How increased digital activity is expanding insurance fraud risk

What insurers need to know about digital payments, apps and other risk vectors

Since March, how we do business has changed at a rapid pace. As business evolves toward a “paperless” world, so too does our form of payments. Digital payments allow for transactions to be executed anytime, anywhere, from any device. This not only provides ease for consumers, but for businesses as well. A recent article found that, in the US alone, digital payments totaled $979 billion in 2019 and were forecasted to grow globally to $6.7 trillion by 2023 — and that was before the pandemic outbreak. Now, with Coronavirus heavily impacting the world and our future way of life, the use of hands-free digital payments is paramount, and the potential for fraud has never been more pronounced.

The insurance industry is particularly vulnerable to threats stemming from digital payments. A software company that works to identify and prevent fraud processed 10 billion transactions from 2018 to 2019. They found that 9.14% of the insurance industry transactions were risky, compared to 5.09% across all other industries. As the number of people making payments via their insurance company’s app increases, so too will the challenges insurance companies face. Following is a list of the top fraud challenges that have been identified facing insurance companies today:

1. Identity Theft
   Fraudsters are now able to hack into consumer’s devices and access personal information such as name, address, email, and banking / credit card information, leaving consumers susceptible to fraudulent transactions.
2. Phishing
   Due to the uncertainty that comes with the pandemic, people are receiving various phishing emails claiming to contain new information regarding their policies and coverages. This leaves people susceptible to mistakenly entering sensitive information into a branded, but fraudulent, website and having that information stolen.
3. Application Fraud
   Application fraud occurs when a fraudster creates an account using stolen personal information. The fraudster could obtain someone’s personal information through identity theft or phishing. Once the fraudsters have established a policy and its named beneficiaries, they then file claims to the benefit of those beneficiaries.
4. Bad Debt Fraud
   Bad debt fraud occurs across all industries. Within the insurance industry, this form of fraud can occur when an insurance company provides coverage without receiving any payment.
5. Claims Fraud
   Claims fraud occurs when the policyholder lies about a claim. This could be either exaggerating a claim or fabricating one entirely. With pandemic-related travel restrictions, claims adjusters must rely more on photographic or video documentation to assess a claim and any payments related to same. With policyholders capitalizing on this aspect of the pandemic, the risk of falsified claims — via the submission of doctored and/or unrelated documentation — is increased.
6. Fake Portals
   Fraudsters create fake online insurance portals for payment. These fake insurance portals sell phony insurance policies to people who are unaware of the difference between real and fake 65u. As a result, the fraudster will not only receive personal information, but also payments for the phony policy. Additionally, this will cause the policyholder to not have any coverage at all, and the insurance company loses a potential customer as well.

What insurers and customers should do now

The easiest way for insurance companies and policyholders to protect themselves from the threat of fraudsters is to keep their security systems up-to-date and to continuously run security checks. Ensuring that your systems are secured with firewalls and other perimeter defenses, implementing anti-virus and anti-malware technologies, deploying intrusion detection/prevention systems and configuring endpoint detection and response (EDR) technologies have become mandatory minimums to mitigate the potential for system compromises.

Once these baseline controls are implemented, have been operating for a period of time and are periodically vetted by an independent group, insurers should think about other internal controls improvements. Such improvements build on these baseline controls and may include data mining, machine-learning algorithms, predictive models and even artificial intelligence technologies to aid in identifying suspicious account activity.

Ultimately, Grant Thornton believes these key items can help mitigate the risk of fraud for both insurance companies and policyholders:

1. Performing fraud risk assessments:

• Grant Thornton and the ACFE co-authored an anti-fraud playbook, designed to provide a roadmap for organizations to effectively mitigate fraud risk within their organization. This is a free resource for insurance companies to leverage, and it provides insights into the effective internal controls referenced throughout this paper. Internal Audit departments can play a role in the validation and effectiveness of these controls through testing and monitoring.
• It is our opinion that in the current COVID-19 environment, an effective strategy to combating fraud includes conducting fraud risk assessments. Industry data suggests organizations that conduct fraud risk assessments shorten the duration of fraud occurrence and lessen the loss when fraud occurs.

2. Encrypting emails and transactions containing confidential information:

• Encrypting your emails and transactions, while it will not eliminate fraud entirely, is one of the best ways to fight the fraud challenges listed above. Encryption helps protect your private information and provides insurance that the emails and transactions you are receiving are authentic. Encryption provides other benefits as well, including reducing cost and time in your day-to-day operations, and allowing your organization to comply with a host of privacy-related regulations dealing with securing transactions and sensitive personal data.

3. Continuing to educate yourself on the current fraud trends and impacts:

• Stay on top of fraud developments. One place to start is the Federal Bureau of Investigation website. Here, you can find news, updates and real-life fraud examples to help you be aware of today’s fraud climate. Other great resources include: the ACFE website, ACFE Report to the Nations and the National Insurance Crime Bureau website.