In the past three years, we’ve seen consumers demanding unprecedented levels of online experiences across most industries. Unfortunately, the bad guys go where the money is. As online activity booms, we’ve seen the number of suspected digital fraud attempts in the financial services sector increase by 30% between 2019 and 2022.
According to the TransUnion 2023 State of Omnichannel Fraud Report, identity theft has soared by 81%. Synthetic identity fraud, when real and fake information are used together, has grown by 132%. As a result, service providers have had to spend some US$26 billion in fraud detection and prevention, with this expected to grow to US$129 billion by 2029.
In the insurance industry alone, TransUnion’s data shows suspected fraud attempts increasing by 27% between 2019 and 2022. The challenge for South African insurers is clear: how do you prevent fraud without chasing customers away with onerous onboarding processes?
It’s clear that insurance companies must protect themselves and their clients from fraudulent activity. But by implementing fraud measures at the start of their relationship with the client, they risk adding friction to the buying process, and increasing abandonment rates. Globally, the industry loses around $118 billion every year to false fraud detection positives, where potential clients are mistakenly identified as fraudulent – and promptly disengage through anger or frustration.
These false positives are often a result of a lack of sufficient signals about the consumer. Insurers rely on data to detect fraud effectively, but accessing and analysing data from various sources can be complex, time-consuming and costly, especially when applied at underwriting, where the quantum of transactions is high.
The reality is that fraud needs to be stopped at the front door. Once it’s on book, it’s hard to stop, with increased policy loading and detection only possible at claims stage. The best balancing act is effective fraud detection efforts at quote stage, while providing a smooth and efficient customer onboarding experience and avoiding overzealous fraud detection measures that result in false positives and inconvenience for legitimate policyholders.
One tool that insurers are increasingly using is device identifiers, which link otherwise apparently unconnected, legitimate looking policy and claim identities. They raise an alert when multiple policy holders or claimants appear with the same device identity or are associated with the same cluster of devices. Based on IP addresses, phones, tablets and laptops are tied together. This could indicate a fraud ring using stolen or synthetic identities – and these connections between policy identifiers would otherwise not be visible to the insurer.
The insurer’s sales and servicing process doesn’t have to be fully digital to capture this data and effect these device connections, as it is possible to funnel a manual process into a digital process that collects a powerful set of digital characteristics.
For example, a policy can be sold face-to-face or on a call, and new policyholders then receive a welcome email with a link to an online portal, where they verify policy conditions. On the portal, over 100 device characteristics – including device location, VPN and other tools used, and whether the IP address is associated with fraud – are all recorded and analysed in real time. Similarly, if the policy is sold and bound via a call centre channel, the agent can send the policy holder an onboarding email with a dynamic link to the policy documentation that requires a digital signature.
The collection of this data requires no effort on the part of the policy holder beyond the requirement for their device to interact with a digital environment. This friction-right fraud data collection keeps the underwriters happy, as there is no impact on take up rates, improves risk segmentation, and reduces the false positive and false negative rates.
Device proofing can also be levelled up using behavioural analytics, if the application process is completed via a web journey. Software on the insurer’s platform can interpret the way forms are completed and evaluate a user’s familiarity with the personal information they provide.
The greatest insurance risk in the current climate is reticence. By actively pursuing results-driven strategies, informed by enhanced data analytics, insurers can help transform hard market conditions into quick wins and long-term loyal customers.