Personal Lines Insurance Fraud Losses to Rise in 2013: FICO

One in three insurers does not feel adequately protected against fraud, according to a new survey of U.S. and Canadian insurers by FICO, a predictive analytics and decision management software company.

Premium leakage and new applications were the most vulnerable areas, insurers revealed.

In the survey, which focused on insurance claims fraud, 35 percent of insurers estimated that insurance fraud costs represented 5 percent to 10 percent of their total claims, while 31 percent said the cost ran as high as 20 percent. More than half (57 percent) of insurers expected to see an increase in fraud losses this year on personal insurance lines.

In the United States, 42 percent of insurers expected the Mid-Atlantic States — New York, Pennsylvania and New Jersey — to be the hardest hit by personal lines fraud.

In Canada, 42 percent of insurers expected Quebec to be the hardest hit by personal lines fraud, and 39 percent expected Ontario to be the hardest hit.

Respondents expected the biggest fraud loss increases to hit personal property, workers’ compensation and auto insurance. Fifty-eight percent of insurers forecast an increase in personal property fraud, 69 percent forecast an increase in workers’ compensation fraud, and 56 percent forecast a rise in personal auto fraud. The majority of insurers (51 percent) attributed the increases in fraud to inconsistent economic recovery in low-growth areas.

While only 11 percent of insurers blamed the expected growth in fraud on the increasing sophistication of criminal rings, at the same time, 55 percent saw a rise in workers’ compensation fraud rings, and 61 percent saw a rise in auto fraud rings.

The survey also found that 63 percent of insurers believe there was an increased risk of fraud in no-fault states compared to states with tort systems. No-fault insurance has come under fire in recent years due to spiraling medical costs (40 percent more than in states with tort systems) and rampant fraud.

When asked about how to fight the rise in fraud, the majority of respondents (20 percent) cited predictive analytics. Insurers also included the use of anti-fraud teams for specific books of business (17 percent), link analysis for detecting fraud (8 percent), and business rules for stopping known fraud types (7 percent) as useful fraud-fighting approaches.

The Insurance Fraud Survey included responses from 260 insurers throughout the United States and Canada who were surveyed in July 2013.