Managing Fraud: A Claims Perspective
Rahul Gupta
Claims Manager
RGA Middle East
Better cross-team collaboration strengthens risk-management practices and fights the rise of fraudulent claims.
MENA insurance markets have recorded robust growth in recent years, and the outlook remains optimistic in comparison to other mature markets. This is despite headwinds due to the global economic slowdown, the regional impact of lower oil prices and measured infrastructure spending. In addition, the governments in the GCC (Gulf Coorperation Council) countries are in the final stages of implementing compulsory health insurance cover which is expected to contribute to the growth. Workers’ compensation is also popular in the region, providing insurance benefits to lower-income groups.
Life insurance is a small component of the GCC insurance sector, due mainly to low awareness and cultural reservations on mortality-based insurance products. The product is largely popular among expatriates, who invest in life insurance as security against adversity. The life insurance market in the UAE is the largest – accounting for 75% of the GWP in the GCC – as well as the fastest-growing among the Gulf countries.
Fraudulent claims on the rise
While the growth is good, there are challenges in claims management, especially in the areas of fraud and abuse. These claims challenges provide insight into the behavioural changes taking place and present opportunities to strengthen risk-management practices.
RGA Middle East conducted a survey on suspected fraudulent activity in life and disability claims from January to December 2018. The results showed that 30% of participants have seen a rise in suspected fraudulent claim activity in the 12 months prior, while 50% of participants reported that up to 2% of total claims were suspected as fraudulent. One third of participants confirmed admission of more than 15% of suspicious claims due to lack of sufficient evidence to repudiate these claims.
In addition, internal factors contributed to an increase in fraudulent claims with 56% of participants saying that policy wording was not clearly defined. Meanwhile, 22% of participants cited high free-cover limits/high non-medical limits, and 22% cited that the claims team was not consulted during product design as other contributing factors.
Internal and external factors for early fraud detection
RGA shared the results of the survey with the participants, and a task force was formed to identify internal and external factors for early fraud detection.
Internal factors
Some of the internal factors include:
- Risk control unit – Insurers need to establish internal risk-management teams entrusted with managing internal and external fraud. These teams should have authority to investigate suspected fraud and implement dynamic corrective measures to ensure strong risk-management practices.
- Product development – Claims teams need to be involved during the product development process in order for them to highlight the potential challenges and loopholes where fraudulent practices may arise. Input from the claims team, particularly in relation to policy wording of definitions and exclusions, ensures an increased alignment between the intention of the wording and its application at claims stage.
- Policy language, declarations and exclusions – Non-specific policy wording is giving rise to increased administrative challenges, and potential points of entry for abuse. The insurance policy is a legal document and should provide adequate protection to insurers against fraudulent acts while still providing certainty to policyholders. Lessons learnt from other markets as well as the impact on pricing and the long-term sustainability of the portfolio should be considered before any exclusions are removed.
The following should be included:
- Strong self-declarations/affirmations of true medical and financial disclosures by the insured at the end of the application and the claim forms for additional protection against anti-selection;
- A signed authorisation from the insured and the claimant as part of the process, allowing the insurer to perform proper investigations during the policy and the claims stage if required;
- Policy wording that allows for procuring financial and medical-related documents at the claims stage; and
- Clear language in the policy document detailing the consequences for not providing accurate, complete, or truthful information .
- Data management – Insurers need to record relevant data and analyse it to understand the emerging trends and behavioural patterns of customers. Capturing the profile of customers with patterns of suspicious claims is an effective measure in analysing ongoing entry points. Curbing these fraudulent events allows competitive premium rates and tighter controls on risk-management practices.
- Feedback on other functions – Open communication and regular feedback between different functional areas such as product, pricing, underwriting, and claims teams bridges the gap in claims processes and enables effective risk-management practices. Specifically, stricter underwriting practices for credit life policies and decreased FCLs to minimise anti-selection, are recommended.
- Training and development – Training is a key factor in strengthening the claims adjudication process. Few companies have structured in-house training programmes for new staff, or regular development/continuing education programmes for existing staff, to ensure strong claims management practices. Training programmes do not always require a separate team to implement. Companies should recognise the expertise held by seasoned employees who can be a strong resource for sharing knowledge and ensuring consistent practices within the team.
External factors
Some external factors include:
- Sharing of information regarding declined/postponed applications within the industry; lack of claims professionals; challenges in accessing medical reports/documents from the hospitals and clinics; and lack of external investigation agencies.
- Regulatory body – The market is not currently highly-regulated although regulatory compliance is improving. Regulations in the GCC insurance sector are heterogeneous with policies and requirements varying among the countries. Many large companies have business presence across the region, resulting in a need for regulation to be homogenous across the GCC. There is no standard operating procedure, hence the companies have their own internal practices in terms of management of underwriting and claims functions, leading to a huge disparity in the industry.
- Market behaviour – The insurance sector in the GCC is overcrowded with approximately 62 insurers in the UAE alone competing in the less diversified product portfolio. As a result, competition negatively impacts quality and profit. As the broker/policyholder can change their cover annually, there is little opportunity to build long-term relationships even in this predominantly group market. There is strong pressure from brokers/policyholders to pay claims on the provision of only basic documentation, with resistance to attempting to obtain further information to validate claims. Value-added services are restricted.
While the industry currently works in silos, there are internal factors that can be managed by each company so that they can in turn have better control over the external factors. Communicating with and educating teams are key to spreading knowledge and sharing approaches that help solve the problem of fraud.