The life insurance industry faces serious challenges from fraud, misrepresentations, and anti-selection. The financial consequences of these issues, with losses estimated at $75 billion annually, lead to reduced profitability and hinder the industry’s ability to offer affordable protection to families seeking financial security and peace of mind.
MIB and RGA have been working together to gain deeper insights into the effects of fraud within the industry. Recently, we conducted a comprehensive survey asking carriers to provide their views on the extent of fraud, typical mitigation strategies, and the difficulties encountered in fighting fraud, building upon research released earlier this year. Preliminary results from this survey were shared in a presentation at the RGA Fraud Conference this past summer, and full details are now available here.
The key findings of this research demonstrate a strong shared concern over the impact of fraud across the industry, one that is intensified as use of accelerated underwriting and online distribution expands.
Types of fraud:
Carriers were asked to rate their level of concern about different kinds of fraud, and their view on the level of difficulty to detect each type and expense to mitigate. Top 3 results for each are below:
Of most concern
Seen as most difficult to detect
Most costly to detect and combat
Most common types of misrepresentation
When asked what type of fraud is most commonly discovered, respondents listed tobacco use most frequently, followed by medical misrepresentations. See the below chart for additional results:
Concern about fraud drives risk mitigation measures for accelerated underwriting
The survey took a deeper dive into the risk of fraud for automated underwriting (AUW) or online distribution. Not surprisingly, carriers perceive increased risk when AUW or online distribution is used. An estimated 22% of cases on average are kicked out of AUW due to discrepancies between the applicant’s disclosed information and evidence collected, indicating potential fraud. In response, carriers are taking steps to mitigate this risk.
Carriers are staffing up to help prevent fraud
On average, carriers have 5 FTEs dedicated to fighting fraud, which is up from 1 FTE as measured by a previous RGA survey in 2016.
Additionally, 84% of respondents have designated individuals or teams for fraud investigations and 52% have a Special investigation Unit.
Tools used to help detect and prevent fraud
Underwriting continues to be the first line of defense in the detection and prevention of fraud, including agent fraud. To ensure underwriters are prepared to the task, insurers are enhancing training to identify red flags and continue to leverage MIB databases.
Uptake in use of Algorithms or analytics
Insurers continue to look for new and enhanced data and data sources to combat fraud
As insurers look ahead, they are anticipating additional innovations in fraud detection and prevention to continue to emerge over the next 5 years. Examples cited by respondents include:
Combating Fraud, Together
Approximately half of respondents feel they are keeping pace with tools to combat fraud. However, based on the billions of dollars lost to fraud each year, it is clear there is more work to be done. And as carriers consider new options to address emerging threats, fraudsters are quick to come up with new and innovative ways to engage in fraudulent behaviors.
One of the best ways to detect and deter fraud is for the industry to collaborate and share relevant information. For over a century, MIB Code Solutions has provided our members an industry-supported, contributory database largely focused on protection against medical misrepresentation, the number one area of concern for underwriters according to this survey.
Today, MIB manages a second contributory database, the MIB In Force Data Vault, focused on addressing issues such as non-disclosure, churning and stacking, identified as the second major concern for underwriters in this survey. The Jumbo and Total Line Services, which leverage information from the In Force Data Vault to provide insights into potential adverse behavior patterns, are the top tools insurers are exploring to enhance their fraud prevention capabilities.
When the industry comes together, everyone wins. By contributing data to this industry-wide database and subscribing to the Total Line Service, you not only gain valuable insights to help your organization but also strengthen the entire industry’s fight against fraud. This collective effort ensures a more robust and effective defense against fraudulent activities, ultimately protecting both insurers and policyholders.
Contact us for more information about how MIB can help your organization advance your approach to fraud detection and prevention.
View the results of the full RGA/MIB U.S. Life Insurance Fraud Study.
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