What P&C Insurers can learn from New York City

Thirty years ago New York City was a mess, the streets were trash strewn and potholed and people were fleeing in droves. There were so many panhandlers, squeegee men, gang bangers and prostitutes that it seemed like they owned the place. Then Rudy Guliani was elected Mayor and named William Bratton to be police chief. Bratton was a proponent of Professor James Q. Wilson's 'Broken Windows' theory. Wilson argued that the disorder and incivility that unchecked petty crime caused bred attitudes and behaviors that made the city's serious crime worse.  He argued that if New York wanted to reduce crime it should start by cracking down on the petty lifestyle crimes: littering, prostitution, panhandling, graffiti. New York City took his advice and as a result is now the safest big city in America.

The Automotive Insurance industry has a similar problem. Our work with carriers indicates that petty 'underwriting' fraud - where customers hide or lie about their true risk profile to get a lower rate - is disturbingly common. While there are some fitful efforts to fight it, petty fraud has historically been a low priority in the industry - the cost gets passed on to policyholders. But like with New York, the pervasive nature of petty underwriting fraud sends a signal to less ethical customers that it's OK or at least not risky to cheat their insurance carrier. And what starts as a little 'white' lie to get a lower rate can erode the moral barrier to more serious fraud.

This less than optimal state of affairs was understandable so long as there was no cost-effective way to find and resolve this type of fraud. But that's no longer true because increasingly there are automated techniques and tools that can identify, intervene and resolve many underwriting frauds during the customer's quote session. My company, VeracityID has pioneered many of them. Their existence means that aggressive carriers can improve their bottom line, get a jump on the competition and reduce the cost of insurance to consumers.

It's an exciting time to be in this business.