Are AI and blockchain solutions enough to combat insurance fraud?

By David Doe FIERGBOR

The insurance industry is experiencing significant growth, fuelled by digital transformation, increasing consumer awareness and the adoption of insurtech solutions. This expansion has led to greater accessibility of insurance products, wider policy distribution and enhanced customer engagement.

However, with this growth comes an escalating challenge: fraudulent claims. Insurance fraud can take many forms, including policyholder deception, agent manipulation and even collusion between insurers and claimants.

These fraudulent activities erode trust in the industry, increase operational costs and inflate premiums for genuine policyholders. As insurtech gains traction, insurers must adopt innovative technology-driven solutions to detect and prevent fraudulent claims while maintaining customer-centric operations.

Moreover, fraudulent activities in insurance not only affect insurers but also impact the credibility of the sector, reducing confidence among prospective policyholders. The growing sophistication of fraud schemes requires a proactive approach, leveraging advanced data analytics, artificial intelligence and digital identity verification systems to safeguard the industry.

A typical insurance fraud involves policyholders purchasing multiple policies under false identities to fraudulently claim death benefits. Fraudsters sometimes exploit weak identity verification processes, using fake documentation or stolen identities to acquire various policies. Family members may also conspire to declare a living individual as deceased to collect payouts, creating a challenge for insurers in verifying death claims.

Additionally, intermediaries such as insurance agents sometimes submit fabricated policy applications to earn commissions, while some engage in syndicates that manipulate claims processing to siphon funds from insurance companies.

Another rising form of fraud involves medical document forgery, where claimants submit falsified hospital reports to justify insurance payouts for critical illness or disability claims. Such fraudulent claims can be difficult to detect without robust digital verification processes, making insurers more susceptible to financial losses. These fraudulent activities present significant financial and reputational risks, making it imperative for insurers to embrace technology in fraud detection and prevention.

Through collaboration with regulatory bodies, investment in fraud detection technology and enhanced industry-wide data sharing, industry players can build resilience against fraudulent activities and ensure long-term sustainability.

AI-powered fraud detection: The game-changer

Traditional fraud detection methods, which rely on manual audits and claims investigations, are often reactive and inefficient, unlike AI-driven fraud detection which leverages machine learning algorithms to analyse historical claim data, detect anomalies and flag suspicious activities in real time.

These models can identify patterns associated with fraudulent claims such that if a policyholder has filed multiple claims in a short period across different insurers, the system can flag such activity for further investigation.

AI models can also analyse policyholder behaviour, social media activity and other digital footprints to verify the authenticity of claims. Moreover, AI-driven fraud detection systems can integrate with predictive analytics to assess potential fraud risks before they materialise. By analysing past fraudulent claim patterns, insurers can proactively implement stricter validation procedures for high-risk profiles.

AI models can continuously refine their accuracy over time, learning from new fraud cases and adjusting their algorithms accordingly. These automated systems significantly reduce human intervention, allowing insurers to focus on genuine claims and enhance customer trust.

One practical implementation of AI in the insurance space is a centralised fraud detection database shared among insurers. This database, powered by AI, can cross-check claim submissions, verify policyholder details and detect duplicate claims across different insurance firms. By fostering industry-wide collaboration, insurers can collectively combat fraudulent claims more effectively.

Additionally, AI-powered chatbots and virtual assistants can help insurers engage with policyholders, verify claims through automated questionnaires and detect inconsistencies in claimant responses. Besides, these models can integrate with other digital tools such as biometric verification and blockchain technology. By combining AI-driven fraud detection with secure digital identity verification systems, insurers can establish a robust fraud mitigation strategy.

This multi-layered approach ensures that fraudulent actors have minimal room to exploit weaknesses within the insurance ecosystem.

Blockchain for tamper-proof records and transparency

Blockchain technology offers another innovative approach to mitigating fraud in the insurance industry as one of the biggest challenges insurers face is document forgery and policyholder identity fraud. Therefore, blockchain’s decentralised and immutable ledger ensures that all transactions, including policy issuance, premium payments and claims processing, are securely recorded and cannot be altered retroactively.

Again, such an ecosystem can create a digital identity for policyholders that links to their biometric data, national identification and claim history. This ensures that insurers can authenticate policyholders accurately and prevent identity-based fraud.

For instance, if a fraudster attempts to claim a life insurance payout using forged documents, the blockchain system can cross-check the claimant’s details against verified records, immediately detecting discrepancies. Furthermore, the models can help reduce opportunities for internal fraud as evidences suggest that some fraudulent claims occur due to collusion between policyholders and insurance agents or adjusters who manipulate claim records for personal gain.

By leveraging blockchain’s tamper-proof nature, insurers can create a verifiable, decentralised record of all transactions, making unauthorised alterations impossible and ensuring that all processes remain fair and traceable.

Moreover, smart contracts could be implemented as an integral part of the model to automate claim verification processes, reducing the risk of human interference and fraudulent payouts. When a policyholder files a claim, the smart contract can automatically validate the claim against predefined conditions and release payouts only if all criteria are met.

This removes the potential for internal fraud and ensures transparency throughout the claims process. These can also accelerate claims settlement, reducing delays caused by lengthy manual reviews and eliminating opportunities for fraudulent interference. Since these contracts execute transactions based on pre-established rules, insurers can ensure that only legitimate claims receive payouts, thereby enhancing customer satisfaction while minimising financial losses.

This could equally be integrated with government databases and third-party identity verification systems to enable real-time validation of policyholder details as well as a secure and transparent system to track policy status and claims history.

Biometric verification for identity authentication

Fraudsters usually exploit gaps in identity verification processes to purchase policies under different names and later file fraudulent claims. This not only results in financial losses for insurers but also undermines the integrity of the industry and drives up premiums for genuine policyholders.

There is, therefore, the need to integrate biometric verification systems into both their underwriting and claims processes to ensure robust identity authentication. Biometric authentication, such as fingerprint and facial recognition, presents a cutting-edge solution to this persistent issue. By linking policies to a policyholder’s biometric data, insurers can effectively eliminate the possibility of duplicate or fictitious policy applications.

This enhances fraud prevention mechanisms while simultaneously streamlining the verification process for customers, reducing paperwork and improving service delivery.

Moreover, biometric verification can serve as a powerful tool in claims processing. When a policyholder or beneficiary submits a claim, their biometric data can be cross-checked against registered records to verify authenticity.

This eliminates the risk of impersonation fraud, where claimants attempt to collect benefits on behalf of deceased policyholders who are, in fact, still alive. Additionally, biometric authentication can prevent fraudulent beneficiaries from making multiple claims on different policies under fabricated identities.

Beyond fraud prevention, the use of biometric authentication minimises delays associated with manual identity verification, expedites claims settlements and fosters greater confidence in the insurance process. With such a system in place, insurers can reduce fraudulent payouts, protect their bottom line and enhance customer trust.

Introducing ‘InsureScan’: A comprehensive fraud prevention solution

To effectively address the menace of the fraudulent claims industry, insurers need a holistic, technology-driven approach. A groundbreaking innovation, ‘InsureScan’, can serve as an all-in-one fraud prevention system combining AI, blockchain and biometric authentication. InsureScan operates as a cloud-based fraud detection and identity verification platform that seamlessly integrates with insurers’ existing systems.

The AI engine continuously monitors claims data, detecting suspicious activities and providing updates with real-time alerts on potential fraud cases. By leveraging machine learning and big data analytics, the AI engine enhances insurers’ ability to detect irregularities and fraudulent behaviours that would otherwise go unnoticed in manual reviews. The platform’s blockchain ledger ensures that all policyholder transactions remain tamper-proof, enhancing transparency and accountability.

Blockchain’s immutable record-keeping eliminates document forgery, while smart contracts ensure that claims are processed based on predefined conditions, reducing the risk of insider fraud.

Additionally, InsureScan’s biometric verification feature prevents identity fraud by linking policies to unique biometric identifiers. By integrating with the national biometric database, the system eliminates duplicate identities, ensuring that each policyholder is uniquely identifiable.

This added layer of security prevents fraudsters from filing multiple claims using falsified identities. Beyond fraud prevention, this system offers a predictive analytics component that helps insurers identify potential fraud risks before they materialise. By analysing behavioural patterns, industry trends and external data sources, insurers can proactively implement risk mitigation strategies.

Furthermore, InsureScan fosters collaboration between insurers, financial institutions and regulatory bodies to create a unified fraud prevention ecosystem. This collective approach ensures that fraudulent activities detected by one insurer can serve as a red flag across the entire industry, significantly reducing overall fraud occurrences.

Conclusion

As fraudsters continue to exploit loopholes in the insurance sector, insurers must move beyond traditional fraud detection methods and embrace technology-driven solutions. AI-powered fraud detection, blockchain for transparency and biometric verification are game-changing innovations that can significantly curb fraudulent claims.

By adopting a comprehensive solution like InsureScan, insurers can create a resilient fraud prevention framework that safeguards their financial assets and builds public trust in the industry.

However, the success of these innovations depends on industry-wide collaboration, regulatory support and continuous technological advancements. By leveraging cutting-edge technology, players in the industry can shift from a reactive to a proactive fraud prevention approach, ensuring a more secure and sustainable insurance market for all stakeholders.

The writer is the Lead, Digital & Partnerships

Banbo Insurance Brokers

Email: [email protected] Tel: 233249915690

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