Blogs - Insurance Services Outsourcing
| Outsourcing can help check insurance claims fraud |
| By Rajesh Desingu on 12/7/2009 10:11:19 AM |
I recently read an interesting article which talks about fraud in health insurance. According to the National Health Care Anti-Fraud Association, estimates of health insurance fraud range between USD 68 and 70 billion or three per cent of total healthcare spending! Detecting and combating fraudulent claims is costly and time-consuming.
Insurers who have historically used a so-called “pay-and-chase” method to detect fraud are now using a new method. Taking their cue from credit card companies, they are trying to predict risk by gathering insights from their huge, untapped databases.
Fundamentally, claims management is a critical part of the insurance business. Insurance companies not only have to settle their customers' claims faster in order to ensure customer satisfaction but as importantly, must ensure that the right claims are being settled.
Let’s understand how frauds typically occur –
- Value-added insurance products: Life policies today come with riders for either short-term or long-term disability for which a false claim may be made.
- Opportunistic fraud: Customers often exaggerate claims amounts due. According to a research by Indiaforensic Research, one in every two persons exaggerate insurance claims.
- Structured settlements: Many finance companies buy out the policies of terminally-ill persons who require cash for medical expenses. After making a one-time lump sum payment to the policyholder, they pay off the premiums due for the remainder of the policy. However, in order to redeem the policy faster, unscrupulous companies are known to provide phony death certificates. In such cases, the liability for the policy will revert back to the insurer.
It is therefore imperative that insurers take the time to trace the origin of fraud. If this were possible at the application stage itself, it would mean substantial savings in cost and time.
One way to detect potential fraud is by analyzing the insurer’s data and that of third party data sources. Insurers typically verify a person’s age, residence and health status at application time but there’s more information including a person’s work history, previous claims history and even where a person may have lived and for how long at a particular address, that may provide critical clues.
With analytics, it is possible to develop predictive models that create potential profiles of likely fraudulent claimants from available data and fraud history. Insurers can then match new applications with these profiles and tag cases that are likely to have fraud potential.
As a result of applying analytics, the insurer’s underwriting function is strengthened, and costly, potentially litigious cases can be flagged quickly and tackled in a cost-effective manner.
For example, a leading US-based P&C insurer had serious issues with fraudulent claims. By using analytics, the insurer realized that over two percent of closed applications (that have passed through the underwriters) contained potentially fraudulent information. The company was actually spending 20 to 50 percent more in claims compensation than it received in revenue on high-risk applications. Thanks to an analytics solution, the insurer was able to improve the rate of genuine claims and reduce the costs associated with fraud claims investigation.
The bottom line is that analytics helps insurance companies minimize fraud during new application and claims processing. |
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