needs to start with the wider piece from aggregators, including third parties and claims management companies. It has to be a group effect across the board."

The importance of data-sharing is underscored by the findings of this year’s Insurance Post fraud survey, where 65.4% of respondents prioritised access to broader/shared data as a key investment to improve their fraud strategy. Market-wide prior claims data across lines of business was also seen as a priority by 42.3%.

These figures indicate a growing recognition of the need for collaboration and data-sharing to stay ahead of increasingly sophisticated fraudsters.

However, as Neil Woodhead, specialist claims consultant from Ecclesiastical, points out, there is often a tension between departments when it comes to implementing fraud checks throughout the customer lifecycle.

“One of the issues we have is that if we are very successful at catching the fraudster at the claims stage, there are some people within the business who say we don’t need to do it at the application stage because you are doing such a good job at the back end.”

This mindset is concerning, as it may leave gaps in the fraud prevention strategy that could be exploited by fraudsters.

A cultural shift is needed towards greater collaboration and data-sharing in the industry. This involves not only sharing data between companies but also breaking down silos within organisations to create a more unified approach to fraud prevention.

Conclusion

The fight against fraud in the insurance industry is a complex and multifaceted challenge that requires a concerted effort across the market.

Internally, organisations must strive to align the objectives of different departments to create a cohesive fraud strategy that spans the entire customer lifecycle.

Externally, greater collaboration and data-sharing between companies are essential to stay ahead of increasingly sophisticated fraudsters.

Ultimately, the success of these efforts depends on the willingness of all stakeholders to work towards a common goal. By fostering a culture of collaboration, both within and between organisations, the insurance industry can develop more effective strategies to combat fraud and protect both their businesses and their customers.

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