The rise of AI in insurance fraud: fake pics for false claims

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In a world where technological advancements continuously reshape industries, the insurance sector is not immune to the evolving landscape of digital crime. One of the most concerning trends is the use of artificial intelligence (AI) to commit insurance fraud. This sophisticated form of fraud is becoming increasingly prevalent, posing significant challenges to insurers worldwide.

A real-life example

In a notable case that recently came to light, a prisoner and his wife orchestrated a series of fraudulent insurance claims on lost items such as cellphones, laptops, and video cameras. By keeping the value of claimed items under R10,000, the prisoner avoided triggering an assessor’s visit and successfully defrauded insurers for a considerable period.

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This scam, executed while the prisoner was serving a 12-year sentence for previous insurance fraud, highlights the persistent and evolving nature of fraudulent activities.

How AI is Used in Fraud

According to Mishaya Chettiar, Executive Head at Everything.Insure, understanding the techniques fraudsters use is crucial in combating them. “The insurance sector is highly susceptible to financial crime due to its size, diversity, and complexity,” she says. “All it takes is for someone to record a few incorrect details on a claim for fraud to occur.”

Generative AI, a type of artificial intelligence capable of creating content, plays a significant role in these fraudulent activities.

Fraudsters can generate fake images, documents, and even entire backgrounds that appear legitimate. If insurers lack the technology to detect AI-generated content, they risk paying out on these fraudulent claims. Additionally, AI can be used to create fake insurance documents for non-existent items, allowing fraudsters to make false claims after a few premium payments.

The impact of insurance fraud

Many perpetrators view insurance fraud as a victimless crime, believing it only affects wealthy insurance companies. However, as Chettiar points out, this perception is far from reality. “Fraudulent claims impact every single policyholder by driving up overall insurance costs,” she explains. In some cases, insurance premiums have increased by 40 percent or more due to various factors, including falsified claims.

Chettiar also notes that some individuals feel entitled to make fraudulent claims because they have paid into a policy for years without making any claims. However, this mindset undermines the communal nature of insurance. “Insurance is a communal offering,” she says. “For it to work effectively, it’s vital that people play by the rules and don’t try to jimmy the system.”

Combating AI-driven fraud

While technology facilitates the creation of sophisticated fraudulent claims, it is also a crucial tool in combating them. AI and machine learning are instrumental in identifying patterns and anomalies within vast data sets, enabling insurers to detect fraudulent claims more accurately and efficiently. These technologies continuously learn and adapt to new fraudulent tactics, keeping pace with fraudsters.

Organisations like the National Insurance Crime Bureau (NICB) and the South African Insurance Association leverage technological advancements to fight insurance fraud. Their efforts have led to significant progress, as evident in the latest fraudulent claims statistics from ASISA. Despite a substantial rise in fraudulent and dishonest claims in 2022, the losses were limited to R77 million instead of the R1.1 billion it could have been without big data, machine learning, AI, improved data sharing, and enhanced authentication mechanisms such as biometric customer identification.

“Detecting fraud can be costly and resource-intensive,” says Chettiar. “AI, machine learning, and other technologies enhance risk assessments and provide more insight into insurance applicants by analyzing greater data sets. AI can also identify and flag applications created using other AI tools for fraudulent purposes.”

The future of fraud prevention

As technology continues to evolve, fraudsters will find it increasingly challenging to exploit the insurance system. The industry’s commitment to leveraging advanced technologies ensures that those attempting to commit fraud will be caught, protecting honest policyholders and maintaining the integrity of the insurance sector.

In conclusion, while AI presents new opportunities for fraudsters, it also equips insurers with powerful tools to combat fraud. The ongoing battle between fraudsters and insurers underscores the importance of continuous innovation and vigilance in the fight against insurance fraud.

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