The Dark Side of Digital Insurance Applications

As insurance carriers continue rolling out digital applications, it is now evident that they come with a new set of risks resulting in higher insurance application fraud. The faceless nature of digital applications has led to an increase in application misrepresentation, premium leakage, non-disclosure, and fraud, and the problem is getting worse. Studies suggest that application integrity is down over 20% in the last decade, and that number is surely rising. 

Carriers are now faced with a difficult task – how to ensure that customers accurately represent their risk profile when submitting an application online while still maintaining a frictionless user experience. After all, speed is critical for winning business, as customers are willing to sacrifice higher premiums for quicker policies. 

Let’s take a closer look at each of these problems to better understand how they are impacting the insurance industry.

Insurance Application Fraud

Applicant Misrepresentation

One of the most common issues when it comes to digital applications is application manipulation and misrepresentation. When customers apply for insurance coverage online, they have the ability to easily provide false information or omit important details about themselves in order to try and get lower rates or avoid being denied coverage altogether. This can lead to serious problems for insurance carriers who are relying on accurate information from customers in order to make informed decisions on policies. 

Premium Leakage

Another issue that can arise is premium leakage. This occurs when an insurer charges too little for coverage due to an inaccurate risk assessment caused by a lack of data or incomplete application forms. This can lead to significant financial losses for an insurer if not addressed properly.

In auto insurance alone, it is estimated that carriers collectively lose $30 billion a year in premiums due to leakage. 


Similarly, in life insurance, insurers need accurate information in order to assess risk properly and determine appropriate coverage levels for customers. Without this information, insurers may be exposed to fraudulent claims, which could result in costly settlements or even criminal charges if not addressed quickly and appropriately. 

Customers who do not disclose all pertinent information, such as medical history or tobacco usage, may be able to receive lower premiums than those who are honest about their health status or other factors that could increase risk levels.

It’s estimated that 7% of life insurance policies are written with some type of non- or under-disclosure. But more importantly, by the time these non-disclosure policies mature into claims, they account for roughly 17% of total claims, costing carriers billions. Smoking non-disclosure, for example, is estimated to cost carriers $4 billion a year. 

Insurance Fraud

Online applications make it easy for people to submit false information without raising any red flags. This includes falsifying personal information such as name, address, and medical history, as well as lying about the purpose of a policy. For example, someone may apply for life insurance with a pre-existing condition without disclosing it to the carrier, or apply for car insurance and fail to disclose a recent accident and quickly file a claim.

Digital applications also provide an easy way for people to access confidential customer data, which can be used for identity theft or other fraudulent activities. 

How to Combat Insurance Application Fraud & Prevent Misrepresentation, Premium Leakage, Non-Disclosure, and Fraud

The usage of third-party datasets such as CLUE and MVR reports in auto insurance and Rx and Electronic Health Records in life insurance has been around for a while. Companies like LexisNexis, Experian, Transunion, Verisk, HumanAPI, MIB, and others have long been the gold standard when it comes to 3rd-party data checks. The challenge is that they are expensive, often outdated or inaccurate, and can be difficult to parse.

With that, carriers are searching for new sources of truth, solutions, and datasets to help them combat the rise in risk they’re facing. Here are some of the more advanced examples of what carriers are using to combat their growing fraud problem. 

Big Data Analytics 

Carriers increasingly rely on big data solutions to detect potential patterns of criminal activity. These tools can be used to analyze historical claims data as well as workflows and processes related to claims processing. They can also help identify suspicious behavior such as unusually high claim amounts or multiple applications for the same policy with different names or addresses within a short period of time. Using these tools, insurers can quickly identify potentially fraudulent activities and take appropriate action. 

Identity Verification Services 

Identity verification services are another valuable tool that insurers can use to combat digital application fraud. These services allow customers’ identities to be verified quickly and accurately using biometric data such as facial or voice recognition, ensuring that only genuine customers are accepted into the system. 

Companies like NuData, BioCatch, Behaviosec, and SecuredTouch are growing in the identity verification space due to their advanced biometric capabilities and user authentication prowess. This helps reduce instances of identity theft while also improving the customer experience by eliminating manual forms and paperwork from the process. 

Real-Time Behavioral Intent Data

How an applicant answers a question is often far more telling of the veracity of the data than simply what the final answer they submit is. 

Behavioral data science companies such as ForMotiv are now commonly used by carriers across 1B+ applications to understand digital behavior and intent. This unique, first-party data is being leveraged in real-time to identify risky behavior during the application process and used to triage applications during the underwriting process. 

ForMotiv has proven highly effective at uncovering and preventing misrepresentation, premium leakage, and non-disclosure, saving carriers millions.


Digital insurance application fraud is a growing problem for the global insurance industry, costing billions of dollars in losses every year. To fight back against this threat, insurers must make use of the more advanced tools and solutions available today. 

To learn more about the ways leading carriers are leveraging Real-Time Intent Data, schedule a demo