Agape Blog

Overview: Insurance Industry

The insurance industry continues to brave the challenges of reducing costs and sustaining growth whilst responding to regulatory pressures, compliance issues and the increasing demands of the market. Our Insurance Business Unit offers integrated IT solutions and services spanning business consulting, requirements definition, technology assessment, solution architecture design, development, implementation and support.

India is considered the largest business area to the insurance industry for national as well as foreign investors. It is due to larger population and late privatization of this industry. India is the fifth largest life insurance market in the emerging insurance economies globally and is growing at 32-34% annually. This impressive growth in the market has been driven by liberalization, with new players significantly enhancing product awareness and promoting consumer education and information. The strong growth potential of the country has also made international players to look at the Indian insurance market. Moreover, saturation of insurance markets in many developed economies has made the Indian market more attractive for international insurance players, according to “Booming Insurance Market in India (2008-2011).”

Total life insurance premium in India is projected to grow Rs 1,230,000 Crore by 2010-11.
Total non-life insurance premium is expected to increase at a CAGR of 25% for the period spanning from 2008-09 to 2010-11.

With the entry of several low-cost airlines, along with fleet expansion by existing ones and increasing corporate aircraft ownership, the Indian aviation insurance market is all set to boom in a big way in coming years.

Home insurance segment is set to achieve a 100% growth as financial institutions have made home insurance obligatory for housing loan approvals.

Health insurance is poised to become the second largest business for non-life insurers after motor insurance in next three years.

Virtually every enterprise is affected by losses due to fraud, but industry segments that process large numbers of transactions are particularly vulnerable. Every day, the number of electronic transactions continues to grow, increasing both the potential risk of fraud and the potential size of fraud losses. Analyzing the large volume of data from these transactions to detect fraud and abuse is simply beyond the ability of human beings, however skillful they may be.

Insurance fraud costs the average American household more than $5,000 a year in the form of higher premiums and prices for goods and services, according to Insurance Fraud: Renewing the Crusade, a recent study from Hartford, Connecticut-based Conning & Company. In 1999, consumers paid an estimated $96.2 billion in increased premiums and more than $530 million in the increased cost of goods and services–all thanks to fraud.

We all pay for the cost of crime, and preventing it is much more appealing for insurers than accounting for it after the fact. Insurance losses related to crime and abuses are factored into companies’ rates as a cost of doing business.

Relatively few instances of fraud affect the balance of the companies’ customers. Insurers have implemented sophisticated and powerful computer systems to try to accurately identify the losses as soon as possible after they happen, and factor them into their rates through timely accounting of the losses of those few.

Recovery of the losses after the fact does not happen as quickly as the loss itself, since new rates must cycle through the natural course of business as new policies occur and old ones are renewed; and you don’t just add in the real costs, they have to be factored into the rates carefully, after considering competitive and shareholder concerns as well. Powerful actuarial resources are in place to forecast and predict the necessary reserves to protect the insurer against these few potential losses from crime and abuse. This is really a form of accounting for crime that is expected to happen. What about preventing it before it happens? A recent study revealed that 10-15 percent of insurance premiums fund the North American $40 billion insurance fraud tab, not including the accompanying investigation expenses and legal fees.

Fraudulent claims are not only very expensive, they are also one of the most frustrating and aggravating elements of the insurance industry. Conventional wisdom in the industry states that 10 to 20 percent of all indemnity is fraudulent. The percentage of claims which are detected or denied ranges from 1 to 5 percent, suggesting improvements are to be gained. This gain heads straight for profit line of the insurer’s balance sheet. For many of the major insurers this gain means millions to hundreds of millions of profit not being pursued. Even a small improvement of a few percentage points is significant, and the potential for improvement is much greater.

FSA to examine the steps taken by Claimant Insurers to combat fraud, the following results were found:

Reducing or controlling this significant amount is worthy of proactive investment by insurers. Just as public law enforcement agencies continually search for tools and techniques to help them prevent crime, Special Investigative or Security Units of insurers can also use a helping hand. Tools are important, and the raw material is under their noses. In addition to currently available external industry claims data bases, insurers have a very powerful resource within their own computer data centers, their own operating data.

For many insurers, fraud investigation is handled in a responsive and reactive manner, when claims administrators are suspicious of a claim, they inform their supervisor. The supervisor reviews the information, and if the supervisor feels the claim warrants investigation, it is forwarded to the SIU or Security Unit, The investigative/security unit reviews the information to determine whether to accept the claim for investigation, the investigators have at their disposal specialized investigative techniques and artificial intelligence software products to perform their research.

However, this inspection is focused on specific individual cases or at a small number of claims. Any proactive initiative is completely dependent on the experience or inquisitiveness of the person initially processing the claim(s). Fraudulent intentions are difficult to detect on individual basis, unless blatant. Trending insights are not available. Dormant exposures are not visible, Abusive patterns are not obvious.

On the other hand, timely and easy access to enterprise operational data which is integrated and complete will enable the fight against fraud to be powerful and more effective. An insurance data warehouse which contains organized detailed historical data will provide fraud fighters with a very powerful weapon.

Uncovering fraudulent claims requires extensive data gathering and analysis. Often the information is difficult and time consuming to obtain. It has to be manipulated into an environment that accommodates an analytical process - a data warehouse. Further, the information is time sensitive in many cases, and there is the need to acquire it in an efficient manner. There needs to be sensitivity to the confidentiality of the data collection process, and this is difficult in the environment currently in place in most organizations.

Finally, the investigation & security staff has a requirement to ask their questions and receive answers in a timely manner, while they are in the midst of a certain thought process. It is a heuristic process. Answers lead to more questions, and so on. How can a data warehouse help fight fraudulent claims or exposures? The ability to identify or detect an investigative path and to follow this path is a primary benefit.

Agape Fraud Management Solution:

Agape proprietary method for fraud investigation, particularly cyber forensic investigation, digital data recovery, verification of tempered digital image, evidence gathering from the data warehouse is effective and admissible in the court of law.

Agape Fraud Management Services collect, asses and analyze facts, build chain of events, document significant facts, model scenarios. Also committed with following objective:

·        Identifying opportunities for fraud and corruption;

·        Implementing risk management, prevention and minimization procedures in day to day operations;

·        Execute procedures to investigate allegations of fraudulent or corrupt behavior;         

·        Reacting appropriately to situations where fraud or corruption allegations are found to be true;

·        Providing appropriate training and promulgating relevant codes of conduct to ensure employees and contractors are aware of their responsibilities in combating fraud and corruption; and

·        Ensuring an environment in which fraudulent or corrupt activity is discouraged.

Conclusion:

Fraud management is the need in present scenario for the insurance industry, evidently after over viewing of the whole document and IT adoption level in this industry demanded the need of computer forensic and analysis of massive digital data to fulfill the purpose. Besides, review of the policy, compatibility with current complex environment and evaluation of control system is inevitable part in the fraud investigation.   

Author: Prabhat Tiwari
(Manager: Fraud Management services, AGAPE INC.) 

The digital age has brought many advantages to individuals and businesses alike since it started. However, it has also brought a whole host of problems with it as well. More people can tap into technology for fraudulent or criminal means, which has, of course, made business far more vulnerable than it ever has been before. This is why the idea of using digital forensics in the public sector has become more and more prevalent over the past few years.

Specialists in digital forensics can determine whether any incident of misuse or criminal activity has taken place on a computer which enables the company and the police if necessary to take the appropriate action. Outsourcing such work is actually more cost effective than running internal departments.

It is not just employers that may benefit from digital forensics in the public sector today though. It may also help employees to prove their innocence in terms of an allegation that has been made and has essentially been reason for the termination of employment.

I just found a very useful white paper, which explains the top tips when collecting electronic evidence for . I hope this helps all the cyber forensic investigators.

Here’s the link to the white paper: http://www.forensics.com/pdf/Top_Ten.pdf