Despite technological advancements, fraud in the insurance sector has been at an all-time high. Whether it’s fraudulent claims, policy hoppers, or identity theft, insurers face an uphill battle. As one of the most data-intensive businesses in the world, with billions of premiums being processed every year, there is a huge need for fraud detection and prevention. In recent years, Artificial Intelligence (AI) has emerged as a powerful tool for detecting and preventing fraud, and insurers now have numerous avenues to combat it.
AI can automate the claims process, which can help reduce fraudulent claims, monitor customer behavior, and identify abnormal activity that may be indicative of fraud. Unlike traditional fraud detection methods, which are based on historical data and patterns, AI can be used as a groundbreaking tool helping firms modernize, increase efficiency, improve customer experience, and lower overhead costs.
AI techniques in insurance fraud
Fortunately, there are newer, more effective ways to detect fraud and organizations can use several AI techniques to detect insurance claim fraud, such as:
- Machine learning algorithms can be used to automatically identify patterns of fraud in historical data. It helps detect fraud by analyzing large data sets to find patterns and anomalies. This data can then be used to train a model to flag potential fraud in future data. For example, a machine learning algorithm might be able to detect that fraudsters often submit a certain type of claim.
- One of the most popular machine learning algorithms for fraud detection is the Support Vector Machine (SVM). SVMs are a type of supervised learning algorithm, which means they require a dataset of labeled examples (i.e., fraud vs. non-fraud) to train on. Once trained, the SVM can then be used to classify new examples. Other popular machine learning algorithms for fraud detection include Random Forest and Logistic Regression. These algorithms are also supervised learning algorithms and require a labeled dataset for training.
- Natural language processing (NLP) can be used to analyze large amounts of data to identify fraud patterns. For example, NLP can identify unusual claim activity, such as a high number of claims being filed in a short period of time and irregularities in the language used in claims, which can be a red flag for fraud. It can also analyze customer reviews to see if there are any negative sentiment indicators.
- Predictive analytics uses historical data to predict future fraud trends. This information can be used to target areas or customers that are more likely to commit fraud. It helps insurers to identify high-risk customers and policyholders. This information can be used to adjust premiums and deductibles or to refuse coverage altogether. Insurers can save millions of dollars annually by taking proactive steps to prevent fraud.
- AI-powered engines can perform authorization rather than depending on obsolete security measures like passwords and OTPs that are susceptible. Biometrics based authentication like voice, fingerprint, face scan can be set up for authentication thus preventing identity theft.
AI-based fraud detection systems can work real time on large sets of data thereby, proactively detecting fraud rather than tackle it after it’s done, helping insurers save money and resources. Among the many advantages of AI, preventing fraudulent claims is undoubtedly one of the groundbreaking applications, empowering firms to modernize their existing processes, have accurate pricing, lower overhead costs, and enhance operational efficiency. With the right mix of solutions, training, and technologies, insurers will have a competitive edge while ensuring increased customer satisfaction and trust.
(The author is Anuradha Balasubramanian is General Manager for Insurance and Fintech business at Accolite Digital, and the views expressed in this article are her own)
