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Managing Fraud from Quote to Claims

September 2011
“Why are my premiums so high?” If you are in the personal passenger auto insurance industry, this is a familiar question. This complaint is commonly heard by agents and call center representatives. Unfortunately, the answer is that a significant portion of that premium is paid out in fraudulent claims or lost to rate evasion. The Insurance Information Institute estimates that fraud accounts for 10 percent of the property/casualty insurance industry’s incurred losses and loss adjustment expenses, or about $30 billion per year. If carriers can find effective tools to reduce fraud, rates will go down.

Fraud can take on many forms. There is a small group of individuals who think being “creative” on their auto application to get a lower rate is acceptable. Many of them believe that everyone does this, but the truth is most people are honest and forthcoming on their applications. Unfortunately, the honest clients pay higher than necessary premiums, because they are subsidizing the small percentage who misrepresent their application information. Professional fraudsters develop complex plans to steal from insurance companies. The one constant is that this fraud increases the cost of insurance, and the cost is ultimately borne by the policyholders.

Carriers are constantly seeking new tools to fight fraud and solutions to deploy at the point of the quote. It is much more effective to validate questionable application data—and possibly not issue a policy—than try to avoid paying a claim that has a high likelihood of being fraudulent. Carriers are also searching for products that can scan application data in real-time, compare that information to multiple validation databases and employ sophisticated analytics to determine the applications that warrant further validation. TransUnion’s Risk Verification Platform is able to deliver smart, actionable results in real-time at the point of quote.

Risk Verification Platform accesses identity information by interrogating the most complete set of comprehensive, current data sourced from multiple independent databases. Using advanced match logic, Risk Verification Platform can determine the identifying data with the highest probability of accuracy. In applications with multiple carriers, Risk Verification Platform found 5.8 percent of the applicants had a high likelihood of living in a higher-rated territory.

Risk Verification Platform contains some of the most complete and up-to-date information available for vehicles. In real-time, Risk Verification Platform can deliver brand histories. Junk, salvage, flood, fire and rebuilt titles can be identified instantly. Risk Verification Platform identified almost two percent of applications made to a group of preferred carriers; nearly one in every fifty included vehicles that had been rebuilt.

Recent accident information is also available, including collision damage estimates and estimates that resulted in vehicles being declared a total loss. The same group of preferred carriers found that 4 percent of the applications included automobiles that had a repair estimate for collision damage in the previous ninety days. In addition, 2.4 percent of the applications contained a vehicle with a commercial registration.

The following are examples from recent Risk Verification Platform activity. In these cases, carriers provided data from policies they issued and TransUnion processed that data through Risk Verification Platform. Industry experts in claims fraud reviewed the applications and provided their opinions.

Example 1: Texas Policy

In this example of a Texas policy application, Risk Verification Platform identified the individual as having a high likelihood of providing a false identity. In addition, Risk Verification Platform found the actual address of the applicant was in a higher rated territory than the address provided with the application. Finally, Risk Verification Platform found several problems with the vehicle. It had been involved in a collision repair estimate in the previous 90 days, and the vehicle’s title had been branded as a total loss and later rebranded as a rebuilt vehicle. The experts concluded that this policy showed the signs of a rate evader with previous vehicle damage and a risk of producing a fraudulent vehicle-damage claim.

Example 2: Florida Policy

In this policy application example from Florida, Risk Verification Platform recognized that the input address was a mail drop—the actual address was in a higher rated territory. In addition, the vehicle title was branded as having been a dismantled vehicle. The combination of a mail drop and dismantled vehicle is the classic combination of staged PIP fraud. The experts concluded that the policy was at risk of suffering both a fraudulent PIP loss and rate evasion.

Example 3: Multiple Policies

In this case, several Florida policies were found with the same characteristics. Risk Verification Platform identified each of the application addresses as a mail drop. In addition, Risk Verification Platform was unable to locate valid addresses for the applicants, and each of the vehicles had commercial registrations. The experts concluded the policies had high likelihoods of containing vehicles used in commercial businesses for which the applicants were attempting to gain personal passenger policies.

Risk Verification Platform can help carriers improve pricing accuracy and address fraud. The solution decreases losses by verifying critical data early in the claims process. It allows carriers to identify applications that require more attention and delivers actionable instructions to lead carriers in the next critical steps of the process. Risk Verification Platform allows carriers to accurately and fairly price policies and establish fairness for their honest policyholders.