Auto Insurance Fraud Update

Last month, the Insurance Information Institute published a summary of recent developments in insurance fraud. So, we decided it’s time for an update.

What’s new in auto insurance fraud according the report?

Across the industry, fraud accounts for about 10 percent of all property/casualty losses. (For auto insurers, it can get as high as 20 percent.) That puts the annual price tag for industry-wide fraud at $32 billion.

Auto insurance is one of the lines considered most vulnerable. But that’s not news to insurers. A FICO survey in 2013 showed that one in three insurers don’t feel adequately protected, especially where premium leakage and new applications are concerned.

For example, some policyholders deliberately underestimate their annual mileage, knowing that the real number would amount to a higher premium. Or they give a false zip code, because they want to be charged based on a neighborhood where rates are cheaper.

This type of fraud alone costs auto insurers roughly $16 billion a year according to the same Insurance Information Institute report.

The role anti-fraud tech can play

A report last fall by the Coalition Against Insurance Fraud underscored the importance of technology in fighting fraud – especially given that the problem is on the rise.

“Insurers are investing in different technologies to combat fraud, but a common component to all these solutions is data,” said Stuart Rose, Global Insurance Marketing Principal at SAS. “The ability to aggregate and easily visualize data is essential to identify specific fraud patterns.”

The Coalition’s study found that “the right mix of tools and technologies” can up your fraud-detection rate and make a significant dent in your overall losses.

Technology brings another benefit as well: At a time when insurance crime is on the rise, and claims and anti-fraud professionals are hard to find, tech “can help bolster these often-understaffed teams.” Even if you’re not understaffed, the right technologies can leverage investigator efficiency exponentially.

Boost your fraud-detection with usage based insurance

Insurers who’ve added usage based insurance to their offerings don’t need to worry quite so much about premium leakage and application fraud. That’s because usage based insurance delivers some of the data that the Coalition identified as crucial to cutting down your losses.

Usage based insurance data can:

• Show driving routes
• Reveal day and night-time garaging addresses
• Report miles driven and whether those miles are driven during daytime, nighttime or rush time hours
• Suggest the presence of an unreported driver in the household
• Corroborate a policyholder’s claim

In fact, in the effort to drive down insurance fraud, you could say that UBI is a lie detector. For more information on how usage based insurance serves both you and your policyholders, get the Driveway Fact Sheet.