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How To Catch Auto Insurance Agent Fraud (Prevent System”Gaming”)

Insurance agent fraud is nothing new. But if your agents were “gaming” the system, would you see it coming? 

Fraud continues to evolve and affect the auto industry, resulting in billions of wasted dollars every year. While we’d like to believe the majority of fraudulent transactions start with applicants on ‘the outside’, recent employee fraud and risk prevention data suggests that large percentages of fraud are actually coming from inside the walls of auto insurance companies.

Insurance companies need to be aware that their internal and distributed agents often act in their own best interest, and it comes at a high cost. 

In this article, we’ll cover the types of insurance agent fraud to look out for, where to find it, and what the future of detecting fraud holds. 

But First, A Few Common Types of Car Insurance Fraud…

As you know, there are a lot of steps between setting up an insurance policy and then filing a claim on the other end. So where does insurance fraud usually happen?

For starters, insurance fraud can be separated into two categories: hard fraud and soft fraud. 

Hard fraud cases are usually more consequential situations with higher payouts at stake. Falsely claiming a vehicle as stolen, faking a car accident, or even abandoning a vehicle are all examples of hard fraud. In these kinds of cases, legal charges are loftier. 

Soft fraud is harder to spot because — well, it’s more believable and/or less likely to be investigated. Let’s say someone accidentally nicks a car in the mall parking lot, drives away, and then claims the dent is from running into their garbage can. Seemingly minor, these false claims add up to soft fraud that often goes undetected.

More often than not, soft fraud happens during the application process when applicants or agents manipulate answers to land or sell a better policy. For example, changing how many miles the client expects to drive, how many dependents they have, who can drive the car, if they park in the street versus in the garage, etc. 

Who commits auto insurance fraud?

Now let’s break down where fraud happens from the three main culprits: applicants, underwriters, and agents. 

Applicants

An insurance applicant is most likely to commit soft fraud. You’ll see this many forms of insurance —- health, life, and car insurance — where an applicant sneaks by with false information. A policyholder can also make a fraudulent insurance claim with exaggerated or fragmented information.

Underwriters

Though it’s less common, underwriters commit life insurance fraud when they’re under pressure from agencies looking to cut costs and get a “straight-through underwriting processing.” We expect to see less underwriter fraud as the insurance industry pushes towards fluidless underwriting.

Agents

And now to the agents — the type of fraud you need to identify and supervise. These days, insurance agents get big commission checks for life policies, so they’re motivated to “game” the system. 

Similar to applicants, in most cases of fraudulent activity, agents commit soft fraud, which is why it can be so hard to identify. This can look like an agent changing answers that a policyholder submits or heavily coaching them through the application process to ensure the policy gets approved. 

How soft fraud can jeopardize auto insurance coverage

Why would your agents even take the risk of fudging answers? 

Changing a few key answers to receive a better rate helps them convert more customers. More customers = more commissions. Simple formula. 

Add on the rise of remote offices and blurred ethical lines, soft fraud doesn’t feel like much of a risk. If they’re not selling fake policies or using fake identities, how bad can it really be, right?

Wrong. While it’s rare — and like we mentioned before, hard to even detect — soft fraud can result in misdemeanor charges, fines, court-ordered community service, and even jail time. 

Fraud cases can jeopardize an insurance company’s reputation, lose investors, and corporate partnerships, and ultimately sink the bottom line in severe circumstances. 

Long story short,  fraud is extremely costly to insurers and employers. The annual cost of fraud is in the billions and rises every year. According to a study from the Insurance Research Council, as many as 15-17% of total claims payments are fraudulent claims in the auto insurance industry. 

So who’s responsible for detecting insurance agent fraud? Is it the insurance agency? Underwriters? Law enforcement? A third-party?

Internal risk/fraud teams within the insurance company are responsible for detecting car insurance fraud. These teams utilize specific insurance fraud software, which then transfers to the claims department to investigate suspicious activity further.

While each risk/fraud team has its own methods that are effective in obvious cases of fraud, how can you prevent that 15-17% of fraudulent claims from slipping by?

It may be time to consider supplementing your method with another option.

A.I. and Auto Insurance Application Fraud

Imagine being able to predict fraudulent activity before an application gets underwritten for a policy. 

ForMotiv combines artificial intelligence, machine learning, and cutting-edge digital behavioral data science to create more accurate risk and fraud models.

Our solution allows for real-time risk signals and scoring that can be consumed offline or real-time to dynamically intervene when an agent (or applicant) is showing signs of fraudulent behavior, allowing you to further investigate an applicant before sending the policy to underwriting

So, what would this look like in your company?

Collect Data Instantly

With ForMotiv installed on your website, carriers have a record of every single behavioral ‘micro-expression’. We’re talking over 5,000 data points that would otherwise go undetected by your standard software — like time spent on a page, the number of keystrokes, mouse speed, typing speed, cuts, copies, pasted, and the list goes on. (And you own all of your own data.)

Detect Fraudulent Behavior

ForMotiv uses the behavioral data points and dozens of predictive models to understand its users in ways that were previously impossible, making it possible to detect if your agent is displaying genuine or high-risk behaviors.

Predict the Risk

Then we get to the good stuff. ForMotiv predicts an agent’s intent with over 90% accuracy. Has an agent copied and pasted too many answers? Have they changed answers after an applicant submitted theirs? All of their micro-movements categorize them into a level of risk. 

React in Real-Time

What’s the point of predicting something if you can’t react to it? That’s why ForMotiv reacts in real-time with instant and accurate user intent scoring and intent data. If an agent is displaying suspicious behavior, the application they’re working on gets flagged and sent automatically to the risk/fraud department — ultimately working to close the gap of rising auto insurance fraudulent claims. 

Why A.I. Will Become A Necessity in Detecting Fraud

The last two years have brought extreme changes to the auto insurance industry. And with the evolution of modern business, agent fraud detection needs to change with it. 

More than ever before, offices are opting to work either fully remote or a hybrid variation. Companies hire new agents and employees every day through a fully remote onboarding process. Where accountability used to be reinforced with face-to-face meetings, handshakes, and grabbing beers after work, it’s now replaced with distant Zoom meetings and Slack messaging. 

How can companies ensure that their agents are acting ethically in the auto insurance application process? The future of fraud detection and prevention leans toward the power of A.I. 

Want to see it in action? Schedule a call to see it for yourself — no commitments necessary. 

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