MINNEAPOLIS, Oct. 4, 2012 /PRNewswire/ -- FICO (NYSE: FICO), the leading provider of predictive analytics and decision management technology, and the Property Casualty Insurers Association of America (PCI) today released the results of a survey of US insurers showing the high cost of insurance claims fraud. Forty-five percent of insurers estimated that insurance fraud costs represent 5-10 percent of their claims volume, while 32 percent said the ratio is as high as 20 percent. More than half (54 percent) of insurers expect to see an increase in the cost of fraud this year on personal insurance lines – policies designed to protect individuals and families – while less than three percent of insurers expect to see a decline in the cost of fraud on personal lines.
While it has commonly been estimated that insurance fraud accounts for up to 10 percent of property and casualty insurance industry losses, this new survey indicates that some in the industry believe that fraud could be much more prevalent. It also highlights areas such as application fraud where insurance companies see opportunities to improve ways to detect fraud and keep costs low for consumers.
Areas of fraud
Areas Identified As Most Exposed to
Areas Identified As Well protected
Personal auto fraud
Personal property fraud
Commercial auto fraud
Commercial property fraud
Workers compensation fraud
Insurers responding to the survey said they expect the most significant increase in the cost of fraud will affect personal property, workers' compensation and auto insurance. In terms of fraud by individual policyholders, 67 percent of insurers expect to see an increase in personal property fraud, 65 percent expect to see an increase in workers' compensation fraud, and 60 percent expect to see a rise in personal auto fraud. The majority of insurers (61 percent) attributed the increases in fraud to sustained economic hardship by policyholders.
While only 17 percent of insurers attributed the expected increase in fraud to a rise in the sophistication of criminal gangs, 60 percent expect a rise in workers compensation fraud rings, and 61 percent expect a rise in auto fraud rings. The survey also found that 76 percent of insurers believe there is increased risk of fraud in no-fault states compared to states with tort systems; 45 percent see the risk as significantly higher, while 31 percent see it as somewhat higher. Insurers have placed emphasis in recent years on implementing meaningful reforms to no-fault insurance systems in several large states due to spiraling medical costs (40 percent more than in states with tort systems) and rampant fraud. Much of this fraud is attributable to sophisticated fraud rings such as the $279 million no-fault insurance scam involving more than 30 individuals that was brought down in New York City this year.
"The insurance fraud problem is estimated to exceed US$40 billion globally and is showing no signs of abatement," said Russ Schreiber, who leads FICO's insurance practice. "The findings of the FICO PCI Insurance Survey demonstrate that insurers recognize the problem and are looking to improve ways to detect and prevent fraud earlier in the claims process."
"It is clear insurers understand the scope of the insurance fraud problem, and are taking steps to reduce it," said Robert Passmore, senior director of personal lines policy at PCI. "However, we also want that the public and policymakers to recognize that consumers are paying what amounts to a "fraud tax" that is far too expensive for hard-working citizens."
When insurers were asked about fraud-fighting initiatives that can have the greatest impact on insurance fraud, predictive analytics was identified as the most effective by 45 percent of respondents. Insurers also included the use of anti-fraud teams for specific books of business (37 percent), link analysis for detecting fraud (31 percent), business rules for stopping known fraud types (29 percent), and external databases (29 percent) as other useful fraud-fighting approaches.
"Early detection is the key to mitigating fraud losses for insurers," Schreiber continued. "Solutions like the FICO Insurance Fraud Manager not only help detect outright fraud, but also combat abuse and waste, the gray area of insurance claims."
The Insurance Fraud Survey included responses from 143 insurers throughout the U.S., who were surveyed in August 2012.
PCI is composed of more than 1,000 member companies, representing the broadest cross-section of insurers of any national trade association. PCI members write over $190 billion in annual premium, 40 percent of the nation's property casualty insurance. Member companies write 46 percent of the U.S. automobile insurance market, 32 percent of the homeowners market, 38 percent of the commercial property and liability market, and 41 percent of the private workers compensation market.
FICO (NYSE:FICO) delivers superior predictive analytics solutions that drive smarter decisions. The company's groundbreaking use of mathematics to predict consumer behavior has transformed entire industries and revolutionized the way risk is managed and products are marketed. FICO's innovative solutions include the FICO® Score — the standard measure of consumer credit risk in the United States — along with industry-leading solutions for managing credit accounts, identifying and minimizing the impact of fraud, and customizing consumer offers with pinpoint accuracy. Most of the world's top banks, as well as leading insurers, retailers, pharmaceutical companies and government agencies, rely on FICO solutions to accelerate growth, control risk, boost profits and meet regulatory and competitive demands. FICO also helps millions of individuals manage their personal credit health through www.myFICO.com. Learn more at www.fico.com. FICO: Make every decision count™.
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Except for historical information contained herein, the statements contained in this news release that relate to FICO or its business are forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially, including the success of the Company's Decision Management strategy and reengineering plan, the maintenance of its existing relationships and ability to create new relationships with customers and key alliance partners, its ability to continue to develop new and enhanced products and services, its ability to recruit and retain key technical and managerial personnel, competition, regulatory changes applicable to the use of consumer credit and other data, the failure to realize the anticipated benefits of any acquisitions, continuing material adverse developments in global economic conditions, and other risks described from time to time in FICO's SEC reports, including its Annual Report on Form 10-K for the year ended September 30, 2011 and its last quarterly report on Form 10-Q for the period ended June 30, 2012. If any of these risks or uncertainties materializes, FICO's results could differ materially from its expectations. FICO disclaims any intent or obligation to update these forward-looking statements.
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