Fraud Intelligence System: The Use of Analytics in Fraud Detection
AS RIGHTFULLY MENTIONED BY DATO’ SYED MOHEEB IN HIS PREVIOUS article titled “Insurance Fraud? Who Cares?” the Malaysian insurance and Takaful industry is not optimising the usage of predictive analytics in their fight against fraud. Well, when it comes to fraud, fraudsters can get creative which makes it difficult to detect due to the changing behaviour of the fraudster. In a nutshell, insurance fraud can be categorised into four types:
1. Claims Fraud - fraud committed to obtain wrongful compensation or exaggerated claims
2. Application Fraud - fraud committed to obtain wrongful coverage i.e. misrepresents or deliberately fails to disclose material facts during the process of purchasing insurance.
3. Internal Fraud - this occurs when employees of insurance organisation colludes with fraudsters.
4. Intermediary Fraud - committed by intermediaries against insurers.
Just by taking a glance into more developed markets such as the United Kingdom (UK), one can truly appreciate the potential of analytics in preventing and detecting fraud. For example, the UK has adopted several strategic measures in their fight against fraud which include:
1. Claims & Underwriting Exchange (CUE) - this platform was established in 1994 to assist insurers identify nondisclosures, concurrent claims activity and prevent fraud.
2. Motor Anti-FrUD & tHEFT rEGISTER (miaftr) - a central database which consist data of vehicles that has been written off and reported stolen.
3. Insurance fraud Bereau (IFB) - this bureau was established in 2006 as a hub for sharing insurance fraud data and intelligence.
4. Insurance Fraud Register (IFR) - launched in 2012, an industry-wide database of known insurance fraudsters.
5. Insurance Fraud Enforcement Department - established in 2012. It is a specialist police unit dedicated to the identification and prosecution of insurance fraudsters.
6. MyLicence - a data sharing initiative with the Government which will help to tackle application fraud in motor insurance. This initiative was launched in 2014.
We can easily conclude from observing the UK market that the fight with fraud requires collective and continued efforts. In UK, IFB takes the lead in managing the counter fraud activities to ensure that the industry comes together and takes on fraud holistically. IFB has deployed the usage of advance analytics in their war against fraud. So how does this help IFB? By remaining at the cutting edge of counter fraud technology, IFB is able to pick up fraudster trends whether cross-carrier or not. IFB can also identify unexplained relationships and prioritise which cases are to be investigated further. Despite all of this, the UK industry continues to invest £200 million each year to fight fraud. This is a clear indication on the industry’s commitment to combat fraud.