How to Successfully Align my Organization? Starting a project for an automated insurance fraud detection system.
This ebook is for insurance professionals that acknowledge fraud and high risks are a challenge for your organization. It helps you to lay the foundation for your project and provides you with an approach on how you can get the various stakeholders on board in order to make your anti-fraud project a success.
Why read this ebook? This ebook is for insurance professionals that acknowledge fraud and high risks are a challenge for your organization. You have by now defined the issue and uncovered your organizationâ€™s weak spots, of which fraudsters will seamlessly take advantage. Also, you acknowledged that you (and fraudsters) are working in a digital insurance working space, which requires fraud fighting technology accordingly. Now what? Aligning your organization and the key stakeholders of the various departments that need be involved can be a cumbersome process. At the end of the day, internal alignment (and commitment!) is a crucial factor in making your anti-fraud project a success. Who should be involved in your quest for a solution for automated fraud detection and risk analysis? How can you create a constructive and supportive environment for success? This ebook can be used as a guide to align your organization in the fight against fraud. A solution for automated fraud detection and risk mitigation helps insurers to improve combined ratios, lower loss ratios, enables straight through processing (STP/fast track) and helps to become digital. This will result in healthy (profitable) portfolios and contributes to an honest insurance industry. A fraud fighting culture and fraud awareness are essential to these objectives.
An anti-fraud project is of interest for the entire organization. The right stakeholders should be involved at the right time, with most suitable approach. This ebook helps you to lay the foundation for your project and provides you with an approach on how you can get the various stakeholders on board in order to make it a success. Get started!
Topics 01 Intro Why read this ebook?
06 Role of management Management guides and facilitates
02 The reason: a fine-meshed net The reason for starting a project
07 Internal stakeholder Who, when and why involve?
03 The Business case What does it include?
08 Joint preparations You make the best start together
04 When to start? The right time to start a project
09 Conclusion Involvement leads to success
05 Who is the client? About internal clients
The reason: a finemeshed net Claim handlers regularly come across claims in which something turns out to be incorrect. Often this first signal proves to be correct and the handler is on the track of something. But high work pressure means that the handler just asks a few questions and the issue slides through the meshing of the network. Can this improve? Can we make the network more finemeshed? Can we improve the prevention of fraud risks entering the portfolio and can we improve the recognition of fraud during claim handling? Usually the answer is yes!
JOHN IS EXPENSIVE Johnâ€™s delivery van is reported to the company as stolen. The insurance policy was concluded recently. The name of the policyholder was checked manually in the fraud register, but this did not yield a result. As a result of the claim notice, the policy was reviewed and it turned out that the policyholder had not provided the company with correct information. His business turned out to be registered abroad, which would have been a reason not to accept the policy. It also turned out to be a courier business. This would always lead to additional conditions or an excess. Finally, it turned out that the name of the policyholder was entered incorrectly in the system, so that the fraud register check had taken place under the wrong name. A new check revealed that the policyholder had recently been involved in a series of deliberate collisions with the aim of defrauding the insurance company.
This time the claim handling went well and the claim was not paid out and the policy was cancelled. But it did involve a lot of time and money. This could probably have been prevented. It also raises the question of how often these types of cases are not discovered, how many undesirable risks occur in the portfolio and how often this leads to claims that have been wrongly paid out. Of course, it is the responsibility of the Claims Handing departments to be alert to fraud. The systems that are used for this are increasingly better designed. The insurance company in this example uses an automated fraud detection system for making claim assessments. This created an â€˜alertâ€™, so that the file was passed to the SIU department for further investigation. While it is reassuring that this automatic filter exists and that it discovered the problems with this claim, the risk was nevertheless present in the portfolio. At the tail end of the system, the safety net has done its job. But would not it have been much better if this had happened at the start of the system? This case was also the reason for the insurance company to set up a project intended to lead to better risk assessment and fraud detection. This is often how these projects start. Claim handlers or fraud coordinators know that the system can be better, more efficient and with improved results. But the daily routine and often very high workload resulting from the commercial targets of the company make it difficult to take the time to think about and undertake improvements.
Business Case An insurance company has a clear social function: assuming risks so that individuals and businesses can function properly. But this must take place fairly, based on mutual trust and at acceptable risks and premiums. The implementation of insurance is simply about a calculation: how big is the risk and how much premium should be paid?
This also applies internally. Those who realize that risk assessment and fraud detection can be improved and want to make a start are best able to clarify this with a study and figures: a business case.
Example Case A study of the underwriting process of business products took place. The process was checked on the basis of a number of randomly selected existing agreements. From the first step of entering data into the system until the final decision. The average handling time per application turned out to be about 30 minutes. The total turnaround time was certainly a week. The Underwriting department needed to have a number of checks carried out by other departments. After every step, the file was sent to another department where it had to wait its turn. Moreover, it appeared that in many cases relevant information was not included in the assessment, as a result of which policies were accepted that should not have been accepted or should only have been accepted with additional conditions.
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Better results The above study forms the basis of a business case. The calculation is made retrospectively. You could calculate what this means for the entire portfolio and for the return on the portfolio. You could also calculate how often you could have prevented fraudulent claims, how often you failed to do so and what unnecessary costs you incurred. The results of the input of an automated risk analysis and fraud detection will differ for each insurance company. It usually leads to at least a doubling in the number of identified fraud cases, although a four-fold or fivefold increase is certainly no exception, while the cost of the system is about 1/5th of the proceeds from the identified fraud cases.
Better working processes You can investigate how automation speeds up the underwriting process, from over a week to a few minutes, and what that it provides in terms of cost savings and goodwill of customers. You can also describe how you greatly reduce the chance of errors within this process and how this improves the quality of the work of a number of staff. For example, a large amount of administrative work, such as entering data manually or performing checks, will disappear. This extra time can be used to examine the files for which the process creates an â€˜alertâ€™ and to reach a well-considered decision.
Stronger reputation You can also include what this will mean for the reputation of the insurance company. A prevention-oriented underwriting process will yield a more stream-lined portfolio and therefore less fraud. As a result, the insurance company will become less attractive to organized fraudsters, who always test the systems of companies to see if they can pass the checks and conclude insurance and who always - usually quickly - make a claim. And on the other hand, the insurance company will become more attractive to legitimate customers who want to take out a fair and affordable insurance policy.
When to start? A number of insurance companies have already taken the step, but many companies will need a complete renewal of the automation of their core processes now or in the near future. Occasional updating or interlocking of different systems no longer works. Technological changes and market changes are too significant for this. Such a renewal is a good time to also add - integrated - risk and fraud detection to the system. Senior management is involved in these processes. It can oversee individual interests of departments, connect them with general interests and guide the changes. If the larger automation layers have already been put in place but systems for risk and fraud detection have not yet been included, then whether it is logical to use automated risk analysis and fraud detection depends on the strategy of the insurance company and the critical performance indicators (KPI) used. Insurance companies that want to optimize return will need different systems than those companies that want to quickly acquire market share.
This does not apply to online insurers. These insurers are very dependent on the power of digitization and they prefer to start with risk analysis during the underwriting phase. Underwriting decisions must be taken at lightning speed, otherwise the customer will move on. This makes realtime and reliable risk assessment necessary.
Who is the client? Contractually speaking, the insurance company is obviously the client, but speed and success can also be determined by the internal client. Is this top management, whose approach is based on the requirements of the entire company, or is it a department, whose approach is based on the requirements of that department? This makes a difference. When the top management is the client, this is often driven by the need to completely renew the IT organization. In fact the whole company is subject to redevelopment and all processes and positions will change. This is actually the best time to also introduce automated risk analysis and fraud detection systems.
Of course it is also possible that the request will come from the SIU department or the Claims or Underwriting departments. Then first this must find its way within the hierarchy of the company and the solution must be added to existing systems. Technically, this is usually not that difficult, but often it raises more questions and resistance internally.
Role of management Ideally, top management is constantly involved in the project; not only on paper but also visibly. Their presence is especially important at the kickoff and during progress discussions as this makes it tangible within the organization that it is an important project. In addition, the management must also be prepared to examine certain processes and, if necessary, to adjust them. Consider, for example, the valuation system of staff. For example, claim handlers are assessed primarily on customer satisfaction and speed of handling. However, when the automated analysis shows that a claim requires further attention because indicators show that fraud may exist, this immediately reduces the speed of the claim handling and customer satisfaction may decrease.
This could be a reason for a claims handler not to ask difficult questions. If the claims handler is also valued for the detection of fraud, this will immediately change. This is a task for management. Some insurance companies, for example, place claim handlers who have discovered large-scale fraud in the limelight, while those who have not detected fraud for a number of months are asked whether they are paying attention and making the best use of resources. This puts the emphasis on combatting fraud and improves the results.
Internal stakeholders Depending on the organization of the insurance company, the group of internal stakeholders that need to be involved in the introduction of automated risk analysis and fraud detection can vary. Think about this carefully. It is obvious to involve the Underwriting and Claim Handling departments and of course the SIU department. But also think about Legal & Compliance and Sales. And do not forget IT! In addition to not involving people or departments on time, conflicts of interest can also lead to resistance and thus delay.
Controversy Underwriting/Sales - Claims/SIU Within many insurance companies there is a traditional controversy between the commercial targets of the Sales and/or Underwriting departments and the cost of claims, for which the Claim Handling and SIU departments are responsible. Sellers of insurance and underwriters want claims to be handled quickly and smoothly since they want the customers to remain with the company and for new customers to be able to conclude insurance without any difficult obstacles. On the other hand, the claim handlers specifically want to take a critical look at the risks in the portfolio in order to manage the cost of claims at the start. Both positions contribute to the results of the company, but frequently these departments operate as standalone units within the same company. As a result, there is little cooperation and little use is made of each otherâ€™s
experience and information. At the start, a stricter selection can take place based on the information that is available. Sellers of insurance do not like this because it leads to less sales, but it does lead to a healthier portfolio! It then helps to set company-wide objectives, not just on a departmental basis. Targets are better set at a higher level, across departments. This promotes cooperation and, in the longer term, it benefits the operating results.
Blog: Fighting insurance fraud effectively by aligning underwriting and claims
Counterproductive In practice, the introduction of fraud detection systems is often started by the claim handling side of the company. This makes sense, because this side of the company benefits the most directly. It helps them to carry out their work to reduce the cost of claims. But it’s counterproductive -like mobbing the floor with the tap open. It only really becomes effective if this the tap is closed. Therefore, risk underwriting should be introduced at the underwriting side of the company. If a portfolio grows in a healthy way, less fraudulent claims will be filed later on.
[ebook] – Utilizing Data to Effectively Fight Fraud – The Ultimate Guide
Involve IT from the beginning! It sounds crazy, but IT specialists within the company are often forgotten, while they play a crucial role in the implementation. The later they are involved in the process, the greater the resistance can be. IT staff are always busy and cannot ‘just do’ the necessary work as ‘daily humdrum’. They must therefore have the opportunity to make a timely assessment of the required capacity and must be able to plan well in advance. The best way to do this is to involve IT specialists from the start, so that they will be enthusiastic about the new technology and it will therefore also become ‘their’ project. An important question for IT staff is always what kind of technology is used, how much impact this will have on the system architecture and how much time it will take to get it all operational. With Software as a Service (SaaS) this impact is rather small. During the entire project, only a few days’ work by IT staff is required. This differs if it concerns an ‘On Premise’ system, which is installed on the user’s systems. Then many more questions arise about, for example, the types of software, compatibility, security and licences. IT then has to invest a lot more time in getting it operational.
Legal & Compliance For management, a handshake at the end of the discussions may be sufficient to conclude an agreement. This is certainly not the case for Legal & Compliance lawyers. It can sometimes take a few months before they have looked at and checked all aspects of the cooperation and before documents can be signed. They will need to assess whether legislation is being complied with. In particular, the General Data Protection Regulation (GDPR). They will also need to see certificates and process descriptions - always signed - regarding, for example, how suppliers deal with emergencies such as system failures. The sooner Legal & Compliance is aware of and can delve into parts of the agreement, the sooner the formalities can be complied with and the greater the confidence in the suppliers used and the process that is being implemented.
How the GDPR Affects Insurers
The daily user is most important All these groups within the company are important for the smooth development and implementation. But the most important group are the daily users: the underwriter, the claims handler, the compliancy officer, the SIU employee, etc. They use the system every day. The system can provide great analyses, but if it is not used nothing will change. At the start-up of their system in the morning, the daily users must be happy with its simple applicability, the overview, the logical presentation for them in their own language, etc. That is why it is wise to involve a number of fairly critical users in the design of the system. If critical users are happy, most users are happy.
Joint preparations You make the best start together: a kick-off meeting where the important people are present. This will include in any case the stakeholders as we described them and the top management. At this meeting you determine the common goal, the contributions by everyone, the way of working and the timeline. After that, it becomes more concrete with workshops intended to collect and weigh up information as quickly and as completely as possible. A workshop about the business itself, what exactly does the company do and who are the customers, what are the specific risks? It also focuses on the data: which data is available internally and which can be used? Which external data is available and can be used? What does the system architecture look like and how do we integrate the analysis systems?
All this information leads to a proposed approach, which - after approval - can usually be fully operational within a few months.
Conclusion An automated solution for insurance fraud detection and risk mitigation can have a major impact on the way of working for the entire organization. It will improve the way staff work on a daily basis: more fraud awareness and more efficiency by resolving former cumbersome and error-prone manual processes. Above all, the new situation will directly contribute to the financial position of the company and the perception in the market as a trustworthy insurer. As shown, laying this foundation starts with a proper description of the needs and requirements for an automated fraud detection solution. The best way to do so is describing this in a business case that shows the advantages for each and every stakeholder, from IT to underwriting, from sales to claims and special investigations, from legal & compliance to board level. To achieve a fraud fighting culture, senior management needs to be highly involved and set the example. The management should reward employees when suspicious behaviour is detected and KPIs should be aligned accordingly, whilst taking into account the customer satisfaction or speed of handling policy applications or claims.
It is highly important to start timely. The project might, and probably will, not have the same priority as it has for you. Be aware that even if all stakeholders are aligned, negotiations and discussion with other departments could take longer than expected (e.g. legal). Another common challenge is the availability of data that is necessary to make proper indications of fraud or high risks. Therefore, have your IT department (and data scientists or analysts) sorted and prepared beforehand.
A successful project requires broad support from all involved stakeholders. Just having a system in place â€œfor the sake of itâ€? would not deliver the value that is demonstrated in your business case. The organization and the way processes are defined need to change as well. That can only be realized if there is a progressive and constructive foundation for the project. The guidelines in this ebook come from daily practice and result from the experience from 150+ implementations at insurance companies across the globe. Help yourself and use them to your advantage on your way to successfully aligning the organization.
Creating a Fraud Fighting Culture
Sum up 01 An automated solution for insurance fraud detection and risk mitigation affects the entire organization. 02 Start with a proper description of the needs and requirements in a business case that shows the advantages for each and every stakeholder 03 To achieve a fraud fighting culture, senior management needs to be highly involved and KPIs should be aligned accordingly. 04 It is highly important to start timely. The project might, and probably will, not have the same priority as it has for you. 05 Be aware that even if all stakeholders are aligned, negotiations and discussion with other departments could take longer than expected. 06 The organization and the way processes are defined need to change as well. That can only be realized with a progressive and constructive foundation for the project.
You may also like [eBook] – The Biggest Fraud Challenges for Insurance Companies This ebook answers insurers’ biggest challenges in effectively responding to fraud. Learn about the success factors and how to avoid pitfalls.
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In order to stay ahead in dynamic times and to be sustainable in the future, it is time for insurance companies to convert words into action.
[whitepaper] – How To Get Continuous Value From Your IT Systems The time where projects were easy to define and execute are long gone. Nowadays, software implementations often stretch over years and involve a great number of stakeholders. These challenges call for a journey of continuous improvement to stay ahead in dynamic times and to sustain for the future. Hence the Value Cycle Methodology.
Geschreven in opdracht van FRISS, Fraud Risk & Compliance door Maarten Uri.