Carriers tend to look at policy risk as a whole: what do 20 something single men in zip code 44444 driving 1999 Camaros cost? Then carriers adjust for policy risk using claims experience, credit score, and driving record as proxies for the overall behavioral risk of a driver. But there is another large dollar class of risks that very widely among policies but is almost always ignored when estimating risk at the policy level: fraud and misrepresentation.
There have been good reasons for not differentiating policy risk using fraud – historically there has been no find, much less measure fraud and misrepresentation at the individual policy level. But this means that every policy has a significant fraud cost bundled into premiums. The carrier that can identify and unbundled these costs will have a significant long term pricing advantage.
We believe by explicitly focusing on fraud risk carriers can generate savings in excess of ten percent of net premiums written. And we believe much of this can be achieved in the short term. Why do we believe this?
- Digital transformation will give carriers the real time data necessary to identify and eliminate fraud risk.
- New digital tools allow for real time identification, intervention and elimination of fraud during transactions.
- New behavioral insights are leading to new, more effective ways to use technology to understand and influence customer behavior.
- Explicitly make fraud identification and reduction part of the carrier’s digital transformation agenda
- Use current systems and operations to experiment get early wins with the emerging tools and techniques
- Shift organizational thinking on fraud from passive neglect to active management.