Anticipation

The fight against insurance fraud never ends. And despite efforts to combat fraud most insurers anticipate an increase in fraud.

One in three U.S. and Canadian insurers do not feel adequately protected against fraud, according to a survey by FICO, a predictive analytics software company. And more than half of those surveyed expect personal lines and workers’ compensation fraud to increase this year.

The survey found that insurers expect the biggest fraud loss increases to hit personal property, workers’ comp and auto insurance. In terms of fraud by individual policyholders, 58 percent of insurers forecast an increase in personal property fraud, 69 percent forecast an increase in workers’ comp fraud, and 56 percent forecast a rise in personal auto fraud.

The majority of insurers (51 percent) attributed the increases in fraud to inconsistent economic recovery in low-growth areas.

The survey also found that 63 percent of insurers believe there is increased risk of fraud in no-fault states compared to states with tort systems. No-fault insurance has come under fire in recent years due to spiraling medical costs and fraud.

While only 11 percent of insurers blamed the expected growth in fraud on the increasing sophistication of criminal rings, at the same time, 55 percent are seeing a rise in workers’ comp fraud rings, and 61 percent are seeing a rise in auto fraud rings.

Insurers feel vulnerable to premium leakage and new applications, when policyholders underestimate or leave out such information as annual auto mileage that would have an adverse effect on the cost of the policy, according to the survey by FICO.

In the survey, 35 percent of insurers estimated that insurance fraud costs represent 5 to 10 percent of their total claims, while 31 percent said the cost is as high as 20 percent. More than half (57 percent) of insurers expect to see an increase in fraud losses this year in personal lines, while only 5 percent of insurers expect to see a decline in dollar fraud losses in personal lines.

“Conventional industry wisdom has held that fraud losses average around 10 percent of claims volume, but according to our survey the actual number is significantly higher,” said Russ Schreiber, vice president of the insurance and healthcare practice at FICO. “Insurance claims fraud is big business – and it’s getting bigger.”

FICO said its Insurance Fraud Survey included responses from 260 insurers throughout the U.S. and Canada surveyed in July 2013.

Topics Carriers Fraud Workers' Compensation