In the era of digital transformation, the life insurance industry is facing a growing threat: fraud. With the cost of fraud to the industry exceeding $74 billion annually¹, it is crucial for insurers to find a balance between detecting and preventing fraudulent claims and applications while still providing a positive customer experience. To gain insight into this issue from a member’s point of view, we interviewed Susan L. Mayer, FALU, FLMI, Vice President & Chief Underwriter at Hannover Re US. Hannover Re US is the North American life and health reinsurance subsidiary of the Hannover Re Group, one of the largest and most financially sound professional reinsurance groups in the world. With over 30 years of industry experience, including 18 years in reinsurance, and a background in medical and financial risk underwriting, Susan offers a unique perspective on fraud detection and prevention.

MIB: What are some of the bigger challenges facing the life insurance industry in today’s marketplace, as it pertains to fraud?

Susan: The life insurance industry has gone through a major transformation over the last 10 years. This includes the advent of accelerated underwriting and digital applications, not to mention direct-to-consumer platforms coming to the market with fully digitized processes allowing an individual to get a life insurance policy within minutes, on their phone. While these innovative strategies have been exciting to watch unfold and have brought much needed improvement to the process, they have not come without challenges, especially when it comes to fraud. We are seeing this manifest in several different ways, from pure anti-selection and nondisclosure of material information to new pathways for organized groups to coordinate fraudulent activities. We must be diligent in recognizing these risks and use every tool in our arsenal to combat these deceptive practices.

MIB: What do you recommend carriers do to mitigate these challenges?

Susan: Carriers can implement multiple measures (too many to mention here) to effectively address these challenges. This includes some of the basics that have been around since the early 20th Century, like MIB Check (MIB Checking Service within Code Solutions), which has always been an important piece of the underwriting process. It has now become a critical component, table stakes per se. We must have this first layer of defense in place and understand how best to utilize the information in the underwriting process. Other key elements here are robust application questions (and dynamic reflexive questions) to give the applicant every opportunity to provide proper disclosure of their information, as well as reconciling the disclosures back to other data obtained during the underwriting process. The importance of monitoring and management of the business cannot be underestimated. Carriers must implement a process for risk management to include monitoring of key elements of the business, a clear understanding of the data, a regular feedback loop and comprehensive reporting.

MIB: How do MIB services help carriers monitor business to help detect and prevent fraud in the underwriting process?

Susan: As noted, monitoring of the business is essential to combat fraud in today’s environment. MIB Plan-F is a crucial piece of this process, often providing the first indication of fraudulent behavior. With this low cost, highly credible tool, carriers can investigate potential material misrepresentation and act quickly to mitigate any future risk. Historical data would indicate the savings to be in the millions of dollars in potential claims payments from this ‘first clue’’ tool.

MIB: What is the challenge that insurance carriers face in the digital era and how can MIB tools help combat that problem?

Susan: In this digital era, an individual can complete several applications, with multiple carriers, within minutes. The fraudsters, those individuals looking to select against carriers, are able to stress test carriers’ processes and underwriting outcomes based on their application disclosures. IAI is another tool that has been around for years but has become increasingly important as we work through these challenges. We have seen in the data that as the number of IAI hits increase, so does the concern for adverse outcomes. Carriers can utilize this information in variety of ways, including building rules around number and frequency of hits, as well as using it to monitor placement of business.

MIB: What additional innovations do feel MIB and the industry should consider to further combat emerging fraud trends, while supporting advancement of accelerated or automated underwriting programs?

Susan: We have worked through a significant amount of change as an industry. MIB has always been at the forefront of looking for ways to mitigate fraud and has introduced new products to assist in this process (most recently MIB Total Line Service). We need to continue to be diligent in monitoring the business, using all aspects of the data to quickly recognize trends, and adapt and make changes as necessary, to continue to strengthen our efforts against fraud. It is imperative that we consistently explore new data sources and technologies to support our ongoing efforts.

MIB: How do you feel all of what you shared benefits the end consumer or the insured?

Susan: We must do everything we can to protect our clients. The impact of fraud in the life insurance industry is substantial, with numbers in the billions of dollars. At the end of the day, this is passed on to the end consumer in the form of higher premiums. We must vigorously pursue rescissions as warranted, while maintaining consumers’ trust that legitimate death claims will be paid, a tricky balancing act. Lastly, in parallel with finding ways to combat the burden of fraud, we must advocate for our current and potential policy holders with our legislators and industry associations, making sure we are a strong voice to protect their interests.

MIB Solutions

MIB is committed to providing the risk assessment services the industry has relied upon for over 150 years, while delivering new innovative solutions that meet your evolving needs. Together, our Code Solutions and In Force Data Solutions provides unique insights to facilitate underwriting risk assessment and fraud detection to enable our members to issue insurance policies with confidence. Services in these portfolios help our member companies:

• Uncover potential application inaccuracies - MIB Checking Service
• Identify frequent application activity – Insurance Activity Index (IAI)
• Continue to monitor for misrepresentations – Follow-Up Service (Plan-F)
• Understand total coverage exposure and monitor adverse behavior Practices – Total Line Service

¹https://www.forbes.com/advisor/insurance/fraud-statistics/