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Fraud is a growing concern in the Life & Health Insurance market, impacting both insurers and policyholders, and the Canadian market is no exception. Continuing economic stressors combined with ever-expanding digitization may lead to an increase in both opportunistic fraud and sophisticated schemes (Figure 1). To explore the market’s experience and approaches to fraud risk management, we reached out to our Canadian clients with a targeted survey.
Our fraud awareness survey obtained data from 11 companies that offer a variety of Life, Health, and Disability products. The detailed feedback we received on fraud exposure, detection, investigation, and resolution proved extremely valuable in highlighting best practice. It also pinpointed opportunities where the market could boost its response to fraud.
Here is a snapshot of our findings, across key themes.
The types of fraud encountered most frequently are foreign death claims; non-disclosure or material misrepresentation at application stage; fraud on the policy outside the contestable period; and concealing gainful employment or a higher level of functioning during a disability claim.
Every insurer participating in our survey takes fraud detection seriously. For example, all have anti-money laundering policies in place and measures to identify sanctioned countries or individuals; all instigate special review processes for deaths that occur abroad.
However, only half have sophisticated processes and systems in place to support the detection of identity fraud or accounts associated with fabricated/fake identities. Considering the prevalence of identity theft, account takeovers, and synthetic identities, a comprehensive “Know Your Customer” process is essential to protect both insurers and their customers.
In the context of accelerated underwriting (used by all survey respondents), 90% have controls in place to identify questionable policies and/or applications. These detection methods vary significantly in terms of their sophistication, from manual spot checks to system automation and artificial intelligence (AI) approaches. Only 60% conduct post-issue audits to ensure that there are no concerns with recently issued insurance policies.
When it comes to claims adjudication, all have specific procedures in place that guide claim professionals on how to investigate suspicious claims. However, these procedures all rely heavily on manual identification of suspicious indicators. Only a quarter (25%) have introduced some form of AI/rules-based automation to support the claims team in detecting fraud. This is noteworthy when we consider that respondents cited a lack of automated resources and insufficient staff awareness as a top factor increasing their exposure to fraud.
Two thirds (67%) of the insurers in our survey have an in‑house fraud team and almost all (90%) make use of third-party services when required. While only one participating company expects to increase its fraud staff headcount in the next year, it is encouraging to see that half (50%) expect to increase their overall fraud prevention budget. None will decrease their spending in fraud risk management (Figure 3).
The most common vendor services used are surveillance, field investigations, desktop investigations, and digital tools or platforms. Although two thirds (67%) use field investigations, one third (33%) do not make use of surveillance, even on questionable claims. We think it’s important to continue to use robust processes for vetting and monitoring third-party resources and measuring success with regard to service level agreements, quality, and compliance.
Overall, access to reliable information sources and data analytics is a vital part of any due diligence process. We recommend maintaining a regularly updated internal database of suspicious indicators and trends (Figure 4). We also encourage clients to explore suitable options for vendor resources, data platforms, social media vendors and document analysis. The Gen Re team is familiar with a variety of information resources and fraud mitigation platforms, and we are happy to discuss potential options.
All but one of the survey respondents compile annual fraud statistics and 63% report these to a regulatory body or industry group (Figure 5). However, there is no central database for reporting Life & Health Insurance fraud and as a result obtaining industry-wide trends and statistics is a challenge. We believe that detailed tracking and appropriate reporting is an important part of any fraud mitigation framework. This data helps to define the scale and scope of potential concerns, and often helps drive strategy. We encourage the stakeholders in the Canadian market to consider this as an area of opportunity.
All have a whistleblowing or fraud hotline in place that allows individuals to inform the company of any suspected fraudulent behavior. Canadian insurers conduct periodic internal fraud risk assessments, most on an annual basis.
All participants train their adjudicators to identify suspicious claim indicators. Most training is performed on an ad hoc basis or as concerns arise.
To keep staff up to date, formal fraud awareness training should be renewed on a routine basis, not just at the time of onboarding. Gen Re is keen to support our treaty clients with their training needs and has several resources and courses available. If you are interested in training related to fraud risk mitigation, please reach out to the author or your local Gen Re representative.
Insurance fraud risk management is a constantly evolving challenge for all insurance companies, driven by diverse factors and perpetrated in an increasingly digitized environment. Life and Disability insurers are no exception.
This is why Gen Re devotes significant resources to providing advice to our clients on all aspects covered in our survey. Please don’t hesitate to contact us if you want to explore in greater depth any of the issues we’ve highlighted here.
We extend our thanks to all the survey participants for sharing their valuable insights with us.
