Life Insurance Fraud Detection from Online Applicants

Insurance fraud is nothing new. In fact, examples of insurance fraud can be traced all the way back to 1862 in what’s now called “The Phantom Ship” scheme. Life insurance fraud is no exception and as companies continue their digital transformations and move their applications/experiences online, the problem is only getting worse, prompting an even greater need for sophisticated life insurance fraud detection solutions. 

We call this the “faceless applicant” problem as you no longer do business face-to-face but instead behind a computer screen. This shift to digital experiences and accelerated/fluidless underwriting has drastically increased risk exposure for carriers as customers and agents alike are more prone to application misrepresentation. This, coupled with the rise in sophisticated digital fraudsters has combined to make life insurance fraud a $20 billion dollar challenge in the industry. 

In this article, we’re going to unpack what some of the most common forms of life insurance fraud are and what you should do to prevent them. 

What are some common forms of Life Insurance Fraud?

Have you ever gone through the trouble of faking your own death for the benefit of an insurance claim? I haven’t, ha! I’m guessing you haven’t either, but a surprising number of people do. While most people won’t attempt fraudulent claims of quite this magnitude, false claims are a common form of insurance fraud. Here are some insurance fraud examples we’ve seen:

Insurance claims fraud are rare, extreme cases when a beneficiary kills the policyholder to receive the insurance payment. 

Agent fraud is when a certified agent lies about policy coverage to sell more or intervenes in order to steal premium payments. 

Churning occurs when an agent switches policies with one from another company to collect larger commission checks — another form of agent fraud. 

Twisting is similar to churning. It’s when an agent replaces a policy for a larger commission check within the same company. 

Fake policy schemes are just like they sound — scams where con artists pose as insurance agents to sell fake life insurance policies. They’ll collect the payments, but when it’s time to file a claim, *poof*, they’re gone. 

Forgery happens when a policyholder forges false changes to transfer new ownership of a policy. 

Jumbo violations are when blind spots in the industry are taken advantage of to falsely limit how much coverage a client can buy. 

Stacking occurs when a client purchases multiple life insurance policies that add up to a larger payout while avoiding the inspection process that usually comes with larger policies. 

False policy applications happen when clients use false information to fill out their applications. Sometimes this comes in the form of ‘soft fraud’ in which bits of information are fudged or exaggerated. 

Suspicious policy application is investigated when a life insurance policy is taken out at a suspicious time, like right before the insurer’s death. 

Rest assured, if you can, a couple of those examples are pretty drastic. The most common form of fraudulent activity starts with ‘soft fraud’ on an application. Unfortunately, today with online applications, this is more nuanced than fudging an answer here and there. For example, an applicant might initially answer honestly to a question such as, “Have you used tobacco in the past 12 months?” Then, thinking twice, they google “how can smoking impact my premium?” Realize it can jack their price 3-5x, and go back and change the answer to NO. We call this “Smoker’s Amnesia,” ha.

Protecting Your Company from Life Insurance Fraud Detection

As you probably know, insurance is a massive industry. The massive size of the industry can be a problem when it creates ample incentives for insurance fraud. According to recent FBI reports, the overall cost of insurance fraud is a whopping $40 billion per year, half of which is in Life, and that’s not even including the healthcare industry.

In the life insurance sector specifically, 1-3% of all claims are investigated for fraud, falsification, or are entirely denied, according to a survey from life insurance professionals. Application fraud is expected to increase across all insurance companies due to difficult times in the wake of COVID-19.

How can you protect your company from one of the billions in yearly fraud? For such a complex problem, part of the solution is quite simple: AI-Powered Fraud Detection.

When Fraud Detection and AI Collide

Let’s skip the sugar coating and call it what it is: many applicants lie when filling out insurance applications. Throw in the new era of faceless online interaction, and you’ve found yourself with fluidless underwriting – just the applicant, their computer screen, and so much unseen data in between. 

This is where the power of AI Fraud Detection comes in.

Companies like ForMotiv use AI to read a user’s “digital body language” and analyze tens of thousands of behavioral ‘micro moments’ – like time spent on a page, mouse movements, keystrokes, typing speed, and hesitations to predict their intent while they are still filling out the application. Imagine having a polygraph hooked up to the application that could tell you, in real-time, whether or not an applicant was telling the truth on a certain question. It’s not magic, but it’s close.

What can AI-Powered Fraud Detection Do for Life Insurance?

If you’ve taken out the words “we do that manually” from your company’s vocabulary, you’re already headed in the right direction. Now, it’s worth learning how AI-powered fraud detection serves as worthwhile protection against life insurance fraud – all without needing to lift a finger. AI-powered fraud detection has never been more critical to implement for insurers to detect bot applicants, score risk in real-time, add strategic application friction, and oversee online claims processing. 

• Detecting Bot Applicants

Artificial intelligence isn’t always used to stop fraud, sometimes it’s used for fraud… thousands of bots fill out fraudulent insurance applications every day. Luckily, insurance fraud solutions like ForMotiv are able to instantly identify bot applications and triage them in real-time before they are approved or shown pre-fill information, saving time and expenses for the underwriting process.

• Scoring Risk in Real-Time

Stolen information is often copied and pasted into an application. If you could identify these instances of stolen information, in real-time, you save time for underwriters evaluating the applications and legal issues down the line. 

With automated detection intelligence on your website, you have the ability to instantly predict if a user is a liability, a high-risk customer, low intent searcher, or displaying bot activity. Ultimately, upwards of 90% of your leads become higher-quality when using this service. 

• Application Friction

AI-powered fraud detection can do more than predict a user’s intent – it can react to it. So when a fraudster is detected, AI can dynamically add or remove friction for high-risk or genuine applicants in real-time, not when it’s too late.

• Online Claims Processing

The future of claims is here, and it’s paperless. While online claims save time and provide instant customer gratification, it also means you miss out on the old way of doing business – face to face – where you could once observe your customer’s nonverbal cues to assess the legitimacy of the information. Simply put, AI-powered fraud detection can read the “digital body language” of a user to anticipate their motives.

The Biggest Fraud Challenges Facing the Insurance Industry

Insurers have used predictive analytics to spot fraudulent activity for hundreds of years. And traditionally, this has been done face-to-face, or at the very least, over the phone with a slow process that hasn’t gotten much faster in decades. 

The problem here is twofold: 1) The outdated underwriting process takes too long for the modern, fast-paced consumer, and 2) As companies attempt to move online for faster processing, fraudulent activity is harder to detect.

The modern consumer is groomed to expect immediate results, and the insurance industry is not immune. But the good news is that when users engage with your digital forms and applications, they leave behind behavioral breadcrumbs that tell a story about their intent.

ForMotiv captures hundreds of these unique behavioral cues, consisting of thousands of behavioral micro-expressions, while users are active on your website and forms. Using advanced artificial intelligence, we’re able to read this “digital body language” to predict your user’s intent. For instance, are they genuinely interested, confused, or showing fraudulent behavior?

From there, our solution enables companies to create dynamic experiences that adapt and nudge users, in real-time, based on their behavior to drive their desired outcome. 

With ForMotiv’s lightweight technology, your site can be fully equipped to detect fraud in just one hour. Head here to learn more about how it works today.