This post is part of a series sponsored by Cotality.
Crime thrives in chaos, making natural disasters the perfect backdrop for insurance claims fraud.
When the ashes have settled after a wildfire or when hail stops falling and flood waters recede after back-to-back severe storms, it is convenient — tempting, even — for some homeowners to submit exaggerated or downright fabricated insurance claims.
According to the National Insurance Crimes Bureau, fraud accounts for 10 percent of the claims paid out following disasters. In total, fraud costs insurers, and indirectly policyholders, $45 billion annually. And it’s getting worse. Not only are disasters themselves becoming more unpredictable and destructive, but the AI tools available at peoples’ fingertips are making it easier to create false yet authentic looking claims documentation.
Perpetrators often view claims fraud as a victimless crime. They figure that a few harmless lies are worth securing payments for damage that didn’t happen when they say it did. Maybe the storm happened before they had coverage.
Perpetrators often view claims fraud as a victimless crime. They assume a few small lies are worth telling, so they can secure payment for damage that didn’t occur when they say it did. Perhaps they figure that there’s no way for an insurer to tell that hail struck their roof before they actually had coverage.
What many people don’t realize is that the growing number of fraudulent claims over the past decade has made it increasingly difficult for insurers to offer widespread, affordable coverage.
In order to close the growing insurance gap, insurance providers must first be able to identify and combat insurance fraud.
Insurance fraud is the first hurdle to clear
Many factors that fuel the ongoing insurance crisis are beyond our control. For instance, there was no way for any insurer to prevent any of the natural disasters that paralyzed U.S. regions in recent years.
Fraud, however, is a different story. Claims deception is a major driver of the insurance crisis, and one that individual companies can address immediately. Tackling it head-on is the most direct and impactful way for insurers to position themselves to offer more widespread, affordable coverage — even in high-risk regions where fraud is rampant.
Fortunately, it’s almost as easy to do as it is to say. Combating claims fraud doesn’t require more boots on the ground; insurers just need the right digital infrastructure.
With the influx of claims after disasters, insurers need systems to quickly pinpoint where and when damage occurred. They also need to shorten claims lifecycles and keep their most experienced claims professionals available to scrutinize questionable claims when digital overview isn’t enough.
With forensic data and digital automation solutions, insurers can build claims verification and validation workflows that fraud cannot penetrate.
How to build ironclad claims processes to block claims fraud
There are a couple of approaches to arm your claims processes against fraud:
- Verify storm-related damage with trusted forensic weather data
- Automate the validation process
Leveraging forensic storm data to filter out fraud
Forecasting information is essential to prepare for incoming destructive perils. But it is forensic weather data that reveals discrepancies between asserted claims and the actual weather event realities.
For example, with the scattered, frequent, and increasingly damaging nature of severe convective storms, it is important to pinpoint exactly when and where destructive hail falls. Also important is determining the speed of associated winds. The average hail claim amounts to thousands of dollars, making it critical for insurers to ensure they only pay for properly insured properties.
Forensic data-driven solutions like Cotality™ Weather Verify produce the insight reports that claims professionals need to accurately and confidently differentiate between legitimate and potentially fraudulent claims. Verify™ delivers more accurate footprints of hail, wind, and lightning storms, enabling insurers to clearly distinguish between past and current hail events. This reduces a bad actor’s ability to successfully submit a fraudulent hail claim.
Verify generates these insight reports at First Notice of Loss, using a blend of peril verification methods to confirm the magnitude and location of the storm’s impact. Instant distinction between valid and fraudulent claims reduces fraud risk. It also facilitates more efficient claims processing.
Automate validation processes without compromising accuracy
The longer it takes an insurance company to resolve claims after a natural disaster, the greater the potential for claims fraud.
Cotality™ Claims Validate™ shortens the claims lifecycle by automating every step of the estimate review process, using rules engines to assess documentation. When an estimate doesn’t qualify for straight-through processing, the system flags discrepancies and prompts human review.
Because Validate’s rules engine is customizable, any insurer can tailor the system for its unique fraud reality. For example, if a carrier knows fraud is more likely in certain areas or scenarios, Cotality can configure the system to require a higher confidence score in those cases.
Shortening claims lifecycles and alerting insurers when a claim needs human scrutiny, Validate™ ensures that no evidence of fraud creeps in before a policyholder receives payment.
Act against all forms of insurance fraud today
The insurance crisis demands action, and the most logical place to start is by checking fraud.
Cotality’s Verify™ and Validate™ products have been designed to reduce fraudulent claims.
With fraud projected to get worse, a successful claims operation hinges on identifying and thwarting deception before it gets too far.
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Topics
Natural Disasters
Claims
