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BI cracks down on fraudulent insurance claims

More frequent claims are made during December and January because people are under financial pressure from holiday overspending, says SAS's William Lawrence.

More frequent claims are made during December and January because people are under financial pressure from holiday overspending, says SAS's William Lawrence.

Around 10% to 15% of insurance claims in SA are either fraudulent or contain elements of fraud, and this volume increases significantly during December and January.

This is according to William Lawrence, regional practice lead: Fraud & Financial Crime at Statistical Analysis System (SAS). He says false insurance claims are submitted to insurance companies for various reasons, including festive season overspending and clients who have not made a claim in a long time may feel a sense of entitlement because they have been paying monthly premiums in vain.

"Increased holiday traffic, more social events – and therefore more people driving under the influence of alcohol could potentially mean more car accidents. Also, as families return home from their holiday destination they may find out that they have been burgled," explains Lawrence. 

SAS, a Business Intelligence (BI) and data management company, says in January people are generally under financial pressure from having spent too much over the festive season and worry about how they're going to pay their January bills. They're then tempted to make fraudulent claims or inflate legitimate loss claims.

"For example, while claiming for a pair of sunglasses and a cellphone that was stolen out of a car, the policyholder throws in an iPad and camera, even though these may have never been in the car."

Other major false claims may include staged hijackings, theft of cars and stolen laptops, adds Lawrence.

Insurance companies have a limited number of claims investigators, making it impossible to scrutinise every claim for fraud. As a solution, they may apply a claim threshold of around R20 000, he continues.

Any claim under this amount will not be reviewed and will be immediately processed for payment. This means thousands of fraudulent claims could be slipping through the cracks, amounting to huge losses, says SAS.

Claims that are higher than R20 000 will be further analysed and once a claim has been scored for high fraud propensity it will be handed over for advanced analytics investigation to certified insurance fraud examining companies such as SAS.

Software solutions

"With advanced analytics, insurers have the ability to scrutinise every single claim by applying robust fraud rules and models. Claims with a high fraud propensity are automatically flagged," explains Lawrence.

To achieve this, SAS uses a BI insurance fraud claim detection solution called the SAS fraud framework which is aimed at identifying fraudulent insurance claims while reducing payout of fraudulent claims.

"Under this framework, the first step is to use the Master Data Management system which runs a thorough background check of the client. This process is then followed by the SAS visual analytics software which is used for BI reporting.

The SAS network analysis software is then applied to scrutinise the network of peers of the client in order to determine if the client may be part of a high fraud propensity network", he reveals.

In conclusion, to lead the investigators to making the final decision based on the clients scoring results, SAS Enterprise Miner is applied. This software is a descriptive and predictive modelling which provides insight on whether the claim was fraudulent or not.

If the claim is proved to be fraudulent beyond any reasonable doubt, SAS takes the results back to the insurer and a criminal case is opened for potential prosecution by the National Prosecuting Authority in the court of law.

It is estimated that fraud costs the short-term insurance industry anything between R6 billion and R8 billion annually. Having the ability to weed out fraud means insurers won't have to compensate for losses by hiking premiums, resulting in happier, more loyal customers, says SAS.

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