The insurance sector has undergone unprecedented changes in response to the pandemic, necessitating rapid operational adjustments to minimise business disruptions. Insurers responded quickly to this crisis by increasing the digitalisation of sales, customer service, and claims management and enabling their staff to operate in a hybrid working model.
However, with increased claims comes increased exposure to fraud risks. More than 70 percent of Indian insurers indicated a marginal to a significant increase in frauds in the past two years, per Deloitte’s survey.
This surge can be attributed to increased digitalisation, remote working, and weakened controls.
In addition, the respondents indicated that data availability and quality appear to be the biggest challenges. Issues related to data privacy are a key challenge. The absence of an effective information-sharing mechanism within the industry and poor or inadequate data to predict fraud has made the identification and prevention of fraudulent activities difficult.
One of the important reasons for fraud to occur is the organisational system/controls provide the fraudster with an opportunity to commit fraud. Moreover, digitisation and customer-centric policies may have inadvertently provided opportunities for fraudsters to commit identity theft, misrepresentation, and fraudulent claims.
The key objectives of an effective, business driven Fraud Risk Management (FRM) approach should encompass controls that prevent the occurrence of fraud, detect fraud, and provide an effective response mechanism to limit the consequences.
An effective way to counter fraud is through effective data management.
The first step for insurers is to organise their data effectively by identifying the relevant data sources and integrating them on a common platform or a data lake wherein accurate, complete, and appropriate information is stored.
Predictive analytics based on the claimant, service provider’s and agent’s history, location and behaviour can identify potentially fraudulent applications and claims, reduce false positives, and identify premium frauds.
Staying informed on the latest developments is critical for detecting new fraud trends. The insurers should conduct periodic market intelligence activities to gather valuable information on the prevailing modus operandi and control weaknesses.
Karthik is Partner, Financial Advisory; and Mhapankar, Director, Financial Advisory, Deloitte India. Views expressed are personal