This tends to result in markets where the ability to measure and segment risks is changing rapidly. Early movers who figure out a better, more precise way to gauge risk engage in price arbitrage against their slower competitors, stealing the better, lower risk business with deep discounts derived from the savings from avoiding the now visible higher risks. The higher risks, facing higher prices inevitably gravitate to competitors who can't yet discern the elevated risk. So far as we can tell, nothing significant like this has happened for quite some time. It's been so long since there has been major change in risk assessment and segmentation that the industry has assumed it away, focusing their attention on distribution and cost management innovation. But insurance is the business of measuring, pricing and managing risk. And there are signs that fraud management will drive a comeback in risk measurement and segmentation for competitive advantage.
As everyone says but does little about: up front underwriting fraud as well as back end claims fraud are big issues, particularly in the Auto Insurance market. As a result a number of new tools and techniques have emerged that help carriers to screen out more and more dishonest application data and potential claims fraudsters every day. This means that carriers that aggressively focus on fraud and misrepresentation could rather quickly save 5 percent or more of premium. That scale of improvement if pursued systematically, will give them the profitability and flexibility to win the risk segmentation and price arbitrage game.
We're VeracityID and we're an innovator in real time automated fraud detection, management and mitigation. Our solution: idFusion was developed in conjunction with a top 5 global insurer. idFusion is a platform that overlays on your existing systems and that can be implemented in a matter of months. This means it can quickly start delivering the results that will allow you to play the Fraud and Errors risk arbitrage game to win.