Virtual claims raise alarms among insurance carriers and customers

As the digital revolution changes the claims process, both carriers and customers are increasingly concerned about data privacy, according to LexisNexis Risk Solutions.

insurance identity-related fraud

More than 60% of consumers have concerns over the security of their personally identifiable information when they submit virtual claims. While carriers are worried about the actual cost of fraud, which can cost four times the value of the fraudulent transaction and impact a carrier’s reputation.

“Virtual or self-service claims have been on the rise since the pandemic, and while this can create a streamlined, digital and user-friendly consumer experience to help fast-track claims cycles, insurers have entered a world where they have to bridge physical, digital and behavioral dimensions to authenticate identities,” said Tanner Sheehan, VP and GM, U.S. Claims, LexisNexis Risk Solutions.

“Especially among younger age demographics, digital claims channels are becoming increasingly popular, but growth in self-service options among insurers absolutely must be met with investments in tools to mitigate digital identity fraud. Insurers with a multi-layered approach to mitigating digital identity fraud experience fraud costs that are 25% lower than those who do not, according to our research,” added Sheehan.

Identity-related fraud among insurance carriers on the rise

93% of respondent say that identity-related fraud has a negative impact on their business, and 80% report that it is occurring at least monthly. 73% of respondents report that it is hard to know how identity-related fraud occurs, and 47% say it is very difficult to detect.

Only 33% agree they have an effective way to detect and mitigate identity-related fraud. Put another way, two-thirds of respondents do not agree they have an effective approach today. Yet, just 30% of all Top 50 carriers said they could be doing more.

In contrast, the majority of just the top 10 insurance carriers (60%) say they have an effective approach to detecting and mitigating identity-related fraud. In addition, the same amount (60%) say they could be doing even more – indicating that they are more aware of the problem than their peers in the top 11-50 range.

Digital insurance claims

52% of claims submissions are submitted via online and mobile channels as 67% of insurers provide digital self-service options – and the rest plan to do so in the next 24 months.

87% of respondents are fairly or very concerned about mobile web browser and online channels, and 76% are fairly or very concerned about mobile apps, compared with 57% for the contact/call center.

Insurers are applying a greater number of – and more advanced – identity authentication tools for online and mobile channels than for the contact center.

Balancing customer experience with fraud mitigation

83% of insurance carriers are going beyond the basics in personal lines claims, incorporating tools like multi-factor authentication, risk scoring or continuous monitoring. Notably, top 10 carriers are leading the pack, with 80% of them using tools on the more sophisticated end of the spectrum.

All respondents verify personally identifiable information (PII) and use one-time passwords, indicating these are table stakes for the industry. Further, 93% use multi-factor authentication.

Insurers with more robust capabilities can identify fraud earlier in the claims process. For example, top 20 carriers predominantly find identity-related fraud at First Notice of Loss (FNOL); in comparison, whereas top 21–50 carriers find it at investigation.

40% of top 10 insurance carriers also report finding identity-related fraud similarly across FNOL, investigation and claims payment, which may be indicative of finding more fraud in general—another benefit of adopting a proactive, rather than reactive, approach.

Mitigating identity-related fraud: Leaders vs. laggards

The research identifies two types of insurers when it comes to mitigating digital identity fraud: leaders and laggards.

Leaders are adopting a proactive, multi-layered approach that can include verifying PII, such as name, address and date of birth; using multi-factor or knowledge-based authentication methods, such as one-time passwords, multi-factor authentication or quizzes; using real-time digital risk signals, such as device and email intelligence, behavioral biometrics, link analysis or risk scoring; and using native device biometrics, consortium-based fraud scores or continuous monitoring.

Conversely, laggards are relying on basic, single-point solutions to authenticate consumer identities, which can result in finding fraud later and less success in balancing customer experience with fraud mitigation.

“Our research clearly demonstrates that digital identity fraud is on the minds of the vast majority of the top 50 carriers, but we begin to see a stark difference in the maturity of certain insurers when it comes to those who have developed a multi-layered approach versus those who have not,” said Souvik Kumar, director, U.S. Claims, LexisNexis Risk Solutions.

“With digital channels here to stay, the carriers who emphasize digital identity fraud mitigation by capturing disparate digital, physical and behavioral data points for a dynamic view of the customer are better positioned to weather potential profitability, brand reputation, and customer retention and acquisition concerns at the point of claim,” concluded Kumar.

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