April 10, 2013 by Canadian Underwriter
While the top-tier insurance companies have typically been the first to invest in sophisticated claims fraud detection technology, insurance companies of all size will be increasing their spend on such tools over the next three to five years, says a new report from Celent.
In a difficult economic environment, addressing claims fraud is especially crucial for insurance companies looking to improve loss ratios, says the report, The Market Dynamics of Claims Fraud Detection from Celent.
“Claims fraud detection is an area where insurance companies will drastically increase their investments in the next three to five years,” Nicolas Michellod, a senior analyst with Celent’s Insurance Group and author of the report noted in a statement.
“The pace of insurers’ investments in claims fraud detection systems will depend on their understanding of the importance of analyzing data using modern technologies.”
Celent says that the claims fraud detection system market will grow at a single-digit pace until 2014. Between then and 2018, the growth will be accelerated by more insurance companies adopting big data infrastructure and by the need to improve technical ratios.
The report is based on research profiling of IT vendors who offer claims fraud detection tools and a survey at the beginning of this year focused on data in the insurance space.
It also looks at 13 technology vendors currently offering claims fraud detection solutions, including both prominent, well-known companies and newer players to the space.
The mid-tier and top-tier insurance companies have been the first to invest in “modern and sophisticated claims fraud mitigation tools,” with nearly half of the deals announced by IT vendors done with insurance companies that have more than $1 billion in annual premium, the report says.
Just under 40% of respondents included in Celent’s research have already invested in tools supporting fraud detection, and more than 40% have already invested in predictive analytics technology, according to the report.
The proportions were lower for investment in data visualization and social and sentiment analysis tools, the report notes.
About 60% of the insurance companies say they plan to invest in predictive analytics, fraud and data visualization tools, the report also notes.
About 16% ranked fraud detection as a top priority when leveraging big data tools, behind customer segmentation and pricing optimizations.
While Celent says it expects more insurance companies to invest in claims fraud detection technology, the challenge will be in using external data and leveraging big data infrastructure, the report notes.
Insurers must also invest in their staff skills to fully capitalize on the various sources of data to fight claims fraud, the report suggests.