The impact of insurance fraud is felt across the field. The insurer's ability to offer competitive rates is undermined as their financial position takes a hit and policyholders pay the penalty as premiums rise. Everything is being thrown at the problem, policies created and amended, new technologies developed, law enforcement and private insurance companies have collaborated, and yet fraud continues to rise.
This seemingly endless battle against increasingly savvy fraudsters has resulted in differing approaches by insurers on how to deal with the problem. Which leads to the question of do you accept, detect or prevent fraud?
Customer satisfaction will always be a priority of any competitive business, and insurers have to be careful to provide a balance between prompt claim resolutions and diligent investigations. Do you delay a claim to investigate its legitimacy only to find out it's genuine and risk losing a customer or receive negative reviews? The cost of these investigations, along with the price of anti-fraud technology, unsurprisingly leads some insurers to accept a certain amount of financial loss to fraud.
Staged accidents, crooked doctors and internet anonymity, how do you detect and fight these aspects of modern organised crime? Traditional techniques of automated red flags, computerised statistical analysis and referrals are struggling, and new technologies such as Social Network Analysis and Predictive Analytics are emerging. However, these new technologies are expensive and often out of reach for smaller insurers. Governments are assisting with introducing centralised anti-fraud agencies; still, these are ultimately geared towards criminal enterprises rather than opportunist fraudsters. Yet, criminals manage to stay a step ahead using inside knowledge to test thresholds and detection rules to develop an understanding of fraud detection systems and avoid exposure.
Currently, the emphasis is on detection and successful prosecution to prevent fraud. However, this is a complex, lengthy and costly process that can often result in lenient penalties which do nothing to deter criminals and opportunistic fraudsters. As any doctor will tell you, 'prevention is better than the cure'. At LifeHash, we believe that a different approach is needed to prevent fraud, and blockchain is the key.
Blockchain technology is being integrated into industry everywhere you look for the simple reason that it provides an indisputable record of data. Fraud revolves around the corruption and misrepresentation of data, so it was only a matter of time before blockchain emerged as a solution. Blockchain is essentially an encrypted, decentralised, database but for those that are unfamiliar, here is a quick rundown;
Encrypted - using complicated mathematical algorithms known as 'hashing', data entered onto a blockchain is encrypted into a string of characters, a hash. Once data has been hashed, it is all but impossible to decrypt it. It's a one-way process, and if even a single point of data is changed, a completely different hash will be produced.
Timestamped - blockchain works by storing these hash values in blocks. A block is only open for a fixed amount of time, and once passed, the block is verified by a miner and closed. Part of the process of verifying a block is to attribute it with a timestamp. A header for the block is created by combining this timestamp with the header of the current and previous block. The system of encrypted headers results in each block being linked in an unbreakable chain.
Decentralised - central servers currently hold most of the world's data; these are prone to attack due to their value and vulnerability resulting in more breaches yearly. On the other hand, blockchain is decentralised; a vast network of computers worldwide owned by different entities is used to store data. Each computer or 'node' holds the entire transaction history of a blockchain. This is important because a majority consensus of 51% has to be reached to change the data contained within that blockchain. To do this fraudulently would be extremely difficult and as close to impossible as might be imagined.
LifeHash uses mobile technology combined with tried and tested blockchain from DigiByte and Bitcoin to secure data at its creation. Accident reports, property claims, photographs, dashcam footage, witness details, locations, etc, can all be secured digitally and immutably with blockchain, providing a single source of truth that is indisputable. Making a dishonest claim against a LifeHash supported insurer will simply be too complex for opportunistic fraudsters and a seemingly insurmountable endeavour for even the most technologically advanced criminal enterprises.
Fraud costs the insurer time, customers and ultimately profit, putting those that accept it at a competitive disadvantage. Detection and prosecution are vital in the fight and are increasingly effective; however, arguably, critical damage has already been done, and criminals learn from the process. Insurance companies need to invest in technology (insurtech) to stop opportunistic and criminal fraudsters in their tracks and prevent dishonest claims at the source. A holistic approach to tackling insurance fraud is undeniably the most powerful deterrent. While you may have been beaten back to acceptance or heavily invested in detection, with LifeHash you can gain the advantage and prevent it.
Would you like to learn more about how LifeHash can help you to combat fraud?