Accurate information essential in battle against claims fraud

The South African insurance industry`s initiatives to battle fraudulent claims needs the active commitment of insurers to identify culprits and share that information, says Patrick Kuwana, director: Sales for Computer Sciences Corporation in South Africa.

No one knows for certain how much the South African insurance industry loses to fraud each year. The Life Offices Association says fraud cost R214-million in the first nine months of 2003. The 2004 annual report of the South African Insurance Association (SAIA) says that the short-term industry `suffers billions of rands in losses because of insurance fraud each year - and the figures are rising constantly`.

Billions of rands is not a term to be brushed off lightly and the entire industry - and its customers - would be better off if all of us put extra energy into intelligently tackling the problem.

Loosely speaking, if the losses could be minimised, premiums could come down and policies could become more affordable to the 80% of South Africans who currently cannot afford insurance.

Favourable recent financial results of many of South Africa`s major short-term insurers indicate that there is now some financial flexibility to get serious about investing in the latest technology as a tool to tackle fraud. The spin-offs would be increased profitability and improved customer relations.

Managing the processing of claims is complicated and, traditionally, has had little technological support. The focus of automation in the insurance process has been on the issuing of document, collection of premiums and general policy administration.

Much Information Technology (IT) support has gone into the management of customer relationships, workflow and management information systems. Claims management has been neglected because the input is from numerous external sources and is complex to collate and manage. There is also the tendency to pay claims quickly to avoid annoying the customer and maintain business.

Business applications designed specifically to help insurers detect suspicious claims at an early stage are a sound foundation for tackling fraud. Used correctly, technology eliminates the subjective review of claims and ensures a uniform approach.

By analysing large amounts of data early in the claim process they enable investigators to follow leads that might not have been established before, would have taken too much time to uncover or worse still would only be discovered after payment has been made and is irrecoverable.

CSC`s fraud prevention solution is the first comprehensive solution for early detection of potential fraud for the general insurance industry. It uses multiple analytical tools, identity search engines, and customer and industry data to evaluate claims or policies and identify potential fraudulent activity at an early stage, allowing the claims to be repudiated before payment or special terms are imposed on the policies. It can be integrated into processes such as rating, claims adjusting, and supply chain management, to speed resolution of valid cases and improve efficiency in the claims handling and investigation.

The solution allows each insurance company to set its own processing rules and transforms the process of identifying potential fraud from one intuitive assessment to one based on a structured, consistent approach.

Putting in place systems that help managers monitor and assess claims based on client and supplier profiles and history will go a long way to reducing fraud and leakage in the process, and is far more cost efficient than employing more people to investigate claims. Exponential value for the South African insurance market will be realised when this information is then shared amongst industry players to eradicate "serial" fraud activity.

Technology-based claims management processes, whether operated in-house or outsourced to a specialist firm, can save between 5% and 25% of annual payouts.

But, more advantageous to the insurance industry at large, is the message an efficient fraud prevention system sends to criminals. As insurers become more successful at untangling complex relationships and combating fraud, criminals will learn that safeguards are in place and will not attempt it in the first place.