The Future of Insurance Payments: Harnessing Alternative Data to Combat Fraud

As the digital landscape advances, so do the methods of fraudsters seeking to exploit vulnerabilities within the insurance industry.

Insurance fraud has a $308.6 billion annual cost to U.S. consumers and businesses, according to the Coalition Against Insurance Fraud. It’s essential for financial professionals across all sectors to remain vigilant and proactive in their efforts to detect fraudulent activities. In this blog, we will discuss the constantly evolving issue of insurance fraud and how alternative data and advanced identity solutions can bolster detection efforts before it’s too late.

Understanding the Scope of the Issue 

Insurance fraud occurs across multiple sectors, including life, health, property, casualty and workers’ compensation, posing a significant risk to the financial stability of both insurers and policyholders alike. According to statistics from the National Association of Insurance Commissioners (NAIC), the annual costs of insurance fraud are staggering.  

In 2022 alone, losses amounted to: 

• $74.7 billion in life insurance 
• $45 billion in property and casualty insurance 
• $36.3 billion in health insurance 

Additionally, the prevalence of identity theft further exacerbates the issue. Consumers reported losses of nearly $8.8 billion in 2022, according to the Federal Trade Commission (FTC). 

The Role of Alternative Data and Identity Solutions 

In the fight against insurance payment fraud, traditional methods of verification and authentication may no longer suffice in today’s rapidly evolving landscape. This is where alternative data and advanced identity solutions come into play. By harnessing a diverse array of data points beyond traditional credit scores and financial histories, insurers can gain deeper insights into the legitimacy of individuals and transactions, thereby reducing the risk of fraudulent activities slipping through the cracks. 

Benefits of Utilizing Alternative Data 

Alternative financial data, such as banking transaction histories, utility bill payments, and even social media activity, can provide valuable indicators of an individual’s financial stability and behavior. By analyzing these non-traditional data sources with existing risk assessment models, insurers can more accurately assess the likelihood of fraud and make informed decisions about policy issuance and claims processing. 

Enhanced Identity Verification 

In addition to leveraging alternative data, updated identity verification solutions play a crucial role in preventing identity theft and fraudulent transactions. Advanced technologies, such as biometric authentication, device recognition, and artificial intelligence, enable insurers to verify the identity of applicants and policyholders with greater accuracy and efficiency. This not only reduces the risk of fraudulent applications but also enhances the overall customer experience by streamlining the onboarding process. 

Looking Ahead: The Future of Fraud Mitigation 

As fraudsters continue to adapt and innovate, the insurance industry must remain proactive in its approach to fraud mitigation. By embracing alternative data and updated identity solutions, insurers can stay one step ahead of emerging threats and safeguard the integrity of the payments landscape.  

At ValidiFI, our bank account and payment experts have seen firsthand the impact that alternative financial data and updated identity verification methods can have on combating insurance payment fraud. By embracing these technologies and collaborating across industry lines, we can work together to protect businesses, consumers, and the integrity of the insurance industry. 

ValidiFI remains committed to driving innovation and empowering financial professionals across all sectors to combat fraud effectively. Visit vFraud or contact us today to learn more.