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Flipping the Fraud Triangle

Catastrophic events create a huge opportunity for fraud. Pressure is brought on by a recent traumatic event and uncertainty may arise as to what will be covered, whether the insured has the money to cover short-term expenses, and even if they can cover their deductible. The sheer volume of loss robs adjusters of the time needed to spend on each claim, creating an easy opportunity for would-be fraudsters. 

Take for instance the unscrupulous roofer who tells homeowners whatever story they want to hear in order to get the job. These homeowners may not even know they are committing fraud, hence the rationalization. “My neighbor is getting a new roof, why isn’t mine covered?”  

Pressure, rationalization, and opportunity create what’s called the fraud triangle. So, how can we flip it?  First, it takes a willing and enlightened carrier with resources dedicated to a digital transformation.  A willing carrier will think differently and challenge the way things are currently done. The end goal is trust and transparency between all parties. 

How do we know who to trust? Data sources can help us understand how individuals and businesses have behaved in the past and what they’re currently up to. Let’s take the roofer who moseys into town after a major hail storm. Pulling data on that roofer can determine how long they’ve been in business, their customer reviews/star rating, and whether or not they’re truly local. These elements can help identify risks – like roofers who chase storms and defraud insureds by taking down payments and then disappearing. 

Having this data is only half the equation; the other half is knowing what to do with it.

Data providers that also consider themselves platform providers often hoard data, preventing other insurtech providers from taking full advantage of it. The real losers here are the carriers; they may have access to the raw data, but cannot use it to its full potential. Insurtechs that specialize in fraud detection, for example, could truly supercharge the claims engine with access to this and other data. Perhaps that shameless roofer has submitted too many supplemental claims or submits “unknown” damage on every claim; the naked eye might miss these clues. Data providers must update their business models to meet the needs of 21st century insurers and their customers, or their value will soon diminish significantly.

The fraud triangle only works when all three components are present. By flipping it on its head and identifying where the Opportunity and Pressure are, we can identify bad actors and make it harder for them to Rationalize their behavior. For major catastrophes, this amounts to happier customers and a huge savings on illegitimate claims. In other words, getting the right data to the right people at the right time is the key to making insurance honest.


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