According to the Coalition Against Insurance Fraud, life insurance fraud ranks second among the most expensive types of insurance fraud nationwide. The Coalition notes that life insurance fraud results in annual losses of $74.4 billion. Among the most common frauds are medical misrepresentations, agent fraud and criminal fraud (Reinsurance Group of America). Here are two more sobering statistics regarding life insurance fraud:
- Approximately 1% to 3% of all life insurance claims are investigated for fraud or misrepresentations. (Reinsurance Group of America)
- 87.5% of life insurance companies said they limit their offerings based on the risk of fraud. (Reinsurance Group of America)
The life insurance industry is doing more than just auditing insurance claims and limiting their offerings due to fraud, they are also deploying new fraud detection strategies and technologies.
Detecting Fraud
Life insurance companies are now incorporating fraud detection into their overall operations. In an effort to detect and prevent fraud and the associated losses, carriers are hiring special investigation units to monitor fraud (Insurance Information Institute) and are applying sophisticated fraud detection strategies and monitoring software which incorporates Artificial Intelligence (AI). The Coalition Against Insurance Fraud reported that 96% of insurers currently use anti-fraud technologies to detect fraud. These technologies offer red flag detection, predictive modeling reporting, case management, exception reporting, and data visualization.
Additionally, to maintain accurate data on insurance fraud, 42 states and the District of Columbia now require insurance companies to report fraud to the appropriate bureaus and agencies. (Coalition Against Insurance Fraud). There also has been the formation of a national agency, The International Association of Special Investigating Units, whose role is to educate and train insurance fraud investigators. The industry is also stepping up its efforts to address escalating insurance fraud as evidenced by a new alliance between LIMRA and the SPARK Institute.
LIMRA and the SPARK Institute Collaboration
On February 28, 2024, LIMRA, a 700-member organization which provides industry knowledge, insights and solutions to the life insurance industry, and the SPARK Institute, which represents a broad-based cross-section of retirement plan service providers and investment managers, announced that they had joined forces to enhance fraud prevention measures within the retirement services industry. Their strategic collaboration’s mission is to establish industrywide initiatives to better fight fraud. In making the announcement, SPARK Institute Executive Director Tim Rouse stated, “The evolving landscape of financial fraud demands a proactive and collaborative response from the industry. Our partnership with LIMRA will strengthen the industry’s collective defenses, protect the interest of our members and ensure the long-term security of retirement assets for the millions of American workers that depend on us.”
The key components of the LIMRA/SPARK collaboration will be a fraud prevention benchmarking study to be completed by the first half of 2024, industry and consumer fraud awareness, fraud incident and threat intelligence sharing among industry members, and financial services fraud and data security summit.
Head of Financial Crimes Services for LIMRA and LOMA Russell Anderson said, “We are excited to collaborate with the SPARK Institute on this vital initiative. By combining our expertise and resources, we can drive meaningful change in fraud prevention…”
