Insurance fraud isn’t just a growing issue—it’s an evolving one. In 2024, fraudsters are leveraging advanced technologies like artificial intelligence and exploiting systemic vulnerabilities in the insurance industry, costing companies billions annually. From synthetic identity scams to deepfake-powered claims, the tactics are becoming more sophisticated and harder to detect.
For insurers, combating this rising tide of fraud requires innovative tools and proactive strategies. In this article, you’ll explore the top trends in insurance fraud and highlight four essential tools to help companies protect their bottom line while delivering trustworthy service to their clients.
Top Insurance Fraud Trends in 2024 and How to Prevent Them
Synthetic Identity Fraud
Synthetic identity fraud is one of the most prolific forms of scams in the insurance industry, accounting for up to 80% of new account fraud. Fraudsters combine real personal information, like social security numbers, with fake account information to open accounts and lay false claims.
This form of fraud enables scammers to build credit histories, falsify loan applications, and fraudulently claim from insurance companies. The insurance industry is notorious for having weak security systems that are easily overwhelmed by threat actors.
Combatting Synthetic Identity Fraud:
Improving data analytics is key to safeguarding against synthetic identity fraud. This can help insurance companies detect anomalies synonymous with this type of fraud.
There are two main elements to consider when onboarding data analytics tools:
Implementing a robust Know Your Customer (KYC) Process:Insurance companies can benefit from improving tech-driven KYC processes to ensure that client data is accurate and consistent. KYC processes require insurance companies to collect personal identifiable information like social security numbers (SSN). There are however limitations; this information is not verified against a central database. This is where step two comes in.
Verify the information provided:
eID verification allows insurance companies to validate and verify the information provided. eID verification will pick up if an SSN has been falsely allocated to a different person based on centralized government data. This plays a vital role in reducing synthetic ID fraud.
Using AI to commit fraud
Artificial Intelligence (AI) has been used to both detect and commit fraud. As technology improves, threat actors have found new ways to manipulate and falsify evidence to commit insurance fraud. Fraudsters use AI to alter images, and they use deepfakes and AI-generated documents to convince authorities that a claim has been approved for payout.
According to Scott Clayton, the Head of Claims Fraud at Zurich UK, “If you were to ask a computer a few years ago to produce an image, that image wouldn’t have been very convincing. But using AI, fake images today can be quite believable. That is where the challenge is going.”
Insurance companies particularly see patterns of fraud in car and property insurance cases. Typically, AI is used to generate false images, videos, and documents to convince insurers that an asset has been damaged. Despite robust security measures, many fraud adjusters are still duped into validating false claims.
Combatting AI Fraud
Insurance firms like Zurich use AI to combat fraud and have had success in detecting inconsistencies in over 160 cases. Their tools have assisted in identifying claims fraud, and their machine learning algorithm has been trained to spot anomalies.
Insurance companies will need to invest heavily in technology to keep pace with fraudsters. Risk is already a topical conversation for players in the industry, but efforts will need to be redoubled in order to ensure that innovation isn’t utilized to defraud entire companies and industries.
Aleksander Vidovic, CEO of Zurich Customer Active Management, remains an advocate for the use of AI in fraud detection stating, “We consider it our job to know how to protect against risk. Therefore, we protect ourselves from bad behavior, and in doing so we are able to serve our valuable, honest customers more efficiently. AI helps us to achieve this.”
Account Takeover
Account takeover fraud (ATO) is another form of counterfeit claims. This involves a threat actor gaining access to a legitimate account in order to make false claims. Typically, fraudsters glean information from data breaches, buying personal information on the dark web, or hacking devices. They’re able to then use login credentials to access policyholder accounts.
In 2023, data breaches affected over 353 million individuals in the United States alone. Not only can hackers make false claims on behalf of users, but they very often lock account holders out by changing contact information and payment methods; this means it can take users quite a long time before they even realize their accounts have been compromised.
Combatting ATO
Multi-factor authentication is crucial to preventing account takeover fraud. Alongside this, experts suggest implementing more stringent security measures like regular password updates, biometrics, and account activity monitoring. Consumer education is also a strong barrier to this type of fraud and allows account holders to remain vigilant and proactive in the fight against fraud.
Common Types of Insurance Fraud in the Property & Casualty (P&C) Sector
Staged Accidents
This type of fraud is so prevalent, that the FBI has a unit dedicated to uncovering staged accident fraud. According to Fox Business, this type of fraud is increasing in the United States and costs payers an additional $100 to $300 on monthly premiums.
According to Mark Friedlander, the spokesperson for the Insurance Information Institute, there’s been a 14% increase in staged accidents, with fraudsters taking advantage of busy roadways in populous states with high traffic volumes.
“We’ve seen these types of auto fraud scams for many years. This is nothing new. But we’re seeing an uptick in many areas. You typically see them on interstates in highly populated, highly congested areas of the country,” Friedlander said.
Combatting Staged Accident Fraud
Curbing staged accident fraud requires a collaborative effort between law enforcement and insurers. The FBI gathers data from the National Insurance Crime Bureau and uses this information to adequately allocate resources to cases and investigations.
Insurance adjusters can also benefit from training sessions that empower them to recognize the signs associated with staged accidents, which typically include inconsistent witness statements or strange accident circumstances.
False Theft Claims
Fraudsters may submit claims for stolen items that never existed. This type of fraud is particularly prevalent with high-value possessions like jewelry and electronics, posing an ongoing challenge for insurance agents and the industry as a whole.
Insurance companies can mitigate such fraud by requiring comprehensive documentation, including receipts and photographs, to validate theft claims. Conducting thorough investigations, such as follow-up visits and site inspections, helps verify the legitimacy of reported incidents. Additionally, collaborating with law enforcement can strengthen efforts to detect and prevent fraudulent claims.
Advances in Fraud Detection Technology
Artificial Intelligence and Machine Learning
AI and machine learning enable insurers to process vast datasets, uncovering patterns and anomalies indicative of fraud. These technologies are especially adept at detecting synthetic identities and AI-generated documents commonly used in insurance fraud schemes.
AI systems continuously evolve, improving their precision as they learn from new data. By utilizing natural language processing (NLP), insurers can analyze unstructured data, such as claim narratives, to identify suspicious activities. Moreover, automating routine tasks with AI allows human investigators to focus on more complex fraud cases.
Big Data Analytics
Big data analytics empowers insurers to aggregate and evaluate information from diverse sources, creating a holistic view of claimant behavior. By analyzing data from social media, public records, and transaction histories, insurers can detect patterns and relationships indicative of fraudulent activity.
Advanced tools in big data analytics can uncover correlations that might otherwise go unnoticed, helping to combat property and casualty insurance fraud. Predictive analytics further enables insurers to anticipate emerging fraud trends, providing proactive solutions to mitigate future risks
Generative AI
Generative AI, a cutting-edge innovation, enhances fraud detection by simulating extensive datasets to train machine learning models. This approach makes the models more resilient to sophisticated fraud tactics.
Generative AI can also uncover subtle fraud patterns missed by conventional algorithms. For example, it can generate realistic but synthetic claim scenarios to refine detection systems. Insurers can leverage this technology to forecast potential fraud strategies and develop targeted countermeasures.
Effective Fraud Prevention Strategies
Employee Training
Ongoing training equips employees to recognize fraud indicators and stay updated on evolving tactics. Educating staff on handling suspicious claims is critical, particularly in managing cases of property and auto insurance fraud.
Interactive workshops, simulations, and case studies enhance the practical relevance of training. Continuous education ensures employees are well-prepared for new fraud schemes and technological advancements. Fostering a culture of vigilance and accountability strengthens organizational defenses against fraud.
Data Analytics
Advanced data analytics tools play a pivotal role in early fraud detection by identifying irregular patterns in claims data. These tools are integral to modern fraud prevention strategies.
Solutions like FRISS provide comprehensive analytics and automated fraud detection capabilities. Their technology for underwriting, claims, and special investigations delivers real-time insights and predictive modeling, enabling insurers to quickly identify fraudulent activities. Integrating such tools reduces false positives and streamlines claims processing.
Collaboration with Law Enforcement
Partnering with law enforcement agencies allows insurers to stay informed about the latest fraud trends and methods. Such collaboration facilitates information sharing and resource pooling to combat fraud effectively.
Formal partnerships, joint task forces, and cooperative investigations enhance fraud detection and prosecution efforts. Educating law enforcement personnel on insurance fraud equips them to better support insurers in addressing fraudulent activities. Organizations like the Coalition Against Insurance Fraud exemplify the benefits of such collaborations.
Concluding Thoughts
Insurance fraud continues to be a significant challenge for the Property and Casualty (P&C) insurance industry, with emerging trends like synthetic identity fraud, digital payment fraud, and AI-driven scams posing increasing risks.
To combat these threats, insurers must stay ahead by adopting advanced fraud detection technologies such as AI, machine learning, and big data analytics. Additionally, proactive employee training, robust verification processes, and collaboration with law enforcement are essential to strengthening defenses.
By leveraging these innovative solutions and maintaining vigilance, insurance companies can more effectively detect and prevent fraud, safeguarding their financial stability and protecting their clients from fraudulent claims.
