Insurance companies in India have experienced a rise in instances of fraud within the life and health insurance categories, according to Deloitte’s Insurance Fraud Survey 2023.
About 60 per cent of the respondents believe that there has been a significant rise in fraud, while a further 10 per cent said they experienced a marginal increase in fraud.
Insurers consider mitigating fraud as a priority.
Only 60 per cent of respondents said they planned to increase their budgets marginally, adding that the remaining investments would remain at the same level as the last year.
Some key factors contributing to fraud include increased digitisation (34 per cent), and remote working post pandemic and weakened controls (22 per cent each), the survey revealed.
According to the survey, digitisation has acted as a key catalyst for growth in the insurance sector. That said, the impact of digitisation is not limited to its benefits.
“Our analysis indicates that fraudsters are increasingly becoming technology-savvy, finding newer ways to perpetrate fraud. Our survey highlighted a similar sentiment among respondents, who indicated increased digitisation and remote working, followed by weakened controls as the top reasons for increased fraud incidents,” the survey said.
Sanjoy Datta, partner and financial services leader, Deloitte India, said, in a press statement: “Globally, insurance companies have acknowledged that fraudulent activities lead to both financial and reputational loss. Mitigating fraud needs strategic intervention and an appropriate tone at the top; decision makers must relook into the insurer’s operations model and introduce ways to monitor it periodically. The Indian insurance sector is at the cusp of a digital revolution, and like any other sector, it is compelled to re-invent itself to introduce faster business operations, customer acquisition, and experience with the power of technology.”
Datta adds: “As risks lurk, there is an immediate need for Indian insurers to consider a proactive fraud risk management framework. This is needed, as strategic direction, culture, collaboration, coupled with board-level oversight can set the right direction for organisations to fight the challenges consequent to increased use of technology and digitalisation,” adds Datta.
Here are the top five challenges faced by life and health insurers as revealed by the survey
Issues With Data Protection And Privacy: Data protection offers the tools and regulations to limit access to data, while data privacy specifically keeps a check on who has access to such data. Given that insurance is a data-intensive sector that houses a large quantum of client-sensitive data, data protection and privacy become critical. Data protection and privacy policy can, therefore, lead to a potential lack of access and/or availability of data which all respondents acknowledged being one of the biggest challenges in optimally mitigating fraud risk.
Information Sharing Among Insurers: The absence of a formal industry-level fraud database allows fraudsters to exploit this loophole. There is limited information sharing among insurers, and this deters third-party support from enhancing their fraud prevention and detection capabilities.
Problems With Data Quality: Data quality and data architecture are key for insurers in their fight against fraud. A primary structural problem is the vast amount of structured and unstructured data stored in a plethora of systems—both legacy systems and new applications.
This is further compounded by data errors or omissions, including missing, inaccurate, or inconsistent data across such systems. Additionally, there is a dearth of common data models, structures, and definitions. The problem with data quality will also hurt the effectiveness of analytical tools and models, the survey said.
Limited Use Of Analytical Tools: In the case of fraud detection, it is important to be proactive, accurate, and timely. Each of these imperatives can be met by using the right technology tools. Conversely, the lack of tools, such as predictive analytics/modelling and fraud detection can become an impediment to optimal fraud detection and risk mitigation. Fifty per cent of life insurance respondents believed this to be a significant challenge.
Keeping Up With Modern Modus Operandi: We live in a dynamic world where technology is empowering fraudsters to think of new and innovative ways to commit fraud. With 50 per cent of both life and health insurance respondents considering this to be a challenge, it thus becomes imperative for the sector to stay ahead and pre-empt fraudulent incidents.
Overall, both external as well as internal factors contribute to the challenges that insurers face in optimal fraud risk mitigation. Further, it was observed that internal challenges, such as the risk of new fraud types, data quality, third-party issues, and silo-mannered organisational responses are more pressing. Given their internal nature, the onus lies primarily with insurers to proactively alleviate these pain points.
KV Karthik, partner, forensics, financial advisory, Deloitte India, said, in a press statement: “An interesting insight from the survey pointed to the weakness in controls to prevent and/or detect frauds as one of the reasons for increased fraud incidents. Introduction of new technology, changes in ways of working, especially in light of the pandemic, may have resulted in the weakening of controls over time which provides an opportunity to the fraudsters to exploit the loopholes in the system.”
“With frauds becoming a board-level agenda, and digital boundaries constantly blurring, there is a clear need for insurers to relook at their operating model that integrates a larger agenda, which will work across business, compliance, legal, underwriting, and operations departments,” he adds.
The Way Forward: Fraudulent activities committed within or against the insurance companies can adversely affect its financial soundness and reputation, besides impacting policyholders due to higher claims costs. One important aspect of why fraud occurs is the loophole within the organizational system/controls, which provides the opportunity to commit fraud. This condition can be principally managed by designing and implementing a controlled environment that prevents, detects, and deters fraudulent behavior, whether from employees, vendors, or intermediaries.
“More than half of the respondents (60 per cent) surveyed said that they aim to slightly increase investments in fraud prevention and response over the next 12 months. However, 40 per cent also said that their investments in fraud prevention are likely to remain the same. This is surprising, as
respondents indicated that fraud is on the rise, and they are witnessing the emergence of new fraud trends while traditional frauds continue to prevail. Considering the strategic priority already assigned to fighting fraud, insurers appear to have pressed the pause button on future investments and are possibly watching the fraud landscape evolve (in the post-new normal) before embarking on additional investments,” according to the survey.
