Fraud is a lingering concern for US life insurance carriers, presenting a myriad of challenges. Through the 2024 US Life Insurance Fraud Survey, conducted by RGA and MIB, 25 carriers shared their pain points, and detection and prevention practices. The resulting insights can help sketch a blueprint for combating this pervasive risk.
Explore the survey report for deeper details
Concerns over fraud – detection, mitigation, prevention, and cost – are top of mind for US life insurance carriers. This unfortunate reality is supported by results from the RGA/MIB 2024 US Life Insurance Fraud Survey.
The trifecta of fraud, misrepresentation, and anti-selection has a profound financial impact on the insurance industry, but the costs spread even further. The ripple effects span from increased premiums for policyholders to decreased profits for carriers. It is estimated to cost each US household around $600 annually in increased premiums to offset these losses. Therefore, it is vital to identify and implement effective approaches to mitigate the risks.
To that end, RGA teamed with MIB, an industry leader in data insights and digital solutions, to survey US life insurance carriers. The findings provide observations into the impact of fraud on their businesses and their perspectives on detecting and combating it.
RGA conducted a similar survey in 2016, allowing for a measure of comparison and a view into the evolution of insurance fraud over that time.
Survey respondents were asked to rate their level of concern with different types of fraud, as well as the difficulty of detecting them and the cost to combat each type.
The largest area of concern rests with medical misrepresentation – an applicant providing untrue or incomplete medical information. It had an average ranking of 4.0 on a scale of five, where one is not at all concerned and five reflects the highest level of concern.
Stacking – when an insured pursues multiple policies to increase their coverage – was positioned next by carriers (3.0). The 2016 survey found agent fraud as the second-highest concern
Listed third, with a 2.9 average ranking, was criminal fraud (e.g., forgery, falsifying underwriting evidence, fake death).
Several types of fraud are considered particularly difficult for insurers to flag.
Respondents chose rebating (3.6) as the most difficult to detect. This is defined as returning a portion of the premium or agent/broker’s commission to the insured to entice business with a specific insurer.
Criminal fraud and community fraud (when travelers or nomadic people conspire to conceal an insured’s illness or medical condition) tied as the second most difficult to detect (3.3).
The insurance industry deploys significant money and resources to detect and combat fraud. Insurers listed medical misrepresentation (3.2) as the costliest. This was followed by criminal fraud (2.6) and non-medical misrepresentation (2.5), such as career omissions, adverse driving histories, and/or aviation-related non-disclosures.
Ninety-six percent of insurers that offer accelerated underwriting (AUW) products are concerned about fraud. For the purposes of the survey, AUW is defined as a fully underwritten process by which certain requirements are waived for a portion of applicants who demonstrate favorable risk characteristics. To offset the associated cost, 65% of these respondents limit the policy face amounts and implemented specific age parameters. Some carriers also increase eligibility requirements, including health and medical history.
The most common ranked medical misrepresentation associated with AUW policies related specifically to tobacco use, followed by other types of misrepresentations. Survey findings showed an estimated average of 22% of cases are eliminated from the AUW process due to discrepancies between disclosures and the evidence collected. Respondents also indicated they are limiting the amount of written AUW business to minimize the volume and/or the cost of misclassification. There is a greater use of protective value requirements in the AUW triage process or criteria.
Fraud concerns are hindering online insurance distribution, with 10% of insurers indicating they lack the risk appetite. Of those offering this type of distribution, 60% limit policy face amounts and have age restrictions to guard against anti-selection risk.
Life insurers are striving to form a strong defense to prevent fraud. The RGA/MIB survey found that a vast majority of respondents – 84% overall – have designated investigative individuals or teams to detect and respond to fraud. Of those, more than half use a Special Investigation Unit (SIU).
These teams are comprised of an average of five full-time employees. This is a significant increase from the 2016 survey findings, where carriers averaged only one full-time employee dedicated to fighting fraud.
Insurers have made a concerted effort to incorporate more tools as part of their fraud prevention measures. Since the 2016 survey, the available options have grown exponentially in capability and count.
Nearly all respondents reported they use prescription histories and the MIB Checking Services and/or Insurance Activity Index (IAI) to detect and mitigate fraud in life insurance applications. More than 80% of carriers also use electronic health records, MIB Plan-F, and criminal history checks. Another seven methods, ranging from credit-based risks to online services (e.g., Zillow, Google Street View, etc.), are employed by more than 60% of carriers, showing the range of tools deployed to combat fraud.
Insurers are exploring additional options to include in this fight. MIB In Force Data Solutions (Jumbo and/or Total Line) and identity verification ranked highest as new tools.
Underwriting remains the front line in the battle against fraud, especially agent fraud. The survey found more than 80% of carriers have intensified underwriting training to help identify red flags and have increased their use of the MIB databases.
Nearly one-third of respondents use algorithms or analytics tools to flag questionable underwriting applications. This is three times the number noted in the 2016 survey, which is not unexpected given technology advancements over the past eight years.
Reported examples include:
More than 70% of insurers are interested in using data analytics or technology-based tools to detect fraudulent applications. While only 5% of carriers use AI to combat fraud at this point, another 24% are actively exploring AI solutions.
Insurers would consider additional underwriting tools but lack the necessary data for them to be effective. These tools include:
Insurers are expecting further innovations to emerge over the coming years to mitigate fraud, according to the survey.
Taking a holistic view of the survey results, RGA recommends four key best practices.
Fraud presents a credible and persistent threat to the life insurance industry. The absence of a single all-encompassing solution may make thwarting fraud seem daunting. Yet a concerted effort by carriers can enable better detection and prevention. This involves using enhanced resources, training, tools, and data sources.
This includes contributory databases such as MIB’s Data Vault. As more insurers participate in this industry-wide resource and scale increases, the database will enable a more robust exploration of anti-selective behavior and fraud. Without such tools, an individual insurer has very limited ability to detect policies held with other carriers. Collectively identifying “red flags” can enable insurers to ask more questions of applicants and reduce fraud risk. Learn how to get started.
The valuable insights from the 2024 US Life Insurance Fraud Survey provide a blueprint for combating this ever-evolving concern. To discuss the survey results and potential solutions in greater depth, contact RGA.
