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Internal Fraud Detection for Insurance Agencies

Valire’s innovative cognitive computing systems provide insurance companies effective and efficient internal fraud detection for operations & logistics, accounts payable, and financial risk.

A Staggering 43% of Private Insurance Companies Have Experienced Fraud

Privately held insurance companies are required to use compliance software, and an increasing number of them are implementing highly advanced systems for protection. A private company that believes upgrades in the way of innovation isn’t necessary is heading towards imminent danger.

49% of Organizations Don’t Recover Loss from Fraud

18 Months is the Average Time Before Fraud is Detected

Close to half of all victims of fraud do not recover their losses from internal corporate fraud. Research shows that most capital extracted from business fraud doesn’t go into investment properties or other recoverable items but is instead spent on lifestyle enhancements or in substantial cases, transferred overseas. The former is usually smaller amounts stolen frequently over a long period of time. This is highly concerning since 33% of businesses that experience fraud eventually fail.

Even with fraud protection solutions, most insurance companies discover their losses months and even years after the crime. During this time, a fraudster can continually take from a company, which can leave devastating effects that may sometimes lead to irreversible loss. However, with more internal controls implemented, like a system that uses machine learning and human logic, the damages can be kept to a minimum and the fraud can be discovered quickly. In addition to an advanced solution that uses cognitive computing, deterrents that can help include anti-retaliation practices, employee training, and a commitment to having a whistleblower policy.

Common Types of Internal Fraud at Insurance Companies

Dividend Check Distribution

Employees of insurance companies, especially those dealing with claims, may have the ability to request a dividend check and deposit the amount into a falsified bank account or their own account while changing the address on file until after the amount is disbursed, leaving it virtually undetectable without machine learning and human logic technology.

Settlement Check Distribution

An insurance broker or claims agent may change the address of the recipient of the settlement check to redirect the payment and quickly change the address back to the policyholder immediately following confirmation that the check has shipped.

Premium Fraud

Accounts payable staff at insurance companies have the ability to redirect or collect a customer’s premium payment, which leaves the customer unaware and uninsured.

Fabricated Recipient

Insurance agents or brokers usually have the power to change the beneficiary of a policy. They may change a policyholder’s spouse to themselves or someone they know to collect death claims.

Underwriting Discrepancies

Underwriters and other agents within the organization may use equity funding techniques, like piggybacking. Misrepresentation and falsifying information are also common fraud techniques to achieve illegal financial gain for a customer, for example, fake medical information, birthdays, addresses/regions, driving history, etc.

Corruption

Corruption refers to the misuse of customer data, where staff inside the organization can get access to customer or employee data to use it for fraudulent purposes or to obtain credit.

Fraudulent Financial Reporting

This refers to authorized or unauthorized access to accounting applications, financial reporting tools, as well as subsystems where they have access to post fake entries. Fraudulent activities also include the override of system controls where IT personnel may be able to get access to program change controls and restricted application access. As such, they may be able to fraudulently adjust records.

Misappropriation of Assets

Accounting systems that track and record various activities related to assets may use IT to hide their criminal activity. For instance, an individual can create a fictitious vendor for the facilitation of payments through fake invoices and may even steal inventory.

Insurance Compliance & Regulation

The National Association of Insurance Commissioners (NAIC) was formed by state insurance regulators in 1871 to protect multistate insurers. This nonprofit, nonpartisan organization is controlled by the chief insurance regulators of the 50 states, the five U.S. territories, and the District of Columbia. It has established insurance law and regulation, setting the standards for insurance regulations by state.

Valire Has Set a New Standard – We embed human logic and decades of anti-fraud expertise into pre-configured algorithms.

Valire Software is versatile and flexible, each instance customized with unique detectors to meet each organization’s needs.

NAIC also provides resources and information to consumers. As such, insurance products sold in the U.S. are regulated by the state government, instead of the federal government. Insurers also do their business in various states, where they implement insurance regulatory compliance. However, this regulatory authority is still given to states along with their appointed insurance commissioners.

Benefits of Insurance Companies Using Valire Software

Accurate Data: Provides analysts with current data and a look into what’s to come, allowing them to work quickly and efficiently.
The Capture of Fraudulent Activities: With accurate cognitive computing, fewer fraud activities will go unnoticed.
More Efficient: The whole team will be able to stress less, knowing that their system is working hard to detect fraudulent activity.
Less Need for Administrative Intervention: Cognitive computing relies on machine learning, making administrative intervention virtually unnecessary.
Security: Valire’s high-security standard covers everything from upstream firewalls, security audits, and many other best practices in security.
Streamlined Processes: Through higher productivity levels, cost-cutting is possible, along with a better customer experience.
Rapid Deployment: The deployment of our system will usually take place between 4-8 weeks.

WHY IS HUMAN LOGIC SO IMPORTANT IN FRAUD DETECTION FOR INSURANCE COMPANIES?

In the past, we relied on analysts and computers to examine structured data to identify fraud. Adding human logic to raw data allows us to use real-time computing and natural processing to see fraud in various transactions with minimal errors. Internal auditors and fraud detection units will generally manage all the systems and data for storing and processing fraud detection.

What does this mean?

This process is now in demand more than ever, with IT playing a bigger role when it comes to preventing and catching fraudulent activity. As such, whether an employee comes from a fraud or IT background, they will need to be well-trained to combat this modern threat, still with the risk of human error. One strategy that many businesses are currently using is to have team members work as both fraud analysts and IT experts. This cannot replace the value of internal fraud detection via cognitive computing.

Use Cases in Fraud Detection

Language recognition

For some companies, the huge volumes of data can make it impossible for IT personnel to accurately evaluate everything. In these situations, Natural Language Processing can be a great help. NLP allows machines to read, understand, and conclude details from human languages.

Risk assessment

When risk assessment is applied to huge sets of data, cognitive computing will be able to help companies process information faster and more accurately. Moreover, cognitive computing is now used in risk management, where it can successfully uncover signs of unknown and known threats.

Predictive analysis

Machines can outperform humans when it comes to processing tons of data. Instead of identifying patterns set by the rules, they can recognize hundreds of patterns from a user’s experience. Adding cognitive technologies to raw data will allow us to get insights into a wide range of transactions.

How Valire Software works

Valire uses cognition-guided AI detectors to consistently monitor corporate IT systems, detect occurrences of fraud from our databases, and authenticate activities that are part of the whole business process.

Here is how we can achieve this:

Using our exclusive database, we examine historical data to match possible fraudulent activities.
Any activities in the system will be closely monitored in real-time.
We will assign such events to an appropriate business process.
We’ll check business processes through Valire’s fraud database.
We will provide real-time notifications for any potentially fraudulent activities, while reducing false positive output.

Through Valire Software, insurance companies will benefit from:

On-cloud or an on-premises deployment
Demonstrations of Proof of Value for ROI analysis
Configurations of business processes in as little as a few days
Interactive dashboards for better judgment and reporting
Out-of-the-box library for fraud scenarios
Software-as-a-service (SaaS) support and updates
Fine-tuning of the system regularly

Get started on your journey towards protecting your insurance agency from internal fraud. Contact Valire Software today for insurance regulation & compliance needs. See the kind of difference we can make in your company with our cloud-based and easy-to-use fraud detection solution.

CONTACT US

Valire software LTD.

info@valiresoftware.com

Phone

646.856.0347

Location

United States & Israel