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. 

How customers get auto insurers to pay for preexisting damage (and how to stop them)

Say you have some damage to your car: nothing big, maybe a few dents up front with some scratches amounting to a few thousand dollars in repairs. You’d like to get the insurance company to pay for it but you’ve only got state minimum liability coverage. You’re out of luck, right? Not if you’re willing to cheat. This is the story of Mr. Smith, (not his real name) a mild-mannered accountant who hated paying for auto insurance. Mr. Smith was a 'Policy Rocker', a type of fraudster that preys on insurance carriers and their customers.

Every year Mr. Smith would sign up for the state minimum required liability insurance on his cars. Occasionally his cars would have a fender bender or other damage. When the total damage on any one car grew to between $3,000 and $5,000, Mr. Smith would sign up for an expensive low deductible comprehensive auto insurance policy. In the first week to month of that policy he would file a claim for the accumulated damage on the car, claiming a fictitious casualty ‘event’ that just happened to not have a police report.

Now the insurance carriers that Mr. Smith did this to weren’t stupid. They knew that his claims were a bit ‘odd’ but without proof it was just Mr. Smith’s word against their suspicion. Proving anything would have taken time that carriers didn’t have because regulators require that claims be paid rapidly. Besides, the claims were always fairly small, too small to waste an investigator's time on. So the carriers (there was more than one over the years) just paid. His car gleaming like new, Mr. Smith then cancelled the comprehensive policy and return to his low dollar liability policy until the need arose again.

We call his shifting back and forth between state minimum and comprehensive insurance ‘policy rocking’. Mr. Smith was a hard-core policy rocker, rocking back and forth for many years (and for all we know is still doing it to another carrier).

But with the right tools carriers can shut down the Policy Rocker’s game. The key is identifying likely ‘rockers’ during the quote and application process using specialized business rules. When the rules fire they initiate a specific intervention process that contacts the consumer or his agent through the carrier's quote system. The suspected ‘rocker' is then asked to take photos of his vehicles using a specially designed web app sent to his smart phone. This app takes the consumer through a secure imaging process while registering the GPS, Date/Time and other data that makes it hard to spoof. We call it idMobile.

But the Mr. Smiths of the world usually don’t get that far because once they realize they've been caught, they go down the street to brand X. Which is just fine by us. We're VeracityID and we build real time fraud identification and intervention tools to stop this kind of dishonest.

To beat rate manipulation, Property and Casualty carriers should watch their customers shop.

Most large personal lines carriers feature on-line quotation systems where consumers can get a quote in as little as three minutes. This has resulted in an explosion in the number of consumer quote requests per policy issued. This in and of itself isn't really a problem but the ability to request and get multiple quotes in a short period of time is is teaching some consumers how easy it is to manipulate their data to get a lower premium. That 'education' and the much higher quote volumes means quite a bit of fraud is getting written into policies. In Auto up to ten percent of net premiums written.

It turns out that you can learn a lot about a consumer simply by watching their online shopping/quoting behavior. 

It's a big problem but the fraudsters have a vulnerability that carriers can target: a digital 'paper trail' of their quote history. The way that unscrupulous consumers figure out what mix of the truth, dishonest and withheld facts yields the lowest premium is by varying key rating factors in a series of quote requests. So if a carrier can retain and track a consumer's quote history and apply the appropriate analytics, they can usually pinpoint where the consumer is 'cheating'.

This is harder than it looks because to effectively police this type of fraud, carriers must 1) track and compare quotes for the same risk over time, 2) identify the manipulation(s), 3) estimate the premium impact and 4) intervene and communicate with the consumer. All during a 3 to 5 minute online quote session. This can only be done with highly automated and synchronized analytical and intervention tools that can identify, intervene and resolve the deception within the short time it takes to generate an online quote. That's where VeracityID comes in. We've built the industry's only end to end fraud identification, intervention and resolution solution specifically designed to identify and eliminate fraud at the beginning, before a policy is bound and a commitment made.