So much fraud, so little done about it. What is done is focused at the end of the customer lifecycle. Yet the losses from fraud all come in the front door via Underwriting. From a process perspective Underwriting look a lot like a manufacturing process: a whole host of raw materials in the form of customer application information, credit ratings and other external data are input to a process that converts them into a finished Automotive Insurance policy where premiums are accurately matched to risk with enough margin for operating costs and investor’s return left over.
But the problem is that a lot of the raw materials are defective. Customers don’t provide accurate and complete information so that the underwriting process can generate the right policy and premium. The result is a defective policy which has an expected value which is negative. The industry tries to solve some of these problems after fraud emerges in claims but by and large they don’t go back to the front of the process where the defective informationn enters the system. It would be like a car company having a warranty problem because of a defective part and instead of going back and reengineering the part they just keep fixing the inevitable failures.
What would a TQM fraud risk management process look like:
1. Emphasis on measurement: to understand how the system needs to change to eliminate defects you need to have as comprehensive understanding of the what defects occur, how often and at what cost in terms of excess claims or underpaid premiums.
2. Emphasis on up front screening to catch defects before they enter the system
3. Emphasis on a stable process to resolve fraud issues
4, Performance metrics that incent focus on reducing fraud defects