(A guest post by IBM's Tony Boobier, Business Analytics Insurance Leader, EMEA)
It’s been a damp and stormy winter in Europe. UK Insurance claims following recent storms and flooding over Christmas and New Year have hit £426m ($1.0BN), and are expected to grow. UK Insurance companies have received 174,000 claims for damage to homes, cars and businesses, and as I write, it is still raining outside.
On mainland Europe the position is no better with the loss estimate for Windstorm Christian at 1.07 Billion Euros and Xavier 680 million Euros ($930m).
It’s against that background that insurers suspect that between 10% - 15% of the cost of claims could be fraudulent. - that’s an amazing $193m - $290m. Losses come from excessive scope of building repairs, better specification of materials, upgrades of replacement goods, coupled with inadequate (or non-existent) damage assessment, optimistic claimants, and weak processes.
But it’s not all due to additional costs from processes linked to individual claimants. Over 80% of claims fraud is estimated to arise through organized networks. Santam Insurance in South Africa were able to identify a major fraud ring within 30 days. (Watch video of Santam's success by clicking here.)
Recently in Sweden, vehicles involved in insurance claims as burned-out wrecks were tracked back as flooded ‘write-offs’ following Hurricane Sandy on the east coast of North America. These "burned-out wrecks" were later shipped out by container to Eastern Europe. At this scale, and with these numbers, throwing more bodies at the problem simply isn’t a solution - notwithstanding both the challenge of talent shortages (where many insurers already rely on retired police), and a recognition that not everything can be investigated.
Enter Big Data & Analytics.
Effective use of analytics starts to unlock the key to insurance fraud. The benefit case is outstanding, both in terms of short term ROI but also with respect to ROC (Return on Capital) i.e. the cost of maintaining an inspector field force.
Big data and analytics identify those claimants most likely to be opportunistic meriting further attention and investigation. More importantly, big data and analytics helps track organized networks of criminals who, collectively and perhaps unconsciously, add up to 15% to the cost of insurance for all of us.
Learn more about IBM solutions for Insurance & Counter Fraud by clicking here.